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you should read “ item 1a . risk factors ” and the “ special note regarding forward‑looking statements ” sections 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 these forward‑looking statements . overview we are an internally managed real estate company that acquires , owns and manages primarily single-tenant properties that are net leased on a long-term basis to middle-market companies operating service-oriented or experience-based businesses . we have a diversified portfolio that focuses on properties leased to tenants in businesses such as restaurants ( including quick service and casual and family dining ) , car washes , automotive services , medical services , convenience stores , entertainment , early childhood education and health and fitness . we acquire and lease freestanding , single-tenant commercial real estate facilities where a tenant services its customers and conducts activities that are essential to the generation of the tenant 's sales and profits . we were organized on january 12 , 2018 as a maryland corporation and intend to qualify to be taxed as a reit beginning with our taxable year ended december 31 , 2018. on june 25 , 2018 , we completed our ipo of 32,500,000 shares of our common stock , $ 0.01 par value per share , at an initial public offering price of $ 14.00 per share , pursuant to a registration statement on form s-11 ( file no . 333-225215 ) , filed with the sec under the securities act . on july 24 , 2018 , we issued an additional 2,772,191 shares of common stock at the ipo price of $ 14.00 per share pursuant to the partial exercise of an option granted to the underwriters of our ipo . net proceeds from the ipo and the issuance of shares to underwriters , after deducting underwriting discounts and commissions and other expenses , were $ 458.7 million . our common stock is listed on the nyse under the ticker symbol “ eprt ” . prior to the completion of the ipo , we engaged in a number of formation transactions designed to facilitate the completion of the ipo ( the “ formation transactions ” ) . among other things , on june 20 , 2018 , eprt llc converted from a delaware limited liability company into a delaware limited partnership , changed its name to essential properties , l.p. ( the “ operating partnership ” ) and became the subsidiary through which we hold substantially all of our assets and conduct our operations . prior to the completion of the formation transactions , eprt llc was a wholly owned subsidiary of eprt holdings ( together with eprt llc , the “ predecessor ” ) , and eprt holdings received 17,913,592 units of limited partnership interest in the operating partnership ( “ op units ” ) in connection with eprt llc 's conversion into a delaware limited partnership . essential properties op g.p. , llc , our wholly owned subsidiary , became the sole general partner of the operating partnership in connection with the completion of our ipo . concurrent with the completion of the ipo , we received an additional $ 125.0 million investment from an affiliate of eldridge in the concurrent private placement of 7,785,611 shares of our common stock and 1,142,960 op units . we contributed the net proceeds from the issuance of the 43,057,802 shares of common stock in our ipo ( inclusive of the shares issued pursuant to the partial exercise by the underwriters of their option to purchase additional shares ) and the concurrent private placement of common stock to eldridge to the operating partnership in exchange for a like number of op units . we generally lease each of our properties to a single tenant on a triple-net , long-term basis , and we generate our cash from operations primarily through the monthly lease payments , or base rent , we receive from the tenants that occupy our properties . as of december 31 , 2018 , we had a portfolio of real estate investments at 677 properties ( inclusive of one undeveloped land parcel and 12 properties which 53 secure our investments in mortgage loans receivable ) that was diversified by tenant , industry and geography , had annualized base rent of $ 106.8 million and was 100.0 % occupied . substantially all of our leases provide for periodic contractual rent escalations . as of december 31 , 2018 , leases contributing 97.1 % of our annualized base rent provided for increases in future annual base rent , generally ranging from 1 % to 4 % annually , with a weighted average annual escalation equal to 1.5 % of base rent . as of december 31 , 2018 , leases contributing 91.9 % of annualized base rent were triple-net , which means that our tenant is responsible for all operating expenses , such as maintenance , insurance , utility and tax expense , related to the leased property ( including any increases in those costs that may occur as a result of inflation ) . our remaining leases were “ double net , ” where the tenant is responsible for certain expenses , such as taxes and insurance , but we retain responsibility for other expenses , generally related to maintenance and structural component replacement that may be required on such leased properties in the future . also , we incur property-level expenses associated with our vacant properties and we occasionally incur nominal property-level expenses that are not paid by our tenants , such as the costs of periodically making site inspections of our properties . since our properties are predominantly single-tenant properties , which are generally subject to long-term leases , it is not necessary for us to perform any significant ongoing leasing activities on our properties . story_separator_special_tag since our occupancy level is high and substantially all of our leases are triple-net , our tenants are generally responsible for the maintenance , insurance and property taxes associated with the properties they lease from us . when a property becomes vacant through a tenant default or expiration of the lease term with no tenant renewal , we incur the property costs not paid by the tenant , as well as those property costs accruing during the time it takes to locate a substitute tenant . as of december 31 , 2018 , excluding one undeveloped land parcel , all of our property locations were occupied and subject to a lease . we expect to incur some property costs from time to time in periods during which properties that become vacant are being marketed for lease . in addition , we may recognize an expense for certain property costs , such as real estate taxes billed in arrears , if we believe the tenant is likely to vacate the property before making payment on those obligations . the amount of such property costs can vary quarter to quarter based on the timing of property vacancies and the level of underperforming properties ; however , we do not anticipate that such costs will be significant to our operations . from time to time , we may also sell properties that no longer meet our long-term investment objectives . our short-term liquidity requirements also include the funding needs associated with seven of our properties where we have agreed to provide construction financing or reimburse the tenant for certain development , construction and renovation costs in exchange for contractually specified interest or rent that generally increases in proportion with our funding . as of december 31 , 2018 , we had agreed to finance or reimburse development , construction or renovation costs in an aggregate amount of $ 34.4 million and , as of the same date , we had funded $ 14.9 million of this commitment . we expect to fund the balance of such commitment by december 31 , 2019. additionally , as of february 22 , 2019 , we were under contract to acquire 20 properties with an aggregate purchase price of $ 40.1 million , subject to completion of our due diligence procedures and customary closing conditions . we expect to meet our short-term liquidity requirements , including our investment in potential future acquisitions , primarily from cash and cash equivalents , net cash from operating activities and borrowings under the revolving credit facility . 55 our long-term liquidity requirements consist primarily of funds necessary to acquire additional properties and repay indebtedness . we expect to meet our long-term liquidity requirements through various sources of capital , including borrowings under the revolving credit facility , net cash from operating activities , future financings , working capital , proceeds from select sales of our properties and other secured and unsecured borrowings ( including potential issuances under the master trust funding program ) . however , at any point in time , there may be a number of factors that could have a material and adverse effect on our ability to access these capital sources , including unfavorable conditions in the overall equity and credit markets , our degree of leverage , our unencumbered asset base , borrowing restrictions imposed by our lenders , general market conditions for reits , our operating performance , liquidity and market perceptions about us . the success of our business strategy will depend , to a significant degree , on our ability to access these various capital sources . an additional liquidity need is funding the distributions that are one of the requirements for qualification for taxation as a reit . during the year ended december 31 , 2018 , our board of directors declared total cash distributions of $ 0.434 per share of common stock . holders of op units are entitled to distributions equivalent to those paid by the company to common stockholders . during the year ended december 31 , 2018 , we paid $ 14.1 million of distributions to common stockholders and op unit holders , and a s of december 31 , 2018 , we recorded $ 13.2 million of distributions payable to common stockholders and op unit holders . to qualify for taxation as a reit , we must make distributions to our stockholders aggregating annually at least 90 % of our reit taxable income , determined without regard to the dividends paid deduction and excluding any net capital gain . as a result of this requirement , we can not rely on retained earnings to fund our business needs to the same extent as other entities that are not reits . if we do not have sufficient funds available to us from our operations to fund our business needs , we will need to find alternative ways to fund those needs . such alternatives may include , among other things , selling properties ( whether or not the sales price is optimal or otherwise meets our strategic long-term objectives ) , incurring additional indebtedness or issuing equity securities in public or private transactions . the availability and attractiveness of the terms of these potential sources of financing can not be assured . description of certain debt master trust funding program scf rc funding i llc , scf rc funding ii llc and scf rc funding iii llc ( collectively , the “ master trust issuers ” ) , all of which are indirect wholly owned subsidiaries of the operating partnership , have issued net-lease mortgage notes payable ( the “ notes ” ) with an aggregate outstanding principal balance of $ 515.1 million as of december 31 , 2018. the notes are secured by all assets owned by the master trust issuers .
| results of operations the following discussion includes the results of the company 's and the predecessor 's operations collectively for the periods presented . comparison of the years ended december 31 , 2018 and 2017 replace_table_token_12_th revenues : rental revenue . rental revenue increased by $ 41.6 million to $ 94.9 million for the year ended december 31 , 2018 as compared to $ 53.4 million for the year ended december 31 , 2017. the increase in rental revenue was primarily due to our acquisition of properties during the years ended december 31 , 2018 and 2017 , which provided $ 19.0 million and $ 22.2 million of additional rental revenue between the comparison periods , net of a reduction in rental revenue due to sale of properties during the comparison periods , and an increase in the net accretion of above- and below- market lease intangibles to revenue of $ 0.3 million between the comparison periods . interest income on loans and direct financing receivables . interest income on loans and direct financing receivables increased by $ 0.4 million for the year ended december 31 , 2018 primarily due to our initial investments in loans receivable during 2018. other revenue . other revenue decreased by $ 0.2 million for the year ended december 31 , 2018 as compared to year ended december 31 , 2017. the decrease in other revenue was primarily due to a $ 0.7 million decrease in lease termination income during the year ended december 31 , 2018 , partially offset 69 by having a full year of expense reimbursement income on two properties that were acquired in september 2017. expenses : interest .
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subject to specified conditions , the credit agreement matures on august 12 , 2020. it is secured by a first priority security interest in certain property and assets , including receivables , inventory , deposit accounts , securities accounts and other personal property of the company and is guaranteed by the company 's domestic subsidiaries . the annual interest rates applicable to loans under the credit agreement are , at the company 's option , equal to a base story_separator_special_tag the following discussion and analysis should be read in conjunction with part ii , item 6 , `` selected financial data '' and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. see `` forward-looking statements '' and part i , item 1a . `` risk factors '' . overview the company is a leading omni-channel sporting goods retailer offering an extensive assortment of authentic , high-quality sports equipment , apparel , footwear and accessories through a blend of dedicated associates , in-store services and unique specialty shop-in-shops . the company also owns and operates golf galaxy , field & stream and other specialty concept stores as well as ecommerce websites at www.dicks.com , www.golfgalaxy.com , www.fieldandstreamshop.com and www.caliastudio.com . the primary factors that have historically influenced the company 's profitability and success have been the growth in its number of stores and selling square footage , the integration of ecommerce with its brick and mortar stores , positive consolidated same store sales , which include the company 's ecommerce business , and its strong gross profit margins . for example , in the last five years , the company has grown from 444 dick 's sporting goods stores at the end of fiscal 2010 to 644 dick 's sporting goods stores at the end of fiscal 2015 . the company 's ecommerce sales penetration to total net sales has increased from 2.8 % in fiscal 2010 to 10.3 % in fiscal 2015. in recent years , the company has innovated its ecommerce sites with enhancements in the customer experience , new releases of its mobile and tablet sites , and development of capabilities that integrate the company 's online presence with its brick and mortar stores , including ship-from-store ; buy-online , pick-up in-store ; return-to-store and multi-faceted marketing campaigns that are consistent across our stores and our ecommerce websites . on average , approximately 80 % of the company 's ecommerce sales are generated within brick and mortar trade areas . the company 's senior management focuses on certain key indicators to monitor the company 's performance including : consolidated same store sales performance – our management considers same store sales to be an important indicator of our current performance . same store sales results are important to leverage our costs , which include occupancy costs , store payroll and other store expenses . same store sales also have a direct impact on our total net sales , cash and working capital . see further discussion of the company 's same store sales in the `` results of operations '' section herein . operating cash flow – cash flow generation supports the general operating needs of the company and funds capital expenditures related to its omni-channel platform , distribution and administrative facilities , costs associated with continued improvement of information technology tools , costs associated with potential strategic acquisitions or investments that may arise from time to time and stockholder return initiatives , including cash dividends and share repurchases . we typically generate significant positive operating cash flows and proportionately higher net income levels in our fiscal fourth quarter in connection with the holiday selling season and in part to sales of cold weather sporting goods and apparel . see further discussion of the company 's cash flows in the `` liquidity and capital resources '' section herein . quality of merchandise offerings – to measure acceptance of its merchandise offerings , the company monitors sell-throughs , inventory turns , gross margins and markdown rates on a department and style level . this analysis helps the company manage inventory levels to reduce cash flow requirements and deliver optimal gross margins by improving merchandise flow and establishing appropriate price points to minimize markdowns . store productivity – to assess store-level performance , the company monitors various indicators , including new store productivity , sales per square foot , store operating contribution margin and store cash flow . 20 story_separator_special_tag and increased penetration of ecommerce sales as compared to the company 's total net sales . every 10 basis point change in merchandise margin would impact earnings before income taxes for fiscal 2015 by approximately $ 7.2 million . selling , general and administrative expenses increased 7 % to $ 1,613.1 million in fiscal 2015 from $ 1,502.1 million in fiscal 2014 , and increased as a percentage of net sales by 15 basis points . fiscal 2015 includes a litigation settlement charge of $ 7.9 million . fiscal 2014 included ( i ) a pre-tax gain on the sale of a gulfstream g650 corporate aircraft of $ 14.4 million , and ( ii ) asset impairment and severance charges related to the company 's golf restructuring of $ 14.3 million and $ 3.7 million , respectively . apart from the enumerated items , selling , general and administrative expenses increased as a percentage of net sales by nine basis points . this increase was primarily driven by higher advertising expenses and planned investments to support the company 's ecommerce initiatives , partially offset by lower incentive compensation expense compared to fiscal 2014. pre-opening expenses increased to $ 34.6 million in fiscal 2015 from $ 30.5 million in fiscal 2014 . pre-opening expenses in any period fluctuate depending on the timing and number of store openings and relocations . story_separator_special_tag net cash from operating , investing and financing activities are discussed further below . the company has a $ 1 billion revolving senior secured credit facility , including up to $ 150 million in the form of letters of credit , in the event further liquidity is needed . under the credit agreement , subject to the satisfaction of certain conditions , the company may request an increase of up to $ 250 million in borrowing availability . the credit agreement is further described within note 7 to the consolidated financial statements . the company generally utilizes its credit agreement for working capital needs based primarily on the seasonal nature of its operating cash flows , with the company 's peak borrowings occurring during its third quarter as the company increases inventory in advance of the holiday selling season . 24 liquidity information for the fiscal periods ended ( dollars in thousands ) : replace_table_token_8_th liquidity information as of the fiscal periods ended ( dollars in thousands ) : replace_table_token_9_th the company intends to allocate capital to invest in its future growth , specifically the development of its omni-channel platform and specialty store concepts , as well as to return capital to stockholders through dividends and share repurchases . capital expenditures – normal capital requirements primarily relate to the development of our omni-channel platform , including new and existing dick 's sporting goods stores and ecommerce technology investments . the company also plans to invest in its specialty store concepts and continuously improve its supply chain and corporate information technology infrastructure . the company has a capital appropriations committee that approves all capital expenditures in excess of certain amounts , and groups and prioritizes all capital projects among required , discretionary and strategic categories . share repurchases – on march 7 , 2013 , the company 's board of directors authorized a five-year share repurchase program of up to $ 1 billion of the company 's common stock . during fiscal 2015 , the company repurchased 7.4 million shares of its common stock for $ 357.3 million . during fiscal 2014 , the company repurchased 4.3 million shares of its common stock for $ 200.0 million . any future share repurchase programs are subject to authorization by our board of directors , and will be dependent upon future earnings , cash flows , financial requirements and other factors . dividends – during the fiscal year ended january 30 , 2016 , the company paid $ 64.7 million of dividends to its stockholders . the declaration of future dividends and the establishment of the per share amount , record dates and payment dates for any such future dividends are subject to authorization by our board of directors , and will be dependent upon future earnings , cash flows , financial requirements and other factors . the company currently believes that cash flows generated by operations and funds available under its credit agreement will be sufficient to satisfy our current capital requirements through fiscal 2016 . other investment opportunities , such as potential strategic acquisitions , share repurchases , investments or store expansion rates in excess of those presently planned , may require additional funding . changes in cash and cash equivalents are as follows : replace_table_token_10_th 25 operating activities operating activities consist primarily of net income , adjusted for certain non-cash items and changes in operating assets and liabilities . adjustments to net income for non-cash items include depreciation and amortization , deferred income taxes , stock-based compensation expense and tax benefits on stock options , as well as non-cash gains and losses on the disposal of the company 's assets . changes in operating assets and liabilities primarily reflect changes in inventories , accounts payable and income taxes payable / receivable , as well as other working capital changes . cash provided by operating activities increased $ 37.5 million in fiscal 2015 to $ 643.5 million . the increase in cash provided by operating activities is due primarily to a $ 52.3 million increase in non-cash items , partially offset by a $ 13.8 million decrease in net income and a $ 1.0 million decrease in cash flows provided by changes in operating assets and liabilities . non-cash items in fiscal 2014 included a gain on sale of a gulfstream g650 corporate aircraft . the decrease in operating assets and liabilities year-over-year is primarily due to the following : changes in income taxes payable / receivable for fiscal 2015 decreased operating cash flows by $ 25.3 million compared to the same period in fiscal 2014 , primarily due to the timing of tax payments . tax payments are impacted year-over-year primarily by the timing of deductions related to capital expenditures and the level of stock option exercises . cash flows provided by changes in inventory and accounts payable decreased $ 24.8 million compared to fiscal 2014 , primarily attributable to the timing of inventory receipts . changes in deferred construction allowances increased operating cash flows by $ 64.0 million compared to last year , primarily due to the timing and increase in the number of self-developed stores where tenant allowances are provided by landlords . investing activities cash used in investing activities for fiscal 2015 increased by $ 67.4 million to $ 372.4 million from fiscal 2014. during fiscal 2014 , the company received $ 73.4 million of proceeds from the sale of a gulfstream g650 corporate aircraft and paid $ 26.3 million to acquire intellectual property rights to the field & stream mark in product categories that were not otherwise owned by the company . additionally , cash used in investing activities were impacted by a $ 21.0 million increase in gross capital expenditures during fiscal 2015 compared to fiscal 2014 , which reflects a higher number of self-developed stores opened by the company in fiscal 2015. financing activities cash used in financing activities consists primarily of the company 's capital return initiatives , including its share repurchase program and cash dividend payments , and cash flows generated from stock option exercises .
| executive summary earnings per diluted share of $ 2.83 in fiscal 2015 was relatively flat compared to earnings per diluted share of $ 2.84 in fiscal 2014. net income for fiscal 2015 totaled $ 330.4 million compared to $ 344.2 million in fiscal 2014. fiscal 2015 net income includes $ 4.7 million , net of tax , or $ 0.04 per diluted share , related to a litigation settlement charge . fiscal 2014 net income included $ 8.7 million , net of tax , or $ 0.07 per diluted share , related to a gain on the sale of a gulfstream g650 corporate aircraft and charges totaling $ 12.2 million , net of tax , or $ 0.10 per diluted share , related to the company 's golf restructuring . net sales increased 7 % to $ 7,271.0 million in fiscal 2015 from $ 6,814.5 million in fiscal 2014 due primarily to the growth of our store network , partially offset by a 0.2 % decrease in consolidated same store sales . ecommerce sales penetration in fiscal 2015 increased to 10.3 % of total net sales compared to 9.2 % in fiscal 2014 . gross profit decreased to 30.02 % in fiscal 2015 as a percentage of net sales from 30.62 % in fiscal 2014 due primarily to lower merchandise margins , occupancy deleverage and higher shipping expenses . in fiscal 2015 , the company : declared and paid aggregate cash dividends of $ 0.55 per share of common stock and class b common stock . repurchased 7.4 million shares of common stock for $ 357.3 million . amended its revolving senior secured credit facility ( the `` credit agreement '' ) to increase lender commitments from $ 500 million to $ 1 billion , reduced applicable margins on base rate and libor rate loans and extended the maturity date to august 12 , 2020. ended the period with no outstanding borrowings under the credit agreement .
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on august 15 , 2016 , the acquisition agreement was executed by trw for acquiring the other 25 % equity in jfd which was a sino foreign joint venture co. that trw had 100 % equity interest with effect on october 5 , 2016. upon the acquisitions of 3 additional prawn farms assets at fair value of $ 238.32 million from respective third parties and the master technology license at fair value of $ 30 million from capital award , inc. by jfd , and the consideration of the above acquisitions were planned to be settled by the new issue shares of 99,990,000 trw shares at $ 3.41 amounting to $ 340.53 million on or before march 31 , 2018. as a result , siaf 's equity interest in trw was diluted from 100 % to 23.89 % with effective on october 5 , 2016. the above transactions leaded the company loss of control over trw group , the company 's investments in trw and jfd were reclassified from a subsidiary to investments in unconsolidated equity investees as of october 5 , 2016. the dilution of the company 's investments in trw group constituted a deemed disposal of the subsidiaries . the deemed gain on disposal of $ 56,947,005 was recorded in net income from discontinued operations of the consolidated statements of income and other comprehensive income of the company for the year ended 31 december 2016. on october 1 , 2016 , the company took up all assets and all liabilities of trw story_separator_special_tag this annual report contains “ forward-looking statements , ” within the meaning of the private securities litigation reform act of 1995 and section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . the company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in section 21e of the exchange act . forward-looking statements can be identified by the use of forward-looking terminology , such as “ estimates , ” “ projects , ” “ plans , ” “ believes , ” “ expects , ” “ anticipates , ” “ intends , ” or the negative thereof or other variations thereon , or by discussions of strategy that involve risks and uncertainties these statements reflect management 's current beliefs and are based on information now available to it . accordingly , these statements are subject to certain risks , uncertainties and contingencies that could cause the company 's actual results , performance or achievements in 2017 and beyond to differ materially from those expressed in , or implied by , such statements . such statements , include , but are not limited to , statements contained in this annual report relating to the company 's business , financial performance , business strategy , recently announced transactions and capital outlook . important factors that could cause actual results to differ materially from those in the forward-looking statements include : a continued decline in general economic conditions nationally and internationally ; decreased demand for our products and services ; market acceptance of our products ; the impact of any litigation or infringement actions brought against us ; competition from other providers and products ; the inability to raise capital to fund continuing operations ; changes in government regulation ; the ability to complete customer transactions , and other factors relating to our industry , our operations and results of operations and any businesses that may be acquired by us . should one or more of these risks or uncertainties materialize , or should the underlying assumptions prove incorrect , actual results may differ significantly from those anticipated , believed , estimated , expected , intended or planned . readers of this annual report should not place undue reliance on any forward-looking statements . except as required by federal securities laws , the company undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties . you should read the following discussion and analysis of the financial condition and results of operations of the company together with the financial statements and the related notes presented herein . description and interpretation and clarification of business category on the consolidated results of the operations the company 's strategy is to manage and operate its businesses under five ( 5 ) business divisions or units on a standalone basis , namely : beef & organic fertilizer division ( marked 1 . ( i ) sjap & qzh ( derecognized as variable interest entity on december 30 , 2017 ) and ( ii ) hsa ) plantation division ( marked 2. jhst ) fishery division ( marked 3. a. ca engineer & technology and 3.b . seafood sales — ( discontinued operation from october 5 , 2016 ) cattle farm division ( marked 4. meiji and jhmc ) corporate & others division ( marked 5. siaf ) a summary of each business division is described below : · 1. beef and organic fertilizer division refers to : ( i ) the operation of our partially owned subsidiary qinghai sanjiang a power agriculture co. , ltd. ( “ sjap ” ) in manufacturing and sales of organic fertilizer , bulk livestock feed , concentrated livestock feed , and the sales of live cattle inclusive of : ( a ) cattle that are not being slaughtered in our own slaughter house operated by qinghai zhong he meat products co. , limited ( “ qzh ” ) are sold live to third party livestock wholesalers , and ( b ) cattle that are sold to qzh and slaughtered and deboned and packed by qzh ; and the sales of meats deboned and packed by qzh that are sold to various meat distributors , wholesalers and super market chains and our own retail butcher stores . story_separator_special_tag while china generally has been successful in meeting its rapidly rising demand for food and grains by increasing domestic production , it has emerged as a leading global importer of several agricultural commodities , including cotton , soybeans , vegetable oils , and animal hides . as its domestic agricultural production has grown , china has also become the largest exporter in global markets for several horticultural products , including mandarin oranges , apples , apple juice , garlic and other vegetables . china 's increasingly important position in global agricultural markets followed decades of gradual growth in domestic food production and consumption . after the introduction of market-based reforms in 1978 that included the elimination of the collective production system and relaxation of government direction over certain farmer production and marketing decisions , chinese agricultural output grew significantly . between 1978 and 2008 , china almost doubled its production of grains ( rice , wheat and corn ) and quadrupled its production of meats ; the production of fruit and milk was about 30 times greater in 2008 than in 1978. during these three decades , population growth of about 1 percent annually , coupled with annual per capita income growth of eight percent , fueled a large increase in demand for more and higher-value agricultural products , especially by china 's large and growing middle class . china 's rapid growth in food consumption was largely met by domestic production growth , enabling it to remain self-sufficient in most major commodities . china 's support for agriculture china 's government support for agriculture is low compared to that of developed countries , such as the united states and european union , but in line with that of other rapidly growing economies , according to usitc . as measured by the oecd 's pse 1 , the amount of support provided to chinese farmers was low ( and sometimes negative ) during the 1990 's , but gradually rose during the period 2008-2010. compared with other countries at a similar level of development , including brazil , mexico , russia , and south africa , china 's support for farmers falls in the middle of the range . china 's pse reflects changes in the central government 's policy priorities from grain self-sufficiency and low consumer prices toward a stronger focus on raising farm household incomes , according to usitc . government support to china 's agricultural sector indicates that chinese policymakers are placing a renewed emphasis on the rural economy . indirect support , in the form of general services , is very high relative to similar support programs in other countries , due largely to investments in agricultural infrastructure . general services include modern research and extension services , food safety agencies , and agricultural price information services , most of which provide benefits to producers and consumers throughout the economy . compared with direct payments to farmers , general services support is less production-distorting to the sector . agricultural consumption china is a major global consumer of agricultural products . it consumes one-third of the world 's rice , one-fourth of all corn , and half of all pork and cotton , and it is the largest consumer of oilseeds and most edible oils . the traditional chinese diet centers around staple foods ( mainly grains and starches ) , which account for nearly half of the daily caloric intake . average chinese per capita consumption recently stabilized at approximately 3,000 calories per day , one of the highest levels among asian countries . 1 oecd : pse is defined as the estimated monetary value of transfers from consumers and taxpayers to farmers , expressed as a percentage of gross farm receipts ( defined as the value of total farm production at farmgate prices ) , plus budgetary support . - 44 - chinese food consumption is influenced by factors such as population size and demographics , income , food prices , and general preferences . per capita income growth and urbanization are the two factors most responsible for altering recent consumption patterns in china . rising income translates into higher per capita food consumption , while increasing urbanization is driving diversification of food choices because of greater availability and choice offered through increasingly diverse sales outlets . chinese consumers generally fall into one of three categories : rural consumers ; urban low-income consumers ; or urban high-income consumers . although urban high-income consumers can afford to buy more and better-quality food , the ubiquity of food outlets in cities means that nearly every urban resident , regardless of income , has available an increasingly diverse food selection . compared to rural diets , urban diets contain less grain and more non-staple items , including processed and convenience foods . rural migrants to cities tend to adopt the urban diet . expenditure on food food is the largest class of household expenditure for all chinese income groups ; even housing takes a smaller share of average household income , according to usitc . as income rises , the absolute amount of food expenditure increases , although the share of income spent on food falls . urban residents spend substantially more on food than their rural counterparts , according to usitc . higher incomes lead to an increase in both the quantity and quality of food demanded . however , while demand for higher quantities of food appears to level off in the top income households , demand for higher-quality foods continues to rise with income . the market for aquatic products and aquaculture in china the information in this section regarding aquatic and aquaculture , including graphs , is taken from the usda 's gain report number : ch12073 per 12/28/2012 unless otherwise stated .
| consolidated results of operations part a. audited income statements of consolidated results of operations for the fiscal year ended december 31 , 2019 , compared to the fiscal year ended december 31 , 2018. a ( 1 ) income statements ( audited ) replace_table_token_6_th - 48 - comparative overview of fy2019 and fy2018 based on results as illustrated in table a ( 1 ) , above : note ( 1 ) to ( 3 ) to table a.1 : ( a ) : information of note ( 1 , 2 & 3 ) sales , cost of sales and gross profit and analysis : the company 's revenues were generated from ( a ) sale of goods and ( b ) consulting and services provided in project and business developments covering technology transfers , engineering , construction , supervision , training , management and technology licensing fees etc . table ( a.2 ) . below reflects segmental break-down figures of sales of goods sold , cost of goods sold , and related gross profit for the twelve months ended december 31 , 2019 and the twelve months ended december 31 , 2018. replace_table_token_7_th the company 's revenues generated from sale of goods increased by $ 3,335,897 or 3 % from $ 130,543,170 for the year ended december 31 , 2018 to $ 133,879,067 for the year ended december 31 , 2019. most segments maintained or reduced their sales revenues and gross profits without much improvements except meiji 's cattle farm segment improved on the sales of asian yellow cattle generated sales of us $ 36.2 million and gross profits of 6.9 million in 2019 compares to sales of us $ 29.6 million and gross profits of us $ 4.8 million in 2018. the company 's cost of goods sold increased by $ 2,434,613 or 2 % from $ 110,967,348 for the year ended december 31 , 2018 to $ 113,401,961 for the year ended december 31 , 2019. the increase was primarily due to the increase of cost of sales in meiji
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the company filed amended tax returns for these years to establish the credits and generated an income tax benefit of $ 885,401. due to the nature of the credits , the company established a reserve under asc 740-10 of $ 165,000. during the year ending june 30 , 2012 the company decreased its reserve for uncertain income tax positions by $ 39,000. as of june 30 , 2012 the company has a long-term accrued income tax liability of $ 126,000. the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes . as of june 30 , 2012 , the company had accrued interest totaling $ 0 and $ 126,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . for the year ended june 30 , 2012 , the company recognized a net income tax benefit of $ 39,000. a reconciliation of the u.s. federal statutory income tax rate to our actual effective tax rate on earnings before income taxes for fiscal 2012 is as follows ( dollars in thousands ) : replace_table_token_4_th liquidity and capital resources the company 's cash on hand combined with proceeds from operating activities during fiscal 2012 were adequate to meet the company 's capital expenditure needs and debt obligations . the company 's primary internal source of liquidity is the cash flow generated from operations . the primary source of external financing is a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017. as of june 30 , 2012 $ 7,757,000 was outstanding under this revolving line of credit . as of june 30 , 2012 , the company 's unused sources of funds consisted principally of $ 2,979,000 in cash and $ 3,243,000 available under its revolving line of credit . 11 on june 29 , 2012 , the company entered into a third amended and restated credit agreement with the company , as the borrower , and hsbc bank usa , national association as lender , administrative agent and collateral agent ( the “ agreement ” ) . prior to closing on june 29 , 2012 , $ 8,600,000 was outstanding under the existing $ 11,100,000 revolving credit facility and $ 12,500,000 was outstanding under the existing term loan . the agreement amended and restated the previous revolving credit facility and term loan and provides for a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017 and two term loans , one for $ 6,000,000 which expires in june 2019 , and one for $ 6,500,000 which expires in june 2017 ( the “ term loans ” ) . repayment of the terms loans commences on september 30 , 2012. the $ 6,000,000 term loan is being repaid with 28 equal , quarterly payments of $ 75,000 and the remaining balance of $ 3,900,000 due on or before the expiration date . the $ 6,500,000 term loan is being repaid in 20 equal , quarterly payments of $ 325,000. the agreement also provides for a libor-based interest rate option of libor plus 2.0 % to 2.75 % , depending on the ratio of outstanding debt to ebitda , which is to be measured and adjusted quarterly , a prime rate-based option of the prime rate plus 0.25 % and other terms and conditions as more fully described in the agreement . in addition , the agreement provides for availability under the revolving credit facility to be limited to the lesser of $ 11,000,000 or the result of a borrowing base formula based upon the company 's accounts receivables and inventory values net of certain deductions . the company 's obligations under the agreement continue to be secured by all of its assets , including but not limited to , deposit accounts , accounts receivable , inventory , the company 's corporate headquarters in amityville , ny , equipment and fixtures and intangible assets . in addition , the company 's wholly-owned subsidiaries , with the exception of the company 's foreign subsidiaries , have issued guarantees and pledges of all of their assets to secure the company 's obligations under the agreement . all of the outstanding common stock of the company 's domestic subsidiaries and 65 % of the common stock of the company 's foreign subsidiaries has been pledged to secure the company 's obligations under the agreement . the agreements contain various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the restated agreement . management believes that current working capital and cash flows from operations as well as borrowing availability under the revolving line of credit described above will be sufficient to fund the company 's operations through at least the first quarter of fiscal 2014. the company takes into consideration a number of factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 , 2012 , the company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business . on april 26 , 1993 , the company 's foreign subsidiary entered into a 99-year land lease of approximately 4 acres of land in the dominican republic , at an annual cost of approximately $ 288,000. on august 18 , 2008 , the company , pursuant to an asset purchase agreement with marks , acquired substantially all of the assets and business for $ 25 million , the repayment of $ 1 million of bank debt and the assumption of current liabilities . the marks business involves the manufacturing and distribution of door-locking devices . the company funded the acquisition with a term story_separator_special_tag the company filed amended tax returns for these years to establish the credits and generated an income tax benefit of $ 885,401. due to the nature of the credits , the company established a reserve under asc 740-10 of $ 165,000. during the year ending june 30 , 2012 the company decreased its reserve for uncertain income tax positions by $ 39,000. as of june 30 , 2012 the company has a long-term accrued income tax liability of $ 126,000. the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes . as of june 30 , 2012 , the company had accrued interest totaling $ 0 and $ 126,000 of unrecognized net tax benefits that , if recognized , would favorably affect the company 's effective income tax rate in any future period . for the year ended june 30 , 2012 , the company recognized a net income tax benefit of $ 39,000. a reconciliation of the u.s. federal statutory income tax rate to our actual effective tax rate on earnings before income taxes for fiscal 2012 is as follows ( dollars in thousands ) : replace_table_token_4_th liquidity and capital resources the company 's cash on hand combined with proceeds from operating activities during fiscal 2012 were adequate to meet the company 's capital expenditure needs and debt obligations . the company 's primary internal source of liquidity is the cash flow generated from operations . the primary source of external financing is a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017. as of june 30 , 2012 $ 7,757,000 was outstanding under this revolving line of credit . as of june 30 , 2012 , the company 's unused sources of funds consisted principally of $ 2,979,000 in cash and $ 3,243,000 available under its revolving line of credit . 11 on june 29 , 2012 , the company entered into a third amended and restated credit agreement with the company , as the borrower , and hsbc bank usa , national association as lender , administrative agent and collateral agent ( the “ agreement ” ) . prior to closing on june 29 , 2012 , $ 8,600,000 was outstanding under the existing $ 11,100,000 revolving credit facility and $ 12,500,000 was outstanding under the existing term loan . the agreement amended and restated the previous revolving credit facility and term loan and provides for a revolving credit facility of $ 11,000,000 ( the “ revolving credit facility ” ) which expires in june 2017 and two term loans , one for $ 6,000,000 which expires in june 2019 , and one for $ 6,500,000 which expires in june 2017 ( the “ term loans ” ) . repayment of the terms loans commences on september 30 , 2012. the $ 6,000,000 term loan is being repaid with 28 equal , quarterly payments of $ 75,000 and the remaining balance of $ 3,900,000 due on or before the expiration date . the $ 6,500,000 term loan is being repaid in 20 equal , quarterly payments of $ 325,000. the agreement also provides for a libor-based interest rate option of libor plus 2.0 % to 2.75 % , depending on the ratio of outstanding debt to ebitda , which is to be measured and adjusted quarterly , a prime rate-based option of the prime rate plus 0.25 % and other terms and conditions as more fully described in the agreement . in addition , the agreement provides for availability under the revolving credit facility to be limited to the lesser of $ 11,000,000 or the result of a borrowing base formula based upon the company 's accounts receivables and inventory values net of certain deductions . the company 's obligations under the agreement continue to be secured by all of its assets , including but not limited to , deposit accounts , accounts receivable , inventory , the company 's corporate headquarters in amityville , ny , equipment and fixtures and intangible assets . in addition , the company 's wholly-owned subsidiaries , with the exception of the company 's foreign subsidiaries , have issued guarantees and pledges of all of their assets to secure the company 's obligations under the agreement . all of the outstanding common stock of the company 's domestic subsidiaries and 65 % of the common stock of the company 's foreign subsidiaries has been pledged to secure the company 's obligations under the agreement . the agreements contain various restrictions and covenants including , among others , restrictions on payment of dividends , restrictions on borrowings and compliance with certain financial ratios , as defined in the restated agreement . management believes that current working capital and cash flows from operations as well as borrowing availability under the revolving line of credit described above will be sufficient to fund the company 's operations through at least the first quarter of fiscal 2014. the company takes into consideration a number of factors in measuring its liquidity , including the ratios set forth below : replace_table_token_5_th as of june 30 , 2012 , the company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business . on april 26 , 1993 , the company 's foreign subsidiary entered into a 99-year land lease of approximately 4 acres of land in the dominican republic , at an annual cost of approximately $ 288,000. on august 18 , 2008 , the company , pursuant to an asset purchase agreement with marks , acquired substantially all of the assets and business for $ 25 million , the repayment of $ 1 million of bank debt and the assumption of current liabilities . the marks business involves the manufacturing and distribution of door-locking devices . the company funded the acquisition with a term
| results of operations fiscal 2012 compared to fiscal 2011 replace_table_token_7_th 13 net sales in fiscal 2012 remained relatively constant at $ 70,928,000 as compared to $ 71,392,000 in fiscal 2011. sales was affected primarily by decreased sales of the company 's marks brand door-locking products ( $ 2,981,000 ) and foreign sales of the company 's intrusion products ( $ 982,000 ) and was partially offset by increases in the company 's domestic intrusion products ( $ 1,773,000 ) , alarm lock brand door locking products ( $ 1,405,000 ) , and access control products ( $ 321,000 ) . the company 's gross profit increased by $ 1,051,000 to $ 21,152,000 or 29.8 % of net sales in fiscal 2012 as compared to $ 20,101,000 or 28.2 % of net sales in fiscal 2011. gross profit and gross profit as a percentage of net sales was primarily affected by a positive shift in product mix in fiscal 2012 as well as reductions in overhead expenses resulting from increases in efficiency in the company 's production planning , procurement and manufacturing processes . selling , general and administrative expenses as a percentage of net sales increased to 24.4 % in fiscal 2012 from 24.1 % in fiscal 2011. selling , general and administrative expenses for fiscal 2012 remained relatively constant at $ 17,341,000 as compared to $ 17,188,000 in fiscal 2011. the increase as a percentage of sales resulted primarily from the slight increase in expenses as well as the slight decrease in net sales . interest expense for fiscal 2012 decreased by $ 511,000 to $ 1,149,000 from $ 1,660,000 for the same period a year ago . the decrease in interest expense is primarily the result of the decrease in interest rates charged by the company 's primary banks as well as the company 's reduction of its outstanding borrowings under its revolving line of credit and its term loan .
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among them , amr must maintain a minimum debt service coverage ratio of 1.25 to 1.0 ( beginning with the twelve-month period ending march 31 , 2017 ) , a maximum debt-to-net worth ratio of 1.0 to 1.0 and a minimum current ratio of 1.5 to 1.0. amr was in compliance with all covenants as of and for the years ending december 31 , 2016 and 2015. amr was in compliance with all but the minimum debt service coverage ratio covenant as of and for each of the three-month periods ended march 31 , june 30 , september 30 and december 31 , 2017. amr has received a waiver for the minimum debt service coverage ratio covenant for each of the three-month periods ended march 31 , june 30 , september 30 and december 31 , 2017. the net proceeds of the loan was deposited into an escrow account at green bank . the funds were released as payment for the building constructed in mccarran , nevada to house amr 's lead acid recycling operation . collateral for this loan is amr 's accounts receivable , goods , equipment , fixtures , inventory , accessions and a certificate of deposit in the amount of $ 1,000,000 . the loan is guaranteed by the united states department of agriculture rural development ( “ usda ” ) , in the amount of 90 % of the principal amount of the loan . the company paid a guarantee fee to the usda in the amount of $ 270,000 at the time of closing and will be required to pay to the usda an annual fee in the amount of 0.50 % of the guaranteed portion of the outstanding principal balance of the loan as of december 31 of each year . notes payable is comprised of the following as of the dates indicated ( in thousands ) : replace_table_token_25_th the thermo fisher financial service obligations relate to capital leases further discussed in note 5 – property and equipment , net . the costs associated with obtaining the green bank story_separator_special_tag story_separator_special_tag that planned for 16 modules , to work with johnson controls on equipment integration and licensing to third parties , to fund working capital needs related to the ramp-up of our operations and to fund our continued losses from operations until such time as we are able to achieve positive cash flow from operations . we intend to seek additional funds through various financing sources , including the sale of our equity and debt securities , licensing fees for our technology , joint ventures with capital partners and or project financing of our recycling facilities . however , there can be no guarantees that such funds will be available on commercially reasonable terms , if at all . results of operations for the fiscal year ended december 31 , 2017 compared to the fiscal year ended december 31 , 2016 we were formed on june 20 , 2014 and did not commence revenue producing operations until january 2017. during the second quarter of 2017 , we began shipments of lead compounds and plastics to customers . the following table summarizes results of operations with respect to the items set forth below for the year ended december 31 , 2017 and 2016 together with the percentage change in those items ( in thousands ) . replace_table_token_4_th as mentioned above , product sales , consisting of lead compounds and plastics began in april 2017. cost of product sales consists of all operating costs incurred at tric following the commencement of product sales . costs incurred at tric prior to commencement of sales are included in research and development costs . cost of product sales includes raw materials , supplies and related costs , salaries and benefits , consulting and outside services costs , depreciation and amortization costs and insurance , travel and overhead costs . there are no comparatives for the previous periods . research and development cost included tric operating cost prior to the commencement of product sales , including cost incurred to prepare our tric plant for operations . during the year ended december 31 , 2017 , research and development costs increased by 28 % over the comparable period in 2016. at december 31 , 2016 , we had 30 employees in the tric facility and we focused on building the plant ( cost included in research and development expense ) . at december 31 , 2017 , we had 41 employees at the tric facility and are focused on recycling lead operations as well as continuing to commission various processes within the plant ( cost included in research and development expense until product sales began , at which point forward they were included in cost of product sales ) . the increase in research and development cost during the year ended december 31 , 2017 versus the prior period is due to increased level of operations and commissioning of our plant in tric . we expect that research and development expenses will decrease from the current level going forward as all the cost related to tric will be included in cost of product sales . general and administrative expense has been relatively consistent during the years ended december 31 , 2017 and december 31 , 2016. the small increase is primarily due to our $ 0.6 million accrual for estimated costs to resolve a claim of breach of a negative covenant in our convertible loan agreement with interstate battery . as described above in note 6 to the condensed consolidated financial statements , in april 2017 , we acquired all of the capital shares of ebonex ipr limited for consideration of $ 2.5 million , consisting of cash , transaction costs and 123,776 shares of our common stock . story_separator_special_tag interest of $ 0.5 million and $ 0.1 million relating to the $ 10.0 million notes payable was capitalized during the years ended december 31 , 2016 and 2015 , respectively , as part of the building cost of the tric facility until its completion , in early november 2016. liquidity and capital resources as of december 31 , 2017 , we had total assets of $ 74.4 million and working capital of $ 21.9 million , and in january 2018 we acquired an additional $ 2.1 million from the exercise of the underwriter 's overallotment option relating to our december 2017 public offering . the following table summarizes our cash used in operating , investing and provided by financing activities ( in thousands ) : replace_table_token_8_th net cash used in operating activities net cash used in operating activities for the year ended december 31 , 2017 , 2016 and 2015 was $ 19.0 million , $ 11.1 million and $ 1.5 million , respectively . net cash used in operating activities during each of these periods consisted primarily of our net loss adjusted for noncash items such as depreciation , amortization , stock-based compensation charges , and noncash charges related the impairment charge ( 2017 ) and to the mark-to-market valuation of our derivative liabilities ( 2015 ) , as well as net changes in working capital . net cash used in investing activities net cash used in investing activities for the year ended december 31 , 2017 , 2016 and 2015 was $ 8.7 million , $ 19.1 million and $ 25.0 million , respectively . net cash used in investing activities during each of these periods consists primarily of purchases of fixed assets related to the build out of our tric recycling facility in nevada , net of changes in restricted cash , and , to a lesser extent , our corporate headquarters during 2016. net cash provided by financing activities net cash provided by financing activities for the year ended december 31 , 2017 primarily consisted of $ 13.8 million net proceeds from the issuance of common stock in our december 2017 public offering , $ 10.5 million net proceeds from the issuance of common stock to johnson controls and $ 1.1 million proceeds from the exercise of stock options partially offset by lease and debt payments . 28 net cash provided by financing activities for the year ended december 31 , 2016 primarily consisted of $ 21.5 million net proceeds from the issuance of common stock in our november 2016 public offering ; $ 9.1 million net proceeds from the issuance of common stock to interstate battery and other investors through our placement agent , national securities corporation ; and $ 4.9 million net proceeds from the interstate battery convertible note . net cash provided by financing activities for the year ended december 31 , 2015 primarily consisted of $ 32.9 million net proceeds from our ipo and $ 9.3 million net proceeds from a loan from green bank . as of the date of this report , we believe that our working capital is sufficient to fund the commissioning and commencement of commercial operations of at least 16 aquarefining modules and our commercial operations at tric through , at least , december 2018 , assuming the successful commercial rollouts of the 16 aquarefining modules . however , we will require additional capital in order to increase production of aquarefined lead at tric beyond that planned for 16 modules , to work with johnson controls on equipment integration and licensing to third parties , to fund working capital needs related to the ramp-up of our operations and to fund our continued losses from operations until such time as we are able to achieve positive cash flow from operations . we intend to seek additional funds through various financing sources , including the sale of our equity and debt securities , licensing fees for our technology , joint ventures with capital partners and or project financing of our recycling facilities . however , there can be no guarantees that such funds will be available on commercially reasonable terms , if at all . if such financing is not available on satisfactory terms , we may be unable to further pursue our business plan and we may be unable to continue operations . additionally , aqua metals reno , or amr , was not in compliance with its the minimum debt service coverage ratio covenant as of and for the three-month periods ended march 31 , june 30 , september 30 , and december 31 , 2017 on its loan from green bank . amr received a waiver for the minimum debt service coverage ratio covenant for the periods ended march 31 , june 30 , september 30 , and december 31 , 2017. while we expect to continue to receive waivers from green bank for non-compliance with such covenant , there is no guarantee that we will receive such waivers . if green bank determines not to grant us a waiver for non-compliance in the future , we would be in default of the loan and green bank would be able to accelerate the payment of all amounts under the loan . in addition , a failure by green bank to provide us with the required waiver could also constitute a default under our $ 5 million loan with interstate battery and allow it to accelerate the payment of all amounts thereunder . as of the date of this report , interstate battery has raised a claim that we are in technical breach of a negative covenant under our $ 5 million loan from interstate battery . the claimed breach relates to our failure to obtain interstate battery 's prior written consent to our acquisition of ebonex ipr , ltd. in the event we are unable to resolve the matter , interstate battery may declare a default under the loan and attempt to accelerate the payment of all amounts thereunder .
| general aqua metals ( nasdaq : aqms ) is reinventing lead recycling with its proprietary aquarefining technology . aquarefining is a room temperature , water-based process that is fundamentally non-polluting . our aquarefining modular systems allow the lead-acid battery industry to simultaneously improve environmental impact and scale recycling production to meet demand . aqua metals is based in alameda , california , and has built its first recycling facility in nevada 's tahoe reno industrial complex . we were formed as a delaware corporation on june 20 , 2014 and since our formation , we have focused our efforts on the development and testing of our aquarefining process , the construction of our initial lead acid battery , or lab , recycling facility in the tahoe regional industrial center , mccarran , nevada ( “ tric ” ) , the continuing development of our lab recycling operations at tric as we bring those lab recycling operations online . we have completed the building construction of our first lab recycling facility at tric and commenced production during the first quarter of 2017. the tric facility will produce recycled lead , consisting of lead compounds , ingoted hard lead and ingoted aquarefined lead as well as plastic . we commenced the shipment of products for sale , consisting of lead compounds and plastics , in april 2017 and to the date of this report all revenue has been derived from the sale of lead compounds and plastics . by december 2017 , we had installed 16 aquarefining modules . however , we encountered an issue which required the retrofitting of all 16 modules . as of the date of this report , we expect to complete the retrofit of all 16 modules by late march or early april and to begin to bring all 16 modules into commercial operation .
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in august of 2005 , we received authorization from our board to purchase 200,000 shares for its share repurchase program . in 2008 , 25,000 shares were repurchased . there were no shares repurchased in 2006 and 2007. at december 31 , 2008 , our outstanding authorization for repurchase of shares is 75,885. the closing price of our stock as of december 31 , 2008 was $ 2.37. at this price , the repurchase of 75,885 shares would require $ 179,847 . 13 we believe that cash , cash equivelents , projected cash flow from operations , and the committed line of credit are sufficient to meet our cash requirements for operations , capital expenditures and common stock redemptions , if any , for 2009. we expect to maintain compliance with the covenants on our committed line of credit throughout 2009. contractual obligations ( in thousands ) replace_table_token_4_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 203,000 square feet of office and warehouse buildings adjacent to our corporate headquarters , printing and manufacturing property . off-balance sheet arrangements the only off-balance sheet arrangements we have are operating leases for equipment and two automobile leases . rental expense under these leases was $ 541 thousand in 2008 , $ 561 thousand in 2007 , and $ 492 thousand in 2006. recently issued accounting standards in september 2006 , the fasb statement 157 , fair value measurements ( sfas 157 ) was issued . this statement establishes a framework for measuring fair value under generally accepted accounting principles ( gaap ) , changes the definition of fair value within that framework , and expands disclosures about the use of fair value measurement . sfas 157 is effective for fiscal years beginning after november 15 , 2007 and interim periods within those fiscal years ; however , the fasb provided a one year deferral for implementation of the standard for nonfinancial assets and liabilities . the adoption of sfas 157 did not have an impact on our consolidated financial statements . in february 2007 , the fasb statement 159 , the fair value option for financial assets and financial liabilities ( sfas 159 ) was issued . this statement permits entities to choose to measure many financial instruments and certain other items at fair value . the objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions . sfas 159 is effective for fiscal years beginning after november 15 , 2007. the adoption of sfas 159 did not have an impact on our consolidated financial statements . in december 2007 , the fasb statement 141r , business combinations ( sfas 141r ) was issued . sfas 141r replaces sfas 141. sfas 141r requires the acquirer of a business to recognize and measure the identifiable assets acquired , the liabilities assumed , and any non-controlling interest in the acquiree at fair value . sfas 141r also requires transaction costs related to the business combination to be expensed as incurred . sfas 141r applies prospectively to business combinations ; the effective date for us will be january 1 , 2009. the impact of applying sfas 141r on future business combinations can not currently be determined . 14 critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized on the accrual basis , which is at the time of shipment of goods or acceptance at the united states postal service . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and generally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred assets at december 31 , 2008 of $ 4.6 million related to new york state tax credits . these credits are subject to certain statutory provisions , such as length of available carry-forward period and minimum tax , which reduces the probability of realization of the full value of such credits . management estimates the amount of credits we are likely to realize in the future based on actual historical realization rates and the statutory carry-forward period . as a result of the analysis performed as of december 31 , 2008 , story_separator_special_tag in august of 2005 , we received authorization from our board to purchase 200,000 shares for its share repurchase program . in 2008 , 25,000 shares were repurchased . there were no shares repurchased in 2006 and 2007. at december 31 , 2008 , our outstanding authorization for repurchase of shares is 75,885. the closing price of our stock as of december 31 , 2008 was $ 2.37. at this price , the repurchase of 75,885 shares would require $ 179,847 . 13 we believe that cash , cash equivelents , projected cash flow from operations , and the committed line of credit are sufficient to meet our cash requirements for operations , capital expenditures and common stock redemptions , if any , for 2009. we expect to maintain compliance with the covenants on our committed line of credit throughout 2009. contractual obligations ( in thousands ) replace_table_token_4_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 203,000 square feet of office and warehouse buildings adjacent to our corporate headquarters , printing and manufacturing property . off-balance sheet arrangements the only off-balance sheet arrangements we have are operating leases for equipment and two automobile leases . rental expense under these leases was $ 541 thousand in 2008 , $ 561 thousand in 2007 , and $ 492 thousand in 2006. recently issued accounting standards in september 2006 , the fasb statement 157 , fair value measurements ( sfas 157 ) was issued . this statement establishes a framework for measuring fair value under generally accepted accounting principles ( gaap ) , changes the definition of fair value within that framework , and expands disclosures about the use of fair value measurement . sfas 157 is effective for fiscal years beginning after november 15 , 2007 and interim periods within those fiscal years ; however , the fasb provided a one year deferral for implementation of the standard for nonfinancial assets and liabilities . the adoption of sfas 157 did not have an impact on our consolidated financial statements . in february 2007 , the fasb statement 159 , the fair value option for financial assets and financial liabilities ( sfas 159 ) was issued . this statement permits entities to choose to measure many financial instruments and certain other items at fair value . the objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions . sfas 159 is effective for fiscal years beginning after november 15 , 2007. the adoption of sfas 159 did not have an impact on our consolidated financial statements . in december 2007 , the fasb statement 141r , business combinations ( sfas 141r ) was issued . sfas 141r replaces sfas 141. sfas 141r requires the acquirer of a business to recognize and measure the identifiable assets acquired , the liabilities assumed , and any non-controlling interest in the acquiree at fair value . sfas 141r also requires transaction costs related to the business combination to be expensed as incurred . sfas 141r applies prospectively to business combinations ; the effective date for us will be january 1 , 2009. the impact of applying sfas 141r on future business combinations can not currently be determined . 14 critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized on the accrual basis , which is at the time of shipment of goods or acceptance at the united states postal service . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and generally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred assets at december 31 , 2008 of $ 4.6 million related to new york state tax credits . these credits are subject to certain statutory provisions , such as length of available carry-forward period and minimum tax , which reduces the probability of realization of the full value of such credits . management estimates the amount of credits we are likely to realize in the future based on actual historical realization rates and the statutory carry-forward period . as a result of the analysis performed as of december 31 , 2008 ,
| overview mod-pac 's plan for growing revenue and returning to profitability is by continuing to gain market share in custom folding cartons , implementing reductions to our cost structure where feasible and pursuing growth in the specialty print and direct mail market . we continue to pursue growth from existing custom folding carton customer relationships and development of business through new customers in markets that have requirements characterized by high product variability , short production cycle times and variable print run quantities . we also continue to work on managing costs including enhancing productivity in operations , tightening management of labor costs , reducing paperboard waste and heightening controls on equipment and facility maintenance programs . in 2008 , we consolidated all of our operations into one facility . this involved the relocation of our personalized print operation and a portion of our stock packaging operation . during 2008 , we also moved our information technology infrastructure in-house . during 2007 , we purchased the assets of ddm digital imaging , data processing and mailing services lc ( ddm ) , which resulted in additional capabilities for us including variable print , mailing and fulfillment . we plan to grow our print services sales through our dealer network , strategic partnerships with access to certain direct niche customers , targeted direct customers , our personalized print on-line store , www.partybasics.com , and our retail outlet store located within our facility . revenue 2008 compared with 2007 for fiscal 2008 , revenue was $ 48.9 million compared with $ 48.2 million in 2007 , an increase of $ 0.7 million or 1.5 % . the custom folding cartons product line had sales of $ 30.6 million in 2008 , an increase of 5.7 % from 2007 , mainly attributable to meaningful sales growth with one new large customer and additional sales to existing customers . this growth was partially offset by declines from customers that slowed spending due to the current economic climate .
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these solutions are deployed by some of the world 's largest service providers , distributed enterprises and small and medium-sized businesses , public and private enterprises , and millions of individual users worldwide . our success depends upon our ability to increase unit volume and market share through the introduction of new products and succeeding generations of products having lower selling prices and increased functionality as compared to both the prior generation of a product and to the products of competitors . an important part of our strategy is to reduce the cost of each succeeding product generation and then lower the product 's selling price based on the cost savings achieved in order to gain market share and or improve gross margins . as a part of this strategy , we seek in most instances to be a high-quality , low-cost provider of products in our markets . our success to date is attributable in large measure to our ability to design our products initially with a view to their subsequent redesign , allowing both increased functionality and reduced manufacturing costs in each succeeding product generation . this strategy enables us to sell succeeding generations of products to existing customers , while increasing our market share by selling these enhanced products to new customers . our three major product categories are carrier systems , business networking and loop access . carrier systems products are used by communications service providers to provide data , voice , and video services to consumers and enterprises . this category includes the following product areas and related services : broadband access total access ® 5000 series of multi-service access node ( msan ) hix 5600 series of msans total access 1100/1200 series of fiber to the node ( fttn ) products hix 1100 series of fiber to the node ( fttn ) products vdsl2 vectoring based digital subscriber line access multiplexer ( dslam ) products adtran 500 series of fttdp g.fast distribution point units ( dpu ) optical optical networking edge ( one ) netvanta 8000 series of fiber ethernet access devices ( ead ) netvanta 8400 series of 10gig multi-service edge switches opti-6100 and total access 3000 optical multi-service provisioning platforms ( mspp ) pluggable optical products , including sfp , xfp , and sfp+ time division multiplexed ( tdm ) systems business networking products provide access to communication services and facilitate the delivery of cloud connectivity and enterprise communications to the small and mid-sized enterprise ( sme ) market . this category includes the following product areas and related services : internetworking products total access ip business gateways optical network terminals ( onts ) bluesocket® virtual wireless lan ( vwlan® ) netvanta® access routers enterprise session border controllers ( esbc ) managed ethernet switches ip business gateways unified communications ( uc ) solutions carrier ethernet network terminating equipment ( nte ) carrier ethernet routers and gateways network management solutions 28 loop access products are used by carrier and enterprise customers for access to copper-based communications networks . this category includes the following product areas and related services : high bit-rate digital subscriber line ( hdsl ) products digital data service ( dds ) integrated services digital network ( isdn ) products t1/e1/t3 channel service units/data service units ( csus/dsus ) tracer fixed-wireless products in addition , we identify subcategories of product revenues , which we divide into core products and legacy products . our core products consist of broadband access and optical products ( included in carrier systems ) and internetworking products ( included in business networking ) . our legacy products include hdsl products ( included in loop access ) and other products not included in the aforementioned core products . many of our customers are migrating their networks to deliver higher bandwidth services by utilizing newer technologies . we believe that products and services offered in our core product areas position us well for this migration . despite occasional increases , we anticipate that revenues of many of our legacy products , including hdsl , will decline over time ; however , revenues from these products may continue for years because of the time required for our customers to transition to newer technologies . sales were $ 630.0 million in 2014 compared to $ 641.7 million in 2013 and $ 620.6 million in 2012. total sales of products in our three core areas , broadband access , optical and internetworking , increased 2.8 % in 2014 compared to 2013 and increased 8.9 % in 2013 compared to 2012. our gross profit margin was 49.4 % in 2014 compared to 48.1 % in 2013 and 51.0 % in 2012. net income was $ 44.6 million in 2014 compared to $ 45.8 million in 2013 and $ 47.3 million in 2012. earnings per share , assuming dilution , were $ 0.80 in 2014 compared to $ 0.77 in 2013 and $ 0.74 in 2012. earnings per share in 2014 , 2013 and 2012 include the effect of the repurchase of 3.7 million , 5.6 million and 1.8 million shares of our stock in those years , respectively . our operating results have fluctuated on a quarterly basis in the past , and may vary significantly in future periods due to a number of factors , including customer order activity and backlog . backlog levels vary because of seasonal trends , the timing of customer projects and other factors that affect customer order lead times . many of our customers require prompt delivery of products . this requires us to maintain sufficient inventory levels to satisfy anticipated customer demand . if near-term demand for our products declines , or if potential sales in any quarter do not occur as anticipated , our financial results could be adversely affected . operating expenses are relatively fixed in the short term ; therefore , a shortfall in quarterly revenues could significantly impact our financial results in a given quarter . story_separator_special_tag the objective of our long-term investment policy is principal preservation and total return ; that is , the aggregate return from capital appreciation , dividend income , and interest income . these objectives are achieved through investments with appropriate diversification in fixed and variable rate income securities , public equity , and private equity portfolios . our investment policy provides limitations for issuer concentration , which limits , at the time of purchase , the concentration in any one issuer to 5 % of the market value of our total investment portfolio . we have experienced significant volatility in the market prices of our publicly traded marketable equity securities . these investments are recorded on the consolidated balance sheets at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income , net of tax . the ultimate realized value on these marketable equity securities is subject to market price volatility . 30 we have categorized our cash equivalents held in money market funds and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows : level 1 values based on unadjusted , quoted prices in active markets for identical assets or liabilities ; level 2 values based on inputs other than quoted prices included within level 1 that are directly or indirectly observable for the asset or liability ; level 3 values based on unobservable inputs for the asset or liability . these inputs include information supplied by investees . at december 31 , 2014 , we categorized $ 54.5 million and $ 241.5 million of our available-for-sale investments as level 1 and level 2 , respectively , and $ 1.2 million of our cash equivalents as level 1. at december 31 , 2013 , we categorized $ 53.6 million and $ 311.5 million of our available-for-sale investments as level 1 and level 2 , respectively , and $ 3.9 million of our cash equivalents as level 1. we review our investment portfolio for potential other-than-temporary declines in value on an individual investment basis . we assess , on a quarterly basis , significant declines in value which may be considered other-than-temporary and , if necessary , recognize and record the appropriate charge to write-down the carrying value of such investments . in making this assessment , we take into consideration qualitative and quantitative information , including but not limited to the following : the magnitude and duration of historical declines in market prices , credit rating activity , assessments of liquidity , public filings , and statements made by the issuer . we generally begin our identification of potential other-than-temporary impairments by reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25 % or more for six or more consecutive months . we then evaluate the individual security based on the previously identified factors to determine the amount of the write-down , if any . for the years ended december 31 , 2014 , 2013 and 2012 , we recorded charges of $ 0.1 million , $ 25 thousand and $ 0.7 million , respectively , related to the other-than-temporary impairment of certain publicly traded equity securities and our deferred compensation plan assets . actual losses , if any , could ultimately differ from these estimates . future adverse changes in market conditions or poor operating results of underlying investments could result in additional losses that may not be reflected in an investment 's current carrying value , thereby possibly requiring an impairment charge in the future . see note 4 of notes to the consolidated financial statements in this report for more information about our investments . we also invest in privately held entities and private equity funds and record these investments at cost . we review these investments periodically in order to determine if circumstances ( both financial and non-financial ) exist that indicate that we will not recover our initial investment . impairment charges are recorded on investments having a cost basis that is greater than the value that we would reasonably expect to receive in an arm 's length sale of the investment . we have not been required to record any impairment losses relating to these investments in 2014 , 2013 or 2012. for purposes of determining the estimated fair value of our stock option awards on the date of grant , we use the black-scholes model . this model requires the input of certain assumptions that require subjective judgment . these assumptions include , but are not limited to , expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors . because our stock option awards have characteristics significantly different from those of traded options , and because changes in the input assumptions can materially affect the fair value estimate , the existing model may not provide a reliable single measure of the fair value of our stock option awards . for purposes of determining the estimated fair value of our performance-based restricted stock unit awards on the date of grant , we use a monte carlo simulation valuation method . the restricted stock units are subject to a market condition based on the relative total shareholder return of adtran against all of the companies in the nasdaq telecommunications index and vest at the end of a three-year performance period . the fair value of restricted stock issued to our directors is equal to the closing price of our stock on the date of grant . management will continue to assess the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation . circumstances may change and additional data may become available over time , which could result in changes to these assumptions and methodologies and thereby materially impact our fair value determination .
| results of operations the following table presents selected financial information derived from our consolidated statements of income expressed as a percentage of sales for the years indicated . replace_table_token_9_th 33 acquisition expenses on may 4 , 2012 , we closed on the acquisition of the nsn bba business . acquisition related expenses , amortizations and adjustments for the years ended december 31 , 2014 , 2013 and 2012 for this transaction is as follows : replace_table_token_10_th the acquisition related expenses , amortizations and adjustments above were recorded in the following consolidated statements of income categories for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_11_th 34 2014 compared to 2013 sales our sales decreased 1.8 % from $ 641.7 million in 2013 to $ 630.0 million in 2014. the decrease in sales is primarily attributable to a $ 27.2 million decrease in sales of our hdsl and other legacy products and a $ 12.2 million decrease in sales of our internetworking products , partially offset by a $ 27.9 million increase in sales of our broadband access products . carrier networks sales increased 1.9 % from $ 500.7 million in 2013 to $ 510.4 million in 2014. the increase in sales is primarily attributable to increases in sales of broadband access products , internetworking products , and optical products , partially offset by a decrease in sales of our hdsl and other legacy products . the increase in sales of our broadband access products is primarily attributable to an increase in hix product sales in the emea region . the increase in sales of our internetworking products is primarily attributable to increases in carrier ethernet sales and fttp ont sales to carriers in north america .
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operations review — an analysis of our company 's consolidated results of operations for the three years presented in our consolidated financial statements liquidity and capital resources — an analysis of cash flows ; aggregate contractual obligations and an overview of financial position . general information we operate in the adult nightclub industry : 1. we own and or operate upscale adult nightclubs serving primarily businessmen and professionals . our nightclubs are in houston , austin , san antonio , dallas , fort worth , beaumont , longview , harlingen , edinburg , abilene , lubbock , el paso and odessa , texas ; charlotte , north carolina ; minneapolis , minnesota ; new york , new york ; miami gardens , florida ; philadelphia , pennsylvania , phoenix , arizona and indianapolis , indiana . no sexual contact is permitted at any of our locations . 2. we own a media division , including the leading trade magazine serving the multi-billion dollar adult nightclubs industry . as part of the transaction we also acquired two industry trade shows , two other industry trade publications and more than 25 industry websites . our nightclub revenues are derived from the sale of liquor , beer , wine , food , merchandise , cover charges , membership fees , independent contractors ' fees , commissions from vending and atm machines , valet parking and other products and services . media revenues include sale of advertising content and revenues from an annual expo convention . our fiscal year end is september 30. our goal is to use our company 's assets — our brands , financial strength and the talent and strong commitment of our management and associates — to become more competitive and to accelerate growth in a manner that creates value for our shareholders . critical accounting policies management 's discussion and analysis of financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) . gaap consists of a set of standards issued by the fasb and other authoritative bodies in the form of fasb statements , interpretations , fasb staff positions , emerging issues task force consensuses and american institute of certified public accountants statements of position , among others . the fasb recognized the complexity of its standard-setting process and embarked on a revised process in 2004 that culminated in the release on july 1 , 2009 of the accounting standards codification ( “ asc ” ) . the asc does not change how company accounts for its transactions or the nature of related disclosures made . rather , the asc results in changes to how the company references accounting standards within its reports . this change was made effective by the fasb for periods ending on or after september 15 , 2009. the company has updated references to gaap in this annual report on form 10-k to reflect the guidance in the asc . the preparation of these consolidated financial statements requires our 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 . on a regular basis , we evaluate these estimates , including investment impairment . these estimates are based on management 's historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates . accounts and notes receivable trade accounts receivable for the nightclub operation is primarily comprised of credit card charges , which are generally converted to cash in two to five days after a purchase is made . the media division 's accounts receivable is primarily comprised of receivables for advertising sales and expo registration . the company 's accounts receivable , other is comprised of employee advances and other miscellaneous receivables . the long-term portion of notes receivable are included in other assets in the accompanying consolidated balance sheets . the company recognizes interest income on notes receivable based on the terms of the agreement and based upon management 's evaluation that the notes receivable and interest income will be collected . the company recognizes allowances for doubtful accounts or notes when , based on management judgment , circumstances indicate that accounts or notes receivable will not be collected . inventories inventories include alcoholic beverages , food , and company merchandise . inventories are carried at the lower of cost , average cost , which approximates actual cost determined on a first-in , first-out ( “ fifo ” ) basis , or market . 19 property and equipment property and equipment are stated at cost . provisions for depreciation and amortization are made using straight-line rates over the estimated useful lives of the related assets and the shorter of useful lives or terms of the applicable leases for leasehold improvements . buildings have estimated useful lives ranging from 29 to 40 years . furniture , equipment and leasehold improvements have estimated useful lives between five and 40 years . expenditures for major renewals and betterments that extend the useful lives are capitalized . expenditures for normal maintenance and repairs are expensed as incurred . the cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the accounts and any gains or losses are charged or credited in the accompanying consolidated statement of income of the respective period . goodwill and intangible assets fasb asc 350 , intangibles - goodwill and other addresses the accounting for goodwill and other intangible assets . under fasb asc 350 , goodwill and intangible assets with indefinite lives are no longer amortized , but reviewed on an annual basis for impairment . definite lived intangible assets are amortized on a straight-line basis over their estimated lives . fully amortized assets are written-off against accumulated amortization . story_separator_special_tag there are no unrecognized tax benefits to disclose in the notes to the consolidated financial statements . put options in certain situations , the company issues restricted common shares as partial consideration for acquisitions of certain businesses or assets . pursuant to the terms and conditions of the governing acquisition agreements , the holder of such shares has the right , but not the obligation , to put a fixed number of the shares on a monthly basis back to the company at a fixed price per share . the company may elect during any given month to either buy the monthly shares or , if management elects not to do so , the holder can sell the monthly shares in the open market , and any deficiency between the amount which the holder receives from the sale of the monthly shares and the agreed fixed price of the shares will be paid by the company . the company has accounted for these shares in accordance with the guidance established by fasb asc 480 , distinguishing liabilities from equity , as a reclassification of the value of the shares from permanent to temporary equity . as the shares become due , the company transfers the value of the shares back to permanent equity , less any amount paid to the holder . also see “ derivative financial instruments ” above . earnings ( loss ) per common share the company computes earnings ( loss ) per share in accordance with fasb asc 260 , earnings per share . fasb asc 260 provides for the calculation of basic and diluted earnings per share . basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period . diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the company . potential common stock shares consist of shares that may arise from outstanding dilutive common stock options and warrants ( the number of which is computed using the “ treasury stock method ” ) and from outstanding convertible debentures ( the number of which is computed using the “ if converted method ” ) . diluted eps considers the potential dilution that could occur if the company 's outstanding common stock options , warrants and convertible debentures were converted into common stock that then shared in the company 's earnings ( loss ) ( as adjusted for interest expense , that would no longer occur if the debentures were converted ) . stock options the company has adopted the fair value recognition provisions of fasb asc 718 , compensation—stock compensation . the compensation cost recognized for the years ended september 30 , 2012 , 2011 and 2010 was $ 314,761 , $ 8,254 and $ 405,229 , respectively . there were zero , 25,000 and 20,000 stock options exercises for the years ended september 30 , 2012 , 2011 and 2010 , respectively . 21 story_separator_special_tag generate cash flow , excluding some recurring charges that are included in the most directly comparable measures calculated and presented in accordance with gaap . relative to each of the non-gaap financial measures , we further set forth our rationale as follows : non-gaap operating income and non-gaap operating margin . we exclude from non-gaap operating income and non-gaap operating margin amortization of intangibles , gains and losses from asset sales , stock-based compensation charges , litigation and other one-time legal settlements and acquisition costs . we believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations . 23 non-gaap net income and non-gaap net income per basic share and per diluted share . we exclude from non-gaap net income and non-gaap net income per diluted share and per basic share amortization of intangibles , income tax expense , impairment charges , gains and losses from asset sales , stock-based compensation , litigation and other one-time legal settlements and acquisition costs , and include the non-gaap provision for income taxes , because we believe that excluding such measures helps management and investors better understand our operating activities . adjusted ebitda . we exclude from adjusted ebitda depreciation expense , amortization of intangibles , income tax , interest expense , interest income , gains and losses from asset sales , acquisition costs , litigation and other one-time legal settlements and impairment charges because we believe that adjusting for such items helps management and investors better understand operating activities . adjusted ebitda provides a core operational performance measurement that compares results without the need to adjust for federal , state and local taxes which have considerable variation between domestic jurisdictions . also , we exclude interest cost in our calculation of adjusted ebitda . the results are , therefore , without consideration of financing alternatives of capital employed . we use adjusted ebitda as one guideline to assess our unleveraged performance return on our investments . adjusted ebitda is also the target benchmark for our acquisitions of nightclubs . our adjusted ebitda does not include interest expense , income taxes , depreciation , amortization and impairment charges . because we have borrowed money in order to finance our operations , interest expense is a necessary element of our costs and our ability to generate revenues . because we use capital assets , depreciation , amortization and impairment charges are also necessary elements of our costs . also , the payment of income taxes is a necessary element of our operations . therefore , any measures that exclude these elements have material limitations . to compensate for these limitations , we believe that it is appropriate to consider both net earnings ( loss ) determined under gaap , as well as adjusted ebitda , non-gaap net income and non-gaap operating income , to evaluate our performance .
| operations review results of operations for the fiscal year ended september 30 , 2012 as compared to the fiscal year ended september 30 , 2011 for the fiscal year ended september 30 , 2012 , we had consolidated total revenues of $ 95.2 million , compared to consolidated total revenues of $ 83.5 million for the year ended september 30 , 2011. this was an increase of $ 11.7 million or 14.0 % . the increase in total revenues was primarily due to revenues generated in our new clubs acquired in 2012 ( $ 4.3 million in 2012 ) , a full year of revenues from clubs purchased in 2011 ( increase of $ 4.0 million ) and increases in revenues from certain of our existing clubs , especially from our new york location . revenues from nightclub operations for same-location same-period increased by 4.2 % . our operating margin ( income ( loss ) from operations plus impairment of assets , divided by total revenues ) was 17.7 % for the year ended september 30 , 2012 compared to 22.5 % for the prior year . our income from operations for our nightclub operations for the same-location-same-period decreased by 1.4 % . our net income ( loss ) was $ 7.6 million for the fiscal year ended september 30 , 2012 compared to $ 7.8 million for the previous year . the decrease in our net income was primarily a result of certain one-time litigation and other legal settlements in 2012 , offset by a growth in the operations . following is a comparison of the company 's income statement for the years ended september 30 , 2012 and 2011 with percentages compared to total revenue : following is an explanation of significant variances in the above amounts . replace_table_token_6_th 22 other revenues include atm commissions earned , video games and other vending and certain promotion fees charged to our entertainers .
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you should read this discussion in conjunction with our consolidated financial statements , the notes thereto and other financial information included elsewhere in this annual report . our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . capitalized terms used , but not defined , in this management 's discussion and analysis of financial condition and results of operations ( `` md & a '' ) have the same meanings as in such notes . overview we are principally engaged in the acquisition , ownership , development , redevelopment , management and leasing of diversified retail and mixed-use properties throughout the united states . as of december 31 , 2020 , our portfolio consisted of interests in 183 properties totaling approximately 26.5 million square feet of gla , including 158 wholly owned properties totaling approximately 24.5 million square feet of gla across 41 states and puerto rico , and interests in 25 unconsolidated properties totaling approximately 1.9 million square feet of gla across 13 states that are owned in unconsolidated entities . the company 's mission is to create long-term value for our shareholders by unlocking the value of our portfolio through re-leasing , redevelopment , formation of strategic partnerships or other bespoke solutions . in doing so , we target meaningful growth in noi and diversification of our tenant base while transforming our portfolio from one with a single-tenant retail and enclosed shopping center orientation to a diversified portfolio , including residential , biotechnology , office , open-air shopping and other uses . in order to achieve our objective , we intend to execute the following strategies : maximize value of vast land holdings through retail and mixed-use accretive densification ; convert single-tenant buildings into multi-tenant properties at meaningfully higher rents leverage existing and future joint venture relationships with leading real estate and financial partners ; and maintain a flexible capital structure to support value creation activities . since inception , and excluding 17 projects that have been sold , we have completed or substantially completed 51 redevelopment projects and , as of december 31 , 2020 , we had an additional 15 projects in various stages of redevelopment , with the remaining commenced projects on hold due to adverse conditions resulting from the novel coronavirus ( “ covid-19 ” ) pandemic . as of december 31 , 2020 , including our proportional share of unconsolidated properties , we had 6.2 million square feet of gla leased to diversified tenants under in-place leases , 2.4 million square feet of gla leased to diversified tenants under signed not yet opened leases , and 17.9 million square feet of gla available for lease and or redevelopment . on october 15 , 2018 , sears holdings and certain of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the united states code with the bankruptcy court . subsequently , the company and holdco , an affiliate of esl investments , inc. , executed the holdco master lease with respect to 51 wholly owned properties , which became effective on march 12 , 2019 , when the bankruptcy court issued an order approving the rejection of the original master lease . as of december 31 , 2020 , after giving effect to the pending termination of the holdco master lease at the five remaining properties , the company does not lease any properties to holdco under the holdco master lease . edward s. lampert is the chairman and chief executive officer of esl investments , inc. , which owns holdco . mr. lampert is also the chairman of seritage and controls each of the tenant entities that is a party to the holdco master lease . - 42 - covid-19 pandemic the covid-19 pandemic continues to have a significant impact on the real estate industry in the united states , including our properties . as of december 31 , 2020 , we had collected 93 % of rental income for the three months ended december 31 , 2020 , and agreed to defer an additional 4 % . as of march 5 , 2021 , we had also collected 95 % of january and february 2021 rental income , and agreed to defer an additional 2 % . while we intend to enforce our contractual rights under our leases , there can be no assurance that tenants will meet their future obligations or that additional rental modification agreements will not be necessary . we continue to maintain a cautious approach as we respond to the evolving covid-19 pandemic with an emphasis on managing our cash resources and preserving the value of our assets and our platform . we expect to continue monetizing appropriate assets and selectively allocating capital to the assets with opportunistic risk-adjusted returns in our portfolio . as a result of the fluidity and uncertainty surrounding the nation 's response to and limitations as a result of the pandemic , we expect that conditions will change , potentially significantly , in future periods and , as such , results for the year then ended december 31 , 2020 may not be indicative of the company 's business results for future periods . as such , we can not reasonably estimate the impact of covid-19 on our financial condition , results of operations or cash flows over the foreseeable future . asset sales and joint ventures during the year ended december 31 , 2020 , the company sold 27 properties , plus additional outparcels , totaling 4.2 million square feet and generated gross proceeds of $ 333.4 million and also entered into an unconsolidated entity that generated an additional $ 27.0 million of gross proceeds . the company also sold the 50 % interests in three properties held in unconsolidated entities for gross proceeds of $ 35.9 million in gross proceeds and the company also completed a sale-leaseback transaction for one property for gross proceeds of $ 21.0 million . subsequent to december 31 , 2020 , we sold four wholly owned properties for gross proceeds of $ 46.9 story_separator_special_tag as of december 31 , 2020 , we had sold 69 wholly owned properties , and additional outparcels at certain properties , and generated approximately $ 591.4 million of gross proceeds since we began our capital recycling program in july 2017. subsequent to december 31 , 2020 , we sold four wholly owned properties for gross proceeds of $ 46.9 million . as of march 9 , 2021 , we had assets under contract to sell for total anticipated proceeds of $ 66.0 million , subject to buyer diligence and closing conditions ; sales of interests in unconsolidated properties . as of december 31 , 2020 , we had sold our interests in 15 unconsolidated properties and generated approximately $ 278.1 million of gross proceeds since july 2017. certain of our unconsolidated entity agreements also include rights that allow us to sell our interests in select unconsolidated properties to our partners at fair market value ; new unconsolidated entities . as of december 31 , 2020 , we had contributed interests in 11 properties to unconsolidated entities , which generated approximately $ 212.4 million of gross proceeds since july 2017. in addition to generating liquidity upon closing , these entities also reduce our development expenditures by the amount of our partners ' interests in the unconsolidated entities ; unconsolidated entities debt . we may incur property-level debt in new or existing unconsolidated entities , including construction financing for properties under development and longer-term mortgage debt for stabilized properties ; and other credit and capital markets transactions . we may raise additional capital through the public or private issuance of debt securities , common or preferred equity or other instruments convertible into or exchangeable for common or preferred equity . in response to the covid-19 pandemic , we have taken a number of actions to manage our cash resources , including keeping many of our construction projects on hold , reducing operating and corporate expenses , and amending certain terms of our term loan facility , as described below . as previously disclosed , on may 5 , 2020 , the operating partnership and berkshire hathaway entered into an amendment ( the “ term loan amendment ” ) to the term loan agreement by and among the operating partnership and berkshire hathaway as initial lender and administrative agent that permits the deferral of payment of interest under the term loan agreement . additionally , the term loan amendment provides that the administrative agent and the lenders express their continued support for asset dispositions , subject to the administrative agent 's right to approve the terms of individual transactions due to the occurrence of a financial metric trigger event , as such term is defined under the term loan agreement . our term loan facility includes a $ 400.0 million incremental funding facility ( as defined below ) , access to which is subject to rental income from non-sears holdings tenants of at least $ 200.0 million , on an annualized basis and after giving effect to sno leases expected to commence rent payment within 12 months , which we have not yet achieved . the timing of our ability to access the incremental funding facility , if at all , will be adversely impacted by the covid-19 pandemic . the availability of liquidity from the above sources or initiatives is subject to a range of risks and uncertainties , including those discussed under “ risk factors—real estate investments are relatively illiquid ” and “ risk factors—we have ongoing capital needs and may not be able to obtain additional financing or other sources of funding on acceptable terms. ” - 46 - term loan facility on july 31 , 2018 , the operating partnership , as borrower , and the company , as guarantor , entered into a senior secured term loan agreement ( the “ term loan agreement ” ) providing for a $ 2.0 billion term loan facility ( the “ term loan facility ” ) with berkshire hathaway life insurance company of nebraska ( “ berkshire hathaway ” ) as lender and berkshire hathaway as administrative agent . the term loan facility provided for an initial funding of $ 1.6 billion at closing ( the “ initial funding ” ) and includes a $ 400 million incremental funding facility ( the “ incremental funding facility ” ) . the term loan facility matures on july 31 , 2023. funded amounts under the term loan facility bear interest at an annual rate of 7.0 % and unfunded amounts under the incremental funding facility are subject to an annual fee of 1.0 % until drawn . the company prepays the annual fee and amortizes the expense to interest expense on the consolidated statements of operations . as of december 31 , 2020 , the aggregate principal amount outstanding under the term loan facility was $ 1.6 billion . the company 's ability to access the incremental funding facility is subject to ( i ) the company achieving rental income from non-sears holdings tenants , on an annualized basis ( after giving effect to sno leases expected to commence rent payment within 12 months ) for the fiscal quarter ending prior to the date of incurrence of the incremental funding facility , of not less than $ 200 million ( ii ) the company 's good faith projection that rental income from non-sears holdings tenants ( after giving effect to sno leases expected to commence rent payment within 12 months ) for the succeeding four consecutive fiscal quarters ( beginning with the fiscal quarter during which the incremental facility is accessed ) will be not less than $ 200 million , and ( iii ) the repayment by the operating partnership of any deferred interest permitted under term loan amendment as further described below . the term loan facility is guaranteed by the company and , subject to certain exceptions , is required to be guaranteed by all existing and future subsidiaries of the operating partnership .
| results of operations we derive substantially all of our revenue from rents received from tenants under existing leases at each of our properties . this revenue generally includes fixed base rents and recoveries of expenses that we have incurred and that we pass through to the individual tenants , in each case as provided in the respective leases . our primary cash expenses consist of our property operating expenses , general and administrative expenses , interest expense , and construction and development related costs . property operating expenses include : real estate taxes , repairs and maintenance , management fees , insurance , ground lease costs and utilities ; general and administrative expenses include payroll , office expenses , professional fees , and other administrative expenses ; and interest expense is on our term loan facility . in addition , we incur substantial non-cash charges for depreciation of our properties and amortization of intangible assets and liabilities . - 43 - comparison of the year ended december 31 , 20 20 to the year ended december 31 , 201 9 the following table presents selected data on comparative results from the company 's consolidated statements of operations for the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019 ( in thousands ) : replace_table_token_11_th rental income the following table presents the results for rental income for the year ended december 31 , 2020 , as compared to the corresponding period in 2019 ( in thousands ) : replace_table_token_12_th the decrease of $ 36.5 million in sears or kmart rental income during 2020 was due primarily to a reduction in the number of properties leased to sears or kmart under the holdco master lease , as a result of termination activity .
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under asu 2016-02 , lessees will be required to recognize all leases longer than twelve months on the consolidated statements of financial condition as lease assets and lease liabilities and make quantitative and qualitative disclosures regarding key information about leasing arrangements . under the new guidance , lessor accounting is largely unchanged . these amendments are effective for public business entities for fiscal years beginning story_separator_special_tag the following discussion is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity and other factors that have affected our reported results of operations and financial condition or may affect our future results or financial condition . our md & a should be read in conjunction with the consolidated financial statements and related notes included in item 8 , `` financial statements and supplementary data , '' of this annual report on form 10-k. story_separator_special_tag off , and deferred cost amortization of $ 301 thousand for the year ended december 31 , 2017 . ( 4 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ( 5 ) net interest rate margin represents net interest income as a percentage of average interest-earning assets . changes in our net interest income are a function of changes in both rates and volumes of interest-earning assets and interest-bearing liabilities . the following table sets forth information regarding changes in our interest income and expense for the years indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) , ( ii ) changes attributable to changes in rate 32 ( changes in rate multiplied by prior volume ) , and ( iii ) the total change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_18_th loan loss provision recapture for the year ended december 31 , 2018 , we recorded a loan loss provision recapture of $ 1.3 million compared to $ 1.1 million for the year ended december 31 , 2017. the loan loss provision recapture for 2018 was due to the overall improvement in the loan portfolio , which had a favorable impact on the environmental factors used in the bank 's analysis of the alll . see `` allowance for loan losses '' for additional information . non-interest income for the year ended december 31 , 2018 , non-interest income decreased by $ 1.7 million compared to the same period in 2017. the decrease in non-interest income was primarily due to a one-time insurance litigation settlement of $ 1.2 million received during 2017. in addition , gain on sale of loans decreased by $ 490 thousand during 2018 compared to 2017 due primarily to a decrease in the dollar amount of loans sold to $ 19.3 million in 2018 from $ 96.9 million in 2017 . 33 non-interest expense for the year ended december 31 , 2018 , our non-interest expense decreased by $ 281 thousand compared to the same period in 2017. the decrease in non-interest expense was primarily due to a decrease of $ 85 thousand in other expense as a result of a $ 214 thousand expense associated with the sale of a portion of the shares of the company 's common stock owned by the u.s. treasury department during 2017 , partially offset by higher expenses of $ 88 thousand associated with the bank 's one foreclosed property . in addition , professional services expenses decreased by $ 63 thousand , corporate insurance decreased by $ 49 thousand , and compensation and benefits expenses decreased by $ 37 thousand during the year 2018 compared to 2017. income taxes we recorded an income tax income tax expense of $ 56 thousand for the year 2018. income tax expense for the year 2018 resulted from a standard tax provision of $ 261 thousand , offset by tax credits of $ 205 thousand . for the year 2017 , we recorded income tax expense of $ 1.9 million . the tax expense for the year 2017 included an adjustment of $ 519 thousand to record the company 's deferred tax assets at the lower federal corporate income tax rate of 21 % . the deferred tax asset totaled $ 5.0 million at december 31 , 2018 and $ 5.1 million at december 31 , 2017. see note 1 `` summary of significant accounting policies '' and note 11 `` income taxes '' of the notes to consolidated financial statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to actual tax expense ( benefit ) . section 382 of the internal revenue code imposes limitations on a corporation 's ability to utilize net operating loss carryforwards , tax credit carryovers and other income tax attributes when there is an ownership change . generally , the rules provide that an ownership change is deemed to have occurred when the cumulative increase of each 5 % or more stockholder and certain groups of stockholders treated as 5 % or more stockholders , as determined under section 382 , exceeds 50 % over a specified `` testing '' period , generally equal to three years . section 382 applies rules regarding the treatment of new groups of stockholders treated as 5 % stockholders due to issuances of stock and other equity transactions , which may cause a change of control to occur . the company has performed an analysis of the potential impact of section 382 and has determined that the company did not undergo an ownership change during 2018 or 2017 and any potential limitations imposed under section 382 do not currently apply . story_separator_special_tag there were no loan charge-offs during 2018 and 2017. in determining charge-offs , we update our estimates of collateral values on npls by obtaining new appraisals at least every nine months . if the estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan , a charge-off for the difference is recorded to reduce the loan to its estimated fair value , less estimated selling costs . therefore , certain losses inherent in our total npls are recognized periodically through charge-offs . the impact of updating these estimates of collateral value and recognizing any required charge-offs is to increase charge-offs and reduce the alll required on these loans . due to prior charge-offs and increases in collateral values , the average recorded investment in npls was only 31 % of estimated fair value less estimated selling costs as of december 31 , 2018. recoveries during 2018 and 2017 totaled $ 114 thousand and $ 566 thousand , respectively . recoveries during 2018 and 2017 primarily resulted from the payoffs of non-accrual loans which had been previously partially charged off . impaired loans at december 31 , 2018 were $ 6.4 million , compared to $ 9.3 million at december 31 , 2017. the decrease of $ 3.1 million in impaired loans was primarily due to payoffs and repayments . specific reserves for impaired loans were $ 227 thousand or 3.56 % of the aggregate impaired loan amount at december 31 , 2018 compared to $ 585 thousand , or 6.29 % of the aggregate impaired loan amount at december 31 , 2017. excluding specific reserves for impaired loans , our coverage ratio ( general allowance as a percentage of total non-impaired loans ) was 0.77 % at december 31 , 2018 compared to 1.06 % at december 31 , 2017. the decrease in the coverage ratio during 2018 was due to overall improvement in the credit quality of the loan portfolio , which had a favorable impact on the environmental factors used in our analysis of the alll . we believe that the alll is adequate to cover probable incurred losses in the loan portfolio as of december 31 , 2018 , but there can be no assurance that actual losses will not exceed the estimated amounts . in addition , the occ and the fdic periodically review the alll as an integral part of their examination process . these agencies may require an increase in the alll based on their judgments of the information available to them at the time of their examinations . deposits deposits decreased by $ 9.9 million to $ 281.4 million at december 31 , 2018 from $ 291.3 million at december 31 , 2017 , which consisted of a decrease of $ 35.7 million in liquid deposits and an increase of $ 25.8 million in cds . during 2018 , one deposit relationship of $ 25.0 million was moved to cds from a money market account . excluding this transfer , liquid deposits decreased by $ 10.7 million and cds increased by $ 775 thousand during 2018. one customer relationship accounted for approximately 11 % of our deposits at december 31 , 2018. we expect to maintain this relationship with the customer for the foreseeable future . borrowings total borrowings at december 31 , 2018 consisted of advances to the bank from the fhlb of $ 70.0 million , and subordinated debentures issued by the company of $ 5.1 million , compared to advances from the fhlb of $ 65.0 million and subordinated debentures of $ 5.1 million at december 31 , 2017. during 2018 , the bank paid off $ 27.5 million in maturing fhlb advances and borrowed $ 32.5 million in new advances from the fhlb . the weighted average cost of fhlb advances increased by 65 basis points to 2.51 % at december 31 , 2018 from 1.86 % at december 31 , 2017 primarily due to the higher interest rate environment and the lengthening of maturities from an average of 18 months as of december 31 , 2017 to 24 months as of december 31 , 2018 . 36 stockholders ' equity stockholders ' equity was $ 48.4 million , or 11.83 % of the company 's total assets , at december 31 , 2018 , compared to $ 47.7 million , or 11.54 % of the company 's total assets , at december 31 , 2017. the company 's book value was $ 1.77 per share as of december 31 , 2018 , compared to $ 1.74 per share as of december 31 , 2017. capital resources our principal subsidiary , broadway federal , must comply with capital standards established by the occ in the conduct of its business . failure to comply with such capital requirements may result in significant limitations on its business or other sanctions . as a `` small bank holding company '' , we are not subject to consolidated capital requirements under the new basel iii capital rules . the current regulatory capital requirements and possible consequences of failure to maintain compliance are described in part i , item 1 `` business-regulation '' and in note 13 of the notes to consolidated financial statements . liquidity the objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet our obligations on a timely and cost-effective basis . the bank 's sources of funds include deposits , advances from the fhlb , other borrowings , proceeds from the sale of loans , reo , and investment securities , and payments of principal and interest on loans and investment securities . the bank is currently approved by the fhlb to borrow up to 30 % of total assets to the extent the bank provides qualifying collateral and holds sufficient fhlb stock .
| overview total assets decreased by $ 4.3 million to $ 409.4 million at december 31 , 2018 from $ 413.7 million at december 31 , 2017. the decrease in total assets during 2018 primarily consisted of a decrease of $ 16.1 million in loans receivable held for sale , a decrease of $ 6.3 million in interest-bearing deposits held in other banks , and a decrease of $ 2.8 million in securities available for sale , offset by an increase of $ 20.7 million in net loans receivable held for investment driven , in part , by a decrease of $ 1.1 million in alll . total liabilities decreased by $ 5.0 million to $ 360.1 million at december 31 , 2018 from $ 366.0 million at december 31 , 2017. the decrease in total liabilities during 2018 resulted primarily from a decrease of $ 9.9 million in total deposits , offset by an increase of $ 5.0 million in fhlb advances we recorded net income of $ 815 thousand for the year ended december 31 , 2018 compared to $ 1.9 million for the year ended december 31 , 2017. the decrease in net income during 2018 resulted primarily from a decrease in net interest income of $ 1.6 million and a decrease in non-interest income of $ 1.7 million , offset by a decrease in income tax expense of $ 1.8 million . comparison of operating results for the years ended december 31 , 2018 and 2017 general our most significant source of income is net interest income , which is the difference between our interest income and our interest expense . generally , interest income is generated from our loans and investments ( interest-earning assets ) and interest expense is incurred from deposits and borrowings ( interest-bearing liabilities ) .
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we primarily operate through a contractor network of independent sales agents and owner-operators of tractors and trailers . in return for their services , we pay our agents and owner-operators a percentage of the revenue they generate for us . our owner-operators provided us with approximately 3,100 tractors and approximately 3,000 trailers , which represented substantially all of the tractors and over 50 % of the trailers used in our business . our use of agents and owner-operators reduces our need to provide terminals and tractor and trailer fleets . the primary physical assets we provide to our agents and owner-operators include a portion of our trailer fleet , our headquarters facility , our management information systems and our intermodal depot facilities . our business model provides us with a highly variable cost structure , allows us to grow organically using relatively small amounts of cash , gives us a higher return on assets compared to many of our asset-based competitors and preserves an entrepreneurial spirit among our agents and owner-operators that we believe leads to improved operating performance . in 2011 , approximately 85.9 % of our total operating expenses were variable in nature . our capital expenditures for 2011 were $ 21.0 million and our return on average assets was 7.2 % . over the past ten years , our operating revenues have increased to $ 699.8 million in 2011 , reaching a maximum level of $ 759.5 million in 2008 , from $ 213.3 million in 2001 , a compounded annual growth rate of 12.6 % . we have achieved this growth through a mixture of organic growth and acquisitions . we expect to continue to make strategic acquisitions of companies that complement our asset light business model , as well as companies that derive a portion of their revenues from asset based operations . we believe that our willingness to expand our business to include a portion of asset based operations will expand the universe of potential acquisition targets , as most companies that we consider acquiring use a combination of asset based and non-asset based operations . we also intend to continue our organic growth , primarily by recruiting new agents and increasing the productivity of our existing agents . we believe that increasing our agent network is critical to our ability to penetrate new shipping markets and also to expand our network of owner-operators . in july 2009 , we acquired certain assets of the david ohlrich agency , or ohlrich , for $ 285,000 through a limited asset purchase agreement . ohlrich is a regional provider of flatbed services throughout the southwestern united states . ohlrich operates as part of louisiana transportation , inc. in august 2009 , we acquired certain assets utilized in the operations of pacer transport , inc. , or pacer transport , and two of its subsidiaries , s & h transport , inc. and s & h leasing , inc. , based in desoto , texas through a limited asset purchase agreement for approximately $ 2.0 million . pacer transport was a wholly-owned subsidiary of pacer international , inc. pacer transport is a provider of flatbed , van , and specialized heavy-haul equipment services throughout the united states . pacer transport operates as part of universal am-can , ltd. in december 2009 , we acquired d. kratt international , inc. , or d. kratt , through a stock purchase agreement for approximately $ 2.0 million . included in the purchase price was approximately $ 0.5 million of additional consideration estimated to be paid the former owner of d. kratt based on a percentage of revenues generated through december 2012. d. kratt is a full service international freight forwarding and customs house brokerage firm based in chicago , il . d. kratt also provides extensive domestic and international logistics and warehousing functions , as well as comprehensive documentary and cargo insurance services . d. kratt operates as universal logistics solutions international , inc. in january 2010 , we acquired cavalry transportation , llc and cavalry logistics , llc , or cavalry , based in nashville , tennessee , through a membership interest purchase agreement for approximately $ 2.7 million . 24 cavalry offers fully integrated transportation resources designed to maximize value for its customers through logistic solutions in intermodal , truckload , and less-than-truckload transportation options . cavalry operates as a wholly-owned subsidiary of universal truckload services , inc. in january 2010 , we acquired certain assets of tsd transportation l.p. , or tsd , based in texarkana , texas , through a limited asset purchase agreement for approximately $ 0.7 million . included in the purchase price was approximately $ 0.4 million of additional consideration estimated to be paid to the former owners of tsd based on a percentage of revenues generated through december 31 , 2011. tsd operates as part of louisiana transportation , inc. in march 2011 , we acquired certain assets of hart transportation , inc. , or hart , based in jacksonville , florida through a limited asset purchase agreement for approximately $ 1.4 million . hart is primarily a regional provider of van and flatbed services throughout the southeastern united states . included in the purchase price is approximately $ 0.4 million of additional consideration estimated to be paid to the former owner of hart based on a percentage of revenues generated through march 31 , 2014. hart operates as part of universal am-can , ltd. revenues and expenses operating revenues . we generate substantially all of our revenues through fees charged to customers for the transportation of freight . we also derive revenue from fuel surcharges , loading and unloading activities , equipment detention , container storage and other services . our historical revenue growth has been primarily driven by increases in the volume of freight shipped . generally , we are paid by the mile for our services . the main factors that affect our shipping rates are competition , available truck capacity , and economic market conditions . story_separator_special_tag as a percentage of revenues , the decrease in commissions expense is due to an increase in fuel surcharges , which are passed on through to our owner-operators , and as such , no commission is paid , and an increase in revenues generated by our company managed locations . other operating expense . other operating expense increased by $ 3.0 million , or 28.7 % , to $ 13.3 million for 2010 from $ 10.3 million for 2009. as a percentage of operating revenues , other operating expense increased to 2.2 % for 2010 from 2.0 % for 2009. the absolute increase was primarily due to an increase in repairs and maintenance cost of $ 2.6 million primarily on company owned equipment , an increase property tax and other operating expenses of $ 0.7 million , and an increase licensing and permit costs of $ 0.4 million , associated with an increase in operating revenues . these increases were partially offset by decreases in highway use and fuel tax , and irp plate expenses of $ 0.7 million . selling , general and administrative . selling , general and administrative expense for 2010 increased by $ 5.0 million , or 11.4 % , to $ 49.2 million from $ 44.2 million for 2009. as a percentage of operating revenues , selling , 28 general and administrative expense decreased to 8.1 % for 2010 compared to 8.8 % for 2009. the absolute increase was primarily the result of increases in salaries and wage expense of $ 4.4 million , travel and entertainment costs of $ 0.6 million , legal and professional fees of $ 0.4 million , our provision for uncollectible agent loans of $ 0.3 million , and other selling , general , and administrative costs of $ 0.6 million . these increases are primarily due to the additional costs incurred in connection with the acquisitions made since the third quarter of 2009. these increases were partially offset by decreases in our bad debt expense of $ 0.9 million and facility related costs of $ 0.4 million . insurance and claims . insurance and claims expense for 2010 decreased by $ 0.1 million , or 0.8 % , to $ 17.2 million from $ 17.3 million for 2009. as a percentage of operating revenues , insurance and claims decreased to 2.8 % for 2010 from 3.4 % for 2009. the absolute decrease is the result of decreases in our cargo claims expense of $ 1.5 million and other contractor insurance and safety costs of $ 0.1 million . these decreases were partially offset by a $ 1.5 million increase in our auto liability insurance premiums and claims expense . depreciation and amortization . depreciation and amortization for 2010 increased by $ 0.6 million , or 6.2 % , to $ 11.0 million from $ 10.4 million for 2009. as a percent of operating revenues , depreciation and amortization decreased to 1.8 % for 2010 from 2.1 % for 2009. the absolute increase is primarily the result of additional depreciation on our capital expenditures made throughout 2010 , and the additional amortization with respect to intangible assets resulting from the acquisitions made since the third quarter of 2009. interest expense , net . net interest income for 2010 was $ 0.1 million compared to net interest expense of $ 0.3 million for 2009. the increase is primarily the result of 2009 including an assessment of interest expense in connection with the settlement of a fuel tax audit . other non-operating income ( expense ) . other non-operating income for 2010 was $ 6.0 million compared to other non-operating expense of $ 0.7 million for 2009. included in other non-operating income in 2010 were $ 5.4 million in pre-tax gains on the sale of marketable equity securities compared to $ 1.3 million of pre-tax charges for other-than-temporary impairments of marketable equity securities classified as available-for-sale in other non-operating expense in 2009. provision for income taxes . provision for income taxes for 2010 was $ 8.7 million compared to $ 3.1 million for 2009. the increase was primarily attributable to the increase in our taxable income and an increase in our effective income tax rate . the effective income tax rates for 2010 and 2009 were 40.6 % and 38.9 % , respectively , based upon our income before provision for income taxes . the increase in our effective tax rate is due to prior period adjustments to our state income taxes . liquidity and capital resources our primary sources of liquidity are funds generated by operations , our ability to borrow on margin against our marketable securities held at ubs , proceeds from the sales of marketable securities , and our revolving unsecured line of credit with keybank . we employ a primarily asset-light operating strategy . substantially all of the tractors and more than 50 % of the trailers utilized in our business are provided by our owner-operators and we have no capital expenditure requirements relating to this equipment . as a result , our capital expenditure requirements are limited in comparison to most large trucking companies which maintain sizable fleets of owned tractors and trailers , requiring significant capital expenditures . the company continues to expand its domestic intermodal operations through the acquisition of 53 ' containers . during 2011 , the company added 400 53 ' containers to its fleet to provide for expansion in this business line . we expect to have limited capital expenditure requirements relating to the maintenance of this equipment ; however , we will continue to acquire additional containers to meet our business needs . 29 in 2011 , we have made capital expenditures totaling $ 21.0 million . these expenditures primarily consisted of tractors , trailers , containers and computer , office , and miscellaneous equipment . in 2012 , exclusive of acquisitions , we expect to incur capital expenditures of $ 1.0 million to $ 1.6 million relating to real property acquisitions and improvements to our existing facilities and terminal yards . we also expect to incur capital expenditures of $ 16.7
| results of operations the following table sets forth items derived from our consolidated statements of income for the years ended december 31 , 2011 , 2010 and 2009 , presented as a percentage of operating revenues : replace_table_token_6_th 2011 compared to 2010 operating revenues . operating revenues increased by $ 93.7 million , or 15.5 % , to $ 699.8 million for 2011 from $ 605.9 for 2010. the increase in operating revenues is primarily attributable to an increase in the number of loads in our truckload , brokerage and intermodal operations , an increase in fuel surcharges , and increases in our operating revenues per loaded mile . the number of loads from our combined truckload , brokerage and intermodal operations was 798,000 for 2011 compared to 740,000 for 2010. included in operating revenues are fuel surcharges of $ 88.6 million for 2011 compared to $ 54.2 million for 2010. for 2011 , our operating revenue per loaded mile , excluding fuel surcharges , from our combined truckload and brokerage operations increased to $ 2.43 from $ 2.21 for 2010. included in operating revenue is approximately $ 10.1 million of revenues attributable to our acquisition made in the first quarter 2011 , which consists of $ 8.9 million in truckload operations and $ 1.2 million in brokerage operations . excluding the effect of this acquisition , revenue from our truckload operations 26 increased by $ 44.1 million , or 11.9 % , to $ 414.2 million for 2011 from $ 370.1 million for 2010. excluding the effect of this acquisition , revenue from our brokerage operations increased by $ 24.7 million , or 16.7 % , to $ 172.7 million for 2011 compared to $ 148.0 million for 2010. intermodal revenue increased by $ 14.9 million , or 16.9 % , to $ 102.8 million for 2011 from $ 87.9 million for 2010. purchased transportation .
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operating leases with a duration greater than one year are included in operating lease right-of-use assets , operating lease liabilities - short-term , and operating lease liabilities - long-term in the company 's consolidated balance sheets . operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term . in determining the net present value of lease payments , the company uses its incremental borrowing f-14 rate based on the information available at the lease commencement date . the incremental borrowing rate represents the interest rate the company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease . the company considers a lease term to be the noncancelable period that it has the right to use the underlying asset , including any periods story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with “ selected financial data ” , our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth in this form 10-k under “ item 1a . risk factors. ” overview we are a clinical-stage biotechnology company advancing a novel class of oral therapeutic candidates for the treatment of chronic hepatitis b virus ( hbv ) infection . according to the world health organization ( who ) , approximately 270 million people worldwide are chronically infected with hbv . our research and development programs are pursuing multiple drug candidates designed to inhibit the hbv replication cycle and block the generation of covalently closed circular dna ( cccdna ) , with the aim of discovering and developing finite and curative therapies for patients with hbv . we have discovered several novel core inhibitors , which are small molecules that directly target and allosterically modulate the hbv core ( hbc ) protein in a way that affects assembly and stability of hbv nucleocapsids . the ongoing covid-19 pandemic has affected certain aspects of our business . as further detailed below , those effects have been primarily limited to where and how our employees work in our labs and offices . to date , our current and future planned clinical trials and pre-clinical studies have not been subject to significant impact as a result of the covid-19 pandemic . as previously announced , in january 2021 , we wound down our microbiome program to prioritize and focus our resources on discovering and developing finite and curative therapies for hbv . our microbiome program had been developing a novel class of oral live microbial biotherapeutics candidates designed to treat disorders associated with the microbiome . our primary focus : targeting hbv core protein to achieve a cure hbv is a dna virus that infects hepatocytes and establishes a reservoir of cccdna , a unique dna moiety that resides in the cell nucleus of hbv-infected hepatocytes and is associated with viral persistence and chronic infection . no currently approved oral therapies target cccdna activity directly , which makes molecules that can modulate cccdna generation or disrupt its function highly sought in the hbv field . as a result , most of our research and development efforts to date have focused on discovering and developing compounds targeting the core protein , a highly conserved viral structural protein that has no human homologue and is involved in numerous aspects of the hbv replication cycle , including the generation of hbv cccdna . through our research efforts , we have discovered several chemically distinct series of small molecule core inhibitors that directly target and allosterically inhibit core protein functions . vebicorvir vebicorvir ( vbr ) , our lead core inhibitor product candidate , is licensed from indiana university . the conduct of the phase 2 studies , study 201 and 202 and our open-label extension study , study 211 , are all complete . we presented interim updates on our clinical studies at a variety of conferences , including at the european association for the study of the liver 's ( easl ) digital international liver congress tm in august 2020 and the american association for the study of liver diseases ( aasld ) annual meeting in november 2020. our most recently completed study for vbr , study 211 , involved transitioning patients who met the requisite stopping criteria , as determined with our lead investigators and the u.s. food and drug administration ( fda ) , off of therapy to test for sustained virologic response ( svr ) . svr refers to sustained viral suppression ( more than six months ) of hbv dna below the lower limit of quantification ( lloq ) and would be consistent with a successful finite treatment for hbv . in november 2020 , it became clear that patients who stopped therapy in study 211 had not achieved meaningful svr rates as 39 of 41 patients relapsed , meaning they had detectable hbv . we continue to collect and analyze study 211 data and intend to submit more detailed findings to a future medical meeting ; however , it is clear that combination therapy of vbr plus nucelos ( t ) ide analog reverse transcriptase inhibitors ( nrti ) alone is not sufficient to cure hbv . based on these results , we terminated study 211 prior to its completion . based on discussions with leading viral hepatitis experts , global regulatory discussions and feedback , and , with respect to the china territory , discussions and agreement with our collaboration partner , beigene , ltd. ( beigene ) , we 37 recently decided to not move forward with the global registrational studies for vbr as a chronic suppressive treatment ( cst ) with nrti . story_separator_special_tag nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are rendered . we use our employee and infrastructure resources across multiple research and development programs , and we allocate internal employee-related and infrastructure costs , as well as certain third-party costs , to each of our programs based on the personnel resources allocated to such program . our research and development expenses , by major program , are outlined in the table below ( in thousands ) : replace_table_token_2_th ( 1 ) expenses presented for hbv include reimbursement of expenses of $ 0.2 million under the clinical trial collaboration agreement ( arbutus agreement ) with arbutus biopharma corporation ( arbutus ) , as discussed in note 9 to the consolidated financial statements . ( 2 ) expenses presented for microbiome do not reflect reimbursement of expenses under the research , development , collaboration and license agreement ( allergan agreement ) with allergan pharmaceuticals international limited ( allergan ) , as discussed in note 9 to the consolidated financial statements . 39 the successful discovery and development of our product candidates is highly uncertain . as such , at this time , we can not reasonably estimate , or know the nature , timing and estimated costs , of the efforts that will be necessary to complete the remainder of their development . we are also unable to predict when , if ever , material net cash inflows will commence from our product candidates . this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainty of : the timing , progress and success of our clinical trials and research discovery team in identifying new product candidates ; establishing an appropriate safety profile with ind-enabling toxicology studies sufficient to advance additional product candidates into clinical development ; successful enrollment in , and completion of , clinical studies ; making arrangements with third-party manufacturers ; and obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates . a change in the outcome of any of these variables or variables discussed in “ item 1a . risk factors ” with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical studies . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , insurance costs , legal fees relating to patents and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and costs of operating as a public company . these increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we anticipate increased costs associated with being a public company , including expenses related to services associated with maintaining compliance with exchange listing and u.s. securities and exchange commission ( sec ) requirements , insurance , and investor relations costs . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenues and expenses during the reporting periods . we evaluate our estimates and judgments , including those described in greater detail below , on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are 40 reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this annual report on form 10-k , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations .
| results of operations general at december 31 , 2020 , we had an accumulated deficit of $ 501.6 million primarily as a result of research and development expenses and general and administrative expenses . while we may in the future generate revenue from a variety of sources , including license fees , milestone payments , research and development payments in connection with strategic partnerships and or product sales , our product candidates are in the clinical stage of development and may never be successfully developed or commercialized . accordingly , we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues . comparison of the years ended december 31 , 2020 and 2019 collaboration revenue the following table summarizes the period-over-period changes in our collaboration revenue ( in thousands , except for percentages ) : replace_table_token_4_th collaboration revenue for the year ended december 31 , 2020 includes the remaining deferred revenue balance of $ 37.0 million and reimbursements incurred under the allergan agreement , for which abbvie inc. gave written notice of termination in june 2020 following its acquisition of allergan , and $ 31.0 million recognized for the transfer of the vbr license upon entering into the collaboration agreement with beigene ( beigene agreement ) . 46 research and development expense the following table summarizes the period-over-period changes in our research and development expenses ( in thousands , except for percentages ) : replace_table_token_5_th ( 1 ) expenses presented for hbv include reimbursement of expenses of $ 0.2 million under the arbutus agreement , as discussed in note 9 to the consolidated financial statements . ( 2 ) expenses presented for the microbiome program exclude collaboration revenue related to expense reimbursements under the allergan agreement as discussed in note 9 to the consolidated financial statements .
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internal control over financial reporting is defined in rule 13a-15 ( f ) or 15d-15 ( f ) promulgated under the securities exchange act of 1934 as a process designed by , or under the supervision of , the principal executive officer , our principal financial officer and principal accounting officer , and effected by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america and includes those policies and procedures that : 25 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company ; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the united states of america and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of our company ; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of the company 's assets that could have a material effect on the financial statements . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . all internal control systems , no matter how well designed , have inherent limitations . therefore , even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation . because of the inherent limitations of internal control , there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting . however , these inherent limitations are known features of the financial reporting process . therefore , it is possible to design into the process safeguards to reduce , though not eliminate , this risk . as of november 30 , 2012 management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in internal control -- integrated framework issued by the committee of sponsoring organizations of the treadway commission ( coso ) and sec guidance on conducting such assessments . based on that evaluation , they concluded that , during the period covered by this report , such internal controls and procedures were not effective to detect the inappropriate application of us gaap rules as more fully described below . this was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses . the matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the public company accounting oversight board were : ( 1 ) lack of a functioning audit committee ; ( 2 ) inadequate segregation of duties consistent with control objectives ; and ( 3 ) ineffective controls over period end financial disclosure and reporting processes . management believes that the material weaknesses set forth in items ( 1 ) and ( 2 ) above did not have an effect on our financial results . management has remedied the material weakness set form in item ( 1 ) after november 30 , 2012 , as discussed below . management 's remediation initiatives in an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls , we have initiated the following series of measures : on december 27 , 2012 , our company 's board of directors formed an audit committee and adopted an audit committee charter . according to its charter , the audit committee shall consist of at least one member , and a majority of members shall meet the independence requirements of rule 10a-3 of the securities exchange act of 1934 , as amended ( the 1934 act ) . also , one of the members shall qualify as an audit committee financial expert as defined by rule 309 of the 1934 act . the audit committee charter describes the primary functions of the audit committee , including the following : the appointment , remuneration and termination of our auditors ; 26 reviewing and discussing with management our audited financial statements and reviewing with management and our auditors our financial statements ; reviewing the performance of and fees paid to the auditors ; and meeting separately and periodically , with our auditors . the board of directors appointed etti hanochi , guy yachin and vered caplan to act as members on our audit committee . the audit committee member who is a financial expert is etti hanochi . ms. hanochi has been a member of our board of directors since april 2012 , and is a partner at nextage ltd. ( israel ) a privately held global financial services organization . previously she worked as a senior manager story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report on form 10-k. 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 such differences include those discussed below and elsewhere in this prospectus and registration statement . our audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . 20 story_separator_special_tag story_separator_special_tag internal control over financial reporting is defined in rule 13a-15 ( f ) or 15d-15 ( f ) promulgated under the securities exchange act of 1934 as a process designed by , or under the supervision of , the principal executive officer , our principal financial officer and principal accounting officer , and effected by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america and includes those policies and procedures that : 25 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company ; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the united states of america and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of our company ; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of the company 's assets that could have a material effect on the financial statements . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . all internal control systems , no matter how well designed , have inherent limitations . therefore , even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation . because of the inherent limitations of internal control , there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting . however , these inherent limitations are known features of the financial reporting process . therefore , it is possible to design into the process safeguards to reduce , though not eliminate , this risk . as of november 30 , 2012 management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in internal control -- integrated framework issued by the committee of sponsoring organizations of the treadway commission ( coso ) and sec guidance on conducting such assessments . based on that evaluation , they concluded that , during the period covered by this report , such internal controls and procedures were not effective to detect the inappropriate application of us gaap rules as more fully described below . this was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses . the matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the public company accounting oversight board were : ( 1 ) lack of a functioning audit committee ; ( 2 ) inadequate segregation of duties consistent with control objectives ; and ( 3 ) ineffective controls over period end financial disclosure and reporting processes . management believes that the material weaknesses set forth in items ( 1 ) and ( 2 ) above did not have an effect on our financial results . management has remedied the material weakness set form in item ( 1 ) after november 30 , 2012 , as discussed below . management 's remediation initiatives in an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls , we have initiated the following series of measures : on december 27 , 2012 , our company 's board of directors formed an audit committee and adopted an audit committee charter . according to its charter , the audit committee shall consist of at least one member , and a majority of members shall meet the independence requirements of rule 10a-3 of the securities exchange act of 1934 , as amended ( the 1934 act ) . also , one of the members shall qualify as an audit committee financial expert as defined by rule 309 of the 1934 act . the audit committee charter describes the primary functions of the audit committee , including the following : the appointment , remuneration and termination of our auditors ; 26 reviewing and discussing with management our audited financial statements and reviewing with management and our auditors our financial statements ; reviewing the performance of and fees paid to the auditors ; and meeting separately and periodically , with our auditors . the board of directors appointed etti hanochi , guy yachin and vered caplan to act as members on our audit committee . the audit committee member who is a financial expert is etti hanochi . ms. hanochi has been a member of our board of directors since april 2012 , and is a partner at nextage ltd. ( israel ) a privately held global financial services organization . previously she worked as a senior manager story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report on form 10-k. 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 such differences include those discussed below and elsewhere in this prospectus and registration statement . our audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . 20 story_separator_special_tag
| results of operations the following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended november 30 , 2012. our operating results for the year ended november 30 , 2012 are summarized as follows in comparison to our operating results for the same year ended november 30 , 2011 : replace_table_token_2_th revenue we have not earned any revenues since our inception and we do not anticipate earning revenues in the near future . general and administrative expenses replace_table_token_3_th the increase in our expenses compare to the same period last year is because of the changing of our operations due to signing the license agreement on february 2 , 2012 .. most of the increase is due to stock based compensation and salary expenses . research and development expenses replace_table_token_4_th 21 the increase in our expenses compare to the same period last year is because of the changing of our operations due to signing the license agreement on february 2 , 2012. most of the increase is due to stock based compensation and patent registration . liquidity and financial condition working capital replace_table_token_5_th the increase of 249 % in our working capital deficiency compared to the same period last year is because of the changing in our operation due to signing the license agreement on february 2 , 2012. the increase in our working capital deficiency is due to liabilities incurred in the ordinary course of operations in 2012. cash flows replace_table_token_6_th the increase in our cash used in operating activities compare to the same period last year is because of the changing of our operations due to signing the license agreement on february 2 , 2012. the increase in cash provided by financing activities compare to the same period last year is due to the financing described below . we have suffered recurring losses from operations .
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effective march 31 , 2015 , dr. shlevin 's annual base salary was increased to $ 250,000 and was increased again to $ 260,000 in february 2016. dr. shlevin 's target performance bonus opportunity in a given year may not be less than 30 % of his base salary in such year . on june 8 , 2018 , we entered into a first amendment to the employment agreement with dr. shlevin in recognition of his appointment as chief executive officer and president of the company . in accordance with the amendment , dr. shlevin will receive a base salary of $ 500,000 , was granted 35,000 stock options as noted above , and his target bonus opportunity was increased to 50 % of his base salary . jack w. callicutt , chief financial officer we entered into an employment agreement with mr. callicutt dated july 1 , 2013 ( the callicutt employment agreement ) , in conjunction with mr. callicutt 's appointment as our chief financial officer . pursuant to the terms of the callicutt employment agreement , mr. callicutt received an initial base salary of $ 175,000 and was eligible to receive a performance bonus equal to 20 % of his base salary . effective march 31 , 2015 , mr. callicutt 's annual base salary was increased to $ 240,000 , and his annual base salary was increased again to $ 260,000 in february 2016. he also received a signing bonus of $ 10,000 . in addition to his cash compensation , the company awarded mr. callicutt a grant of options to purchase 200,000 shares of the company 's common stock at an exercise price equal to the closing price of the company 's common stock on july 1 , 2013 , with 25,000 shares vesting on december 31 , 2013 , 50,000 shares vesting on december 31 , 2014 , 50,000 shares vesting on december 31 , 2015 and 75,000 shares vesting on december 31 , 2016. the options were granted pursuant to the 2009 incentive compensation plan and expire ten years after the date of grant . on august 11 , 2017 , we entered into an amendment to the callicutt employment agreement with mr. callicutt ( the amendment ) . the amendment was entered into to correct an error in the severance provision of the callicutt employment agreement . pursuant to the amendment , if mr. callicutt 's employment with the company is terminated by the company without cause , or by mr. callicutt for good reason , ( as such terms are defined in his agreement ) he shall receive severance equal to : 3 months ' base salary if such termination occurred within 12 months of july 1 , 2013 ( the commencement date ) ; 6 months ' base salary if such termination occurred between 12 and 18 months after the commencement date ; or 9 months ' base salary if such termination occurs after the date that is 18 months after the commencement date , plus , in each case , a portion of the performance bonus for the then-current year based on the number of days elapsed in the year . prior to the amendment , the callicutt employment agreement did not provide for any severance if mr. callicutt 's employment with the company was terminated by the company without cause , or by mr. callicutt for good reason after the date that was 24 months after the commencement date . mr. callicutt 's target bonus opportunity was also increased to 30 % of his base salary . 51 employee benefits & perquisites from time to time , the company has provided the neos with employee benefits and perquisites that our board believes are reasonable . our neos are eligible to participate in the same broad-based employee benefit plans that are offered to our other employees , such as health insurance , disability insurance , life insurance and a 401 ( k ) plan . these benefits are provided as part of the basic conditions of employment for all of our employees , and therefore providing them to our neos does not represent a significant incremental cost to us . the company does not view employee benefits and perquisites as a significant element of its comprehensive compensation structure , but does believe they can be useful in attracting , motivating , and retaining the executive talent for which the company competes . the company believes that these additional benefits may assist story_separator_special_tag forward-looking statements in addition to historical information , the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements as defined under section 21e of the securities exchange act of 1934 , as amended , and is subject to the safe harbor created therein for forward-looking statements . such statements include , but are not limited to , statements concerning our anticipated operating results , research and development , clinical trials , regulatory proceedings , and financial resources , and can be identified by use of words such as , for example , anticipate , estimate , expect , project , intend , plan , believe and would , should , could or may. all statements , other than statements of historical facts , included herein that address activities , events , or developments that the company expects or anticipates will or may occur in the future , are forward-looking statements , including statements regarding : plans and expectations regarding clinical trials ; plans and expectations regarding regulatory approvals ; our strategy and expectations for clinical development and commercialization of our products ; potential strategic partnerships ; expectations regarding the effectiveness of our products ; plans for research and development and related costs ; statements about accounting assumptions and estimates ; story_separator_special_tag due to these uncertainties , accurate and meaningful estimates of the ultimate cost to bring a product to market , the timing of costs and completion of our program and the period during which material net cash inflows will commence are unavailable at this time . general and administrative expense replace_table_token_3_th general and administrative expenses consist primarily of salaries including stock-based compensation , legal and accounting fees , insurance , investor relations , business development and other office related expenses . the primary reasons for the increase for the year ended december 31 , 2018 , as compared to the same period for 2017 , are due to increased non-cash stock-based compensation of $ 1,922,000 and increased investor relations/business development expenses of $ 540,000. other income and expense during the year ended december 31 , 2018 , other income and expense consisted of $ 38,000 of interest income offset by amortization of the warrants issued with a line of credit entered into in december 2017 of $ 336,000 which is classified as interest expense . 35 results of operations from the years ended december 31 , 2017 and 2016 research and development expense replace_table_token_4_th we generally categorize research and development expenses as either direct external expenses , comprised of amounts paid to third party vendors for services , or all other research and development expenses , comprised of employee payroll and general overhead allocable to research and development . we consider a clinical program to have begun upon acceptance by the fda , or similar agency outside of the united states , to commence a clinical trial in humans , at which time we begin tracking expenditures by the product candidate . clinical program expenses comprise payments to vendors related to preparation for , and conduct of , all phases of the clinical trial , including costs for drug manufacture , patient dosing and monitoring , data collection and management , oversight of the trials and reports of results . pre-clinical expenses comprise all research and development amounts incurred before human trials begin , including payments to vendors for services related to product experiments and discovery , toxicology , pharmacology , metabolism and efficacy studies , as well as manufacturing process development for a drug candidate . we have two product candidates , gr-md-02 and gm-ct-01 ; however only gr-md-02 is in active development . our research and development expenses were as follows : replace_table_token_5_th clinical programs expenses decreased primarily due to costs related to our phase 2 clinical trials during the year ended december 31 , 2017 as compared to the same period in 2016. as we have completed our nash-cx phase 2 trial in 2017 , we expect our clinical activities costs will further decrease absent additional clinical trials commencing . pre-clinical activities decreased primarily because we have completed pre-clinical work directly related to our phase 2 clinical trial program . both the time required and costs we may incur in order to commercialize a drug candidate that would result in material net cash inflow are subject to numerous variables , and therefore we are unable at this stage of our development to forecast useful estimates . variables that make estimates difficult include the number of clinical trials we may undertake , the number of patients needed to participate in the clinical trial , patient recruitment uncertainties , trial results as to the safety and efficacy of our products , and uncertainties as to the regulatory agency response to our trial data prior to receipt of marketing approval . moreover , the fda or other regulatory agencies may suspend clinical trials if we or an agency believes patients in the trial are subject to unacceptable risks or find deficiencies in the conduct of the clinical trial . delays or rejections may also occur if governmental regulation or policy changes during our clinical trials or in the course of review of our clinical data . due to these uncertainties , accurate and meaningful estimates of the ultimate cost to bring a product to market , the timing of 36 costs and completion of our program and the period during which material net cash inflows will commence are unavailable at this time . story_separator_special_tag style= '' margin-top:18pt ; margin-bottom:0pt ; font-size:10pt ; font-family : times new roman '' > critical accounting policies and estimates our significant accounting policies are more fully described in note 2 to our consolidated financial statements included elsewhere in this annual report on form 10-k. certain of our accounting policies , however , are critical to the portrayal of our financial position and results of operations and require the application of significant judgment by our management , which subjects them to an inherent degree of uncertainty . in applying our accounting policies , our management uses its best judgment to determine the appropriate assumptions to be used in the determination of certain estimates . our more significant estimates include stock option and warrant liability valuations and performance vesting features of certain of these instruments , accrued liabilities , deferred income taxes and cash flows . these estimates are based on our historical experience , terms of existing contracts , our observance of trends in the industry , information available from other outside sources , and on various other factors that we believe to be appropriate under the circumstances . we believe that the critical accounting policies discussed below involve more complex management judgment due to the sensitivity of the methods , assumptions and estimates necessary in determining the related asset , liability , revenue and expense amounts . accrued expenses . as part of the process of preparing our consolidated financial statements , we are required to estimate accrued expenses . this process involves identifying services that third parties have performed on our behalf and estimating the level of service performed and the associated cost incurred on these services as of each balance sheet date in our consolidated financial statements . examples of estimated accrued expenses
| general and administrative expense replace_table_token_6_th general and administrative expenses consist primarily of salaries including stock-based compensation , legal and accounting fees , insurance , investor relations , business development and other office related expenses . the primary reasons for the decrease for the year ended december 31 , 2017 as compared to the same period for 2016 are due to , decreased legal expenses of $ 251,000 , decreased stock-based compensation of $ 1,068,000 and decreased investor relations expenses of $ 352,000. other income and expense during the year ended december 31 , 2017 , other income and expense consisted of interest income offset by amortization of the warrants issued with a line of credit entered into in december 2017 of $ 12,000 which is classified as interest expense . liquidity and capital resources as described above in the overview and elsewhere in this annual report on form 10-k , we are in the development stage and have not generated any revenues to date . since our inception on july 10 , 2000 , we have financed our operations from proceeds of public and private offerings of debt and equity . as of december 31 , 2018 , we raised a net total of $ 147.4 million from these offerings . at december 31 , 2018 , the company had $ 8.3 million of unrestricted cash and cash equivalents available to fund future operations . in december 2018 , the company announced the extension of its $ 10 million unsecured line of credit facility with stockholder and director , richard e. uihlein . the company has not drawn under the line of credit . additionally , in january 2019 , the company received $ 1.87 million in net proceeds from the atm .
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420 , exit or disposal cost obligations , generally costs associated with restructuring activities initiated outside the united states have been recognized when they are incurred . the company continually evaluates the adequacy of the remaining liabilities under its restructuring initiatives . although the company believes that these estimates accurately reflect the costs of its story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in part iv , item 15 ( a ) , the risk factors included in part i , item 1a , and the “ forward-looking statements ” and other risks described herein and elsewhere in this annual report . overview we are a global company with manufacturing facilities in the united states , the philippines and thailand , and sales offices and design centers throughout the world . we design , develop , manufacture and market linear and mixed-signal integrated circuits , commonly referred to as analog circuits , for a large number of customers in diverse geographical locations . the analog market is fragmented and characterized by diverse applications , a great number of product variations and , with respect to many circuit types , relatively long product life cycles . the major end-markets in which we sell our products are the automotive , communications and data center , computing , consumer and industrial markets . we are incorporated in the state of delaware . critical accounting policies the methods , estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements . the securities and exchange commission ( “ sec ” ) has defined the most critical accounting policies as the ones that are most important to the presentation of our financial condition and results of operations , and that require us to make our most difficult and subjective accounting judgments , often as a result of the need to make estimates of matters that are inherently uncertain . based on this definition , our most critical accounting policies include revenue recognition , which impacts the recording of net revenues ; valuation of inventories , which impacts costs of goods sold and gross margins ; the assessment of recoverability of long-lived assets , which impacts impairment of long-lived assets ; assessment of recoverability of intangible assets and goodwill , which impacts impairment of goodwill and intangible assets ; accounting for stock-based compensation , which impacts cost of goods sold , gross margins and operating expenses ; accounting for income taxes , which impacts the income tax provision ; and assessment of litigation and contingencies , which impacts charges recorded in cost of goods sold , selling , general and administrative expenses and income taxes . these policies and the estimates and judgments involved are discussed further below . we have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective , or it is less likely that such accounting policies would have a material impact on our reported results of operations for a given period . our significant accounting policies are described in note 2 to the consolidated financial statements included in this annual report . revenue recognition we recognize revenue for sales to direct customers and sales to certain distributors upon shipment , provided that persuasive evidence of a sales arrangement exists , the price is fixed or determinable , title and risk of loss has transferred , collectability of the resulting receivable is reasonably assured , there are no customer acceptance requirements and we do not have any significant post-shipment obligations . we estimate returns for sales to direct customers and certain distributors based on historical return rates applied against current period gross revenue . specific customer returns and allowances are considered within this estimate . sales to certain distributors are made pursuant to agreements allowing for the possibility of certain sales price rebates or price protection and for non-warranty product return privileges . the non-warranty product return privileges include allowing certain distributors to return a small portion of our products in their inventory based on their previous purchases . given the uncertainties associated with the levels of non-warranty product returns , sales price rebates , and price protection that could be issued to certain distributors , we defer recognition of such revenue and related cost of goods sold until receipt of notification from these distributors that product has been sold to their end-customers . accounts receivable from direct customers and distributors ( excluding those distributors discussed in the immediately preceding paragraph ) are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point we have a legally enforceable right to collection under normal terms . accounts receivable related to consigned inventory is recognized when the customer takes title to such inventory from its consigned location at which point inventory is relieved , title transfers , and we have a legally enforceable right to collection under the terms of our agreement with the related customers . we estimate potential future returns and sales allowances related to current period product revenue . management analyzes historical returns , changes in customer demand and acceptance of products when evaluating the adequacy of returns and sales allowances . estimates made by us may differ from actual returns and sales allowances . these differences may materially impact reported revenue and amounts ultimately collected on accounts receivable . historically , such differences have not been material . 23 at june 27 , 2015 and june 28 , 2014 , we had $ 17.4 million and $ 16.2 million accrued for returns and allowances against accounts receivable , respectively . during fiscal years 2015 and 2014 , we recorded $ 81.5 million and $ 75.3 million for estimated returns and allowances against revenues , respectively . these amounts were offset by $ 80.2 million and $ 71.6 million for actual returns and allowances given during fiscal years 2015 and 2014 , respectively . story_separator_special_tag the sensing solutions reporting unit develops integrated circuits which are primarily sold in the consumer and automotive end customer markets . the impairment was the result of our decision within the quarter ended december 27 , 2014 to exit certain market offerings that have competitive dynamics which are no longer consistent with our business objectives . we determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment analysis for the sensing solutions reporting unit . the reporting unit 's carrying value exceeded its estimated fair value and , accordingly , a second phase of the goodwill impairment test ( “ step 2 ” ) was performed . under step 2 , the fair value of all sensing solution 's assets and liabilities were estimated , including tangible assets and intangible assets ( including existing and in-process technology ) for the purpose of deriving an estimate of the implied fair value of goodwill . the implied fair value of the goodwill was then compared to the carrying value of the goodwill to determine the amount of the impairment . we estimated the fair value of the sensing solutions reporting unit using a weighting of fair values derived equally from the income and market approach . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . cash flow projections are based on management 's estimates of revenue growth rates and operating margins , taking into consideration industry and market conditions . the discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business 's ability to execute on the projected cash flows . the market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit . in performing the goodwill impairment testing for the fiscal years 2014 and 2013 , the fair value was in excess of the carrying value . as a result , no impairment charges were recorded associated with our goodwill during fiscal years 2014 and 2013 . stock-based compensation we account for stock-based compensation in accordance with asc 718 , compensation in stock compensation ( “ asc 718 ” ) . asc 718 requires the recognition of the fair value of stock-based compensation for all stock-based payment awards , including grants of stock options and other awards made to our employees and directors in exchange for services , in the income statement . accordingly , stock-based compensation cost is measured at the grant date , based on the fair value of the awards ultimately expected to vest and is recognized as an expense , on the greater of a straight-line basis or the value of awards vested each period , over the requisite service period . asc 718 also requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates . such revisions could have a material effect on our operating results . we use the black-scholes valuation model to measure the fair value of our stock options utilizing various assumptions with respect to expected holding period , risk-free interest rates , stock price volatility and dividend yield . the assumptions we use in the valuation model are based on subjective future expectations combined with management judgment . if any of the assumptions used in the black-scholes model changes significantly , stock-based compensation for future awards may differ materially compared to the awards granted previously . accounting for income taxes we must make certain estimates and judgments in the calculation of income tax expense , determination of uncertain tax positions , and in the determination of whether deferred tax assets are more likely than not to be realized . the calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations . asc 740-10 , income taxes ( “ asc 740-10 ” ) , prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return . under asc 740-10 , a tax position is recognized in the financial statements when it is more likely than not , based on the technical merits , that the position will be sustained upon examination , including resolution of any related appeals or litigation processes . a tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50 % likelihood of being realized upon settlement . although we believe that our computation of tax benefits to be recognized and realized are reasonable , no assurance can be given that the final outcome will not be different from what was reflected in our income tax 25 provisions and accruals . such differences could have a material impact on our net income and operating results in the period in which such determination is made . see note 17 : “ income taxes ” in the notes to consolidated financial statements included in part iv , item 15 ( a ) of this annual report for further information related to asc 740-10. we evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized . in the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount , an adjustment to the deferred tax asset valuation allowance would be recorded . this adjustment would increase income , or additional paid in capital , as appropriate , in the period such determination was made .
| results of operations the following table sets forth certain consolidated statements of income data expressed as a percentage of net revenues for the periods indicated : 26 replace_table_token_5_th the following table shows pre-tax stock-based compensation included in the components of the consolidated statements of income reported above as a percentage of net revenues for the periods indicated : replace_table_token_6_th net revenues we reported net revenues of $ 2,306.9 million , $ 2,453.7 million and $ 2,441.5 million in fiscal years 2015 , 2014 and 2013 , respectively . our net revenues in fiscal year 2015 decreased by 6.0 % compared to our net revenues in fiscal year 2014 . revenues from consumer products were down 23 % mainly due to lower demand for products in the consumer end market primarily from smartphone customers . this decrease was partially offset by an increase in net revenues in automotive of 38 % , mainly due to product offered in the automotive end market with new design win ramps across multiple applications and customers . our net revenues in fiscal year 2014 increased by 0.5 % , compared to our net revenues in fiscal year 2013 . revenues from automotive , communications and data center , and industrial products were up 43 % , 20 % and 9 % , respectively , due to an increase in shipments of our products offered in the automotive end market with new design win ramps across multiple applications and customers , an increase in server revenues driven by the volterra acquisition and in demand driven by network and datacom , and cable infrastructure products in the communications and data center end market , and an increase in control and automation shipments in the industrial end market .
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with a reasonable assurance of collection , passage of title to the customer as indicated by shipping terms and fulfillment of all significant obligations , pursuant to the guidance provided by accounting standards codification topic 605. for sales to all customers , including manufacturer representatives , distributors or their third-party customers , these criteria are met at the time product is shipped . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . in addition , judgments are required in evaluating the credit worthiness of our customers . credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . allowance for doubtful accounts the company maintains credit limits for all customers based upon several factors , including but not limited to financial condition and stability , payment history , published credit reports and use of credit references . management performs various analyses to evaluate accounts receivable balances to ensure recorded amounts reflect estimated net realizable value . this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . inventories inventory is valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . page 18 recently issued accounting pronouncements refer to note 1 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . story_separator_special_tag valuation allowance and certain expenses not being deductible for income tax reporting purposes , offset by tax credits related to research and experimentation expenses . net income net income decreased $ 617,000 to a net loss of $ 540,000 , or $ 0.18 per diluted share , for fiscal 2013 as compared to net income of $ 77,000 , or $ 0.03 per diluted share , for fiscal 2012. net income decreased due primarily to lower sales and related gross profit , higher research and development expenses and higher general , administrative and selling expenses , offset by higher gross margin percentage during fiscal 2013. net income increased $ 283,000 to net income of $ 77,000 , or $ 0.03 per diluted share , for fiscal 2012 as compared to a net loss of $ 205,000 , or $ 0.07 per diluted share , for fiscal 2011. net income increased due primarily to higher sales and related gross profit and lower research and development expenses , offset by higher general , administrative and selling expenses and a lower gross margin percentage during fiscal 2012. liquidity and capital resources the company 's working capital decreased $ 304,000 to $ 7.6 million as of may 31 , 2013 compared to $ 7.9 million as of may 31 , 2012. cash and cash equivalents decreased $ 868,000 from may 31 , 2012 to $ 1.9 million as of may 31 , 2013. cash used in operating activities was $ 679,000 in fiscal 2013 as compared to cash provided by operations of $ 163,000 in fiscal 2012. the increase in the amount of cash used for operating activities is primarily due to the impact of the fiscal 2013 net loss and the increase in inventory , offset by the decrease in accounts receivable . at may 31 , 2013 , accounts receivable decreased $ 513,000 to $ 2.0 million compared to $ 2.5 million as of may 31 , 2012. the decrease in accounts receivable is due to the decrease in sales during fiscal 2013. inventories increased $ 1.1 million to $ 5.1 million as of may 31 , 2013 compared to $ 4.0 million at may 31 , 2012 due to the decreases in sales activity coupled with an increase in inventories in our xact product line . at may 31 , 2013 , total current liabilities increased $ 75,000 to $ 1.6 story_separator_special_tag with a reasonable assurance of collection , passage of title to the customer as indicated by shipping terms and fulfillment of all significant obligations , pursuant to the guidance provided by accounting standards codification topic 605. for sales to all customers , including manufacturer representatives , distributors or their third-party customers , these criteria are met at the time product is shipped . when other significant obligations remain after products are delivered , revenue is recognized only after such obligations are fulfilled . in addition , judgments are required in evaluating the credit worthiness of our customers . credit is not extended to customers and revenue is not recognized until we have determined that collectability is reasonably assured . allowance for doubtful accounts the company maintains credit limits for all customers based upon several factors , including but not limited to financial condition and stability , payment history , published credit reports and use of credit references . management performs various analyses to evaluate accounts receivable balances to ensure recorded amounts reflect estimated net realizable value . this review includes accounts receivable agings , other operating trends and relevant business conditions , including general economic factors , as they relate to the company 's domestic and international customers . if these analyses lead management to the conclusion that potential significant accounts are uncollectible , a reserve is provided . inventories inventory is valued at the lower of cost or market with cost determined on the average cost basis . costs included in inventories consist of materials , labor and manufacturing overhead , which are related to the purchase or production of inventories . write-downs , when required , are made to reduce excess inventories to their net realizable values . such estimates are based on assumptions regarding future demand and market conditions . if actual conditions become less favorable than the assumptions used , an additional inventory write-down may be required . deferred taxes the company applies the asset and liability method in recording income taxes , under which deferred income tax assets and liabilities are determined , based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws . additionally , deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized . management continues to review the level of the valuation allowance on a quarterly basis . there can be no assurance that the company 's future operations will produce sufficient earnings so that the deferred tax assets can be fully utilized . intangible assets intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable . recoverability is determined by comparing the forecasted future undiscounted net cash flows from the operations to which the assets relate , based on management 's best estimates using the appropriate assumptions and projections at the time , to the carrying amount of the assets . if the carrying value is determined to be in excess of future operating cash flows , the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets . page 18 recently issued accounting pronouncements refer to note 1 of the notes to consolidated financial statements for a discussion of recently issued accounting pronouncements . story_separator_special_tag valuation allowance and certain expenses not being deductible for income tax reporting purposes , offset by tax credits related to research and experimentation expenses . net income net income decreased $ 617,000 to a net loss of $ 540,000 , or $ 0.18 per diluted share , for fiscal 2013 as compared to net income of $ 77,000 , or $ 0.03 per diluted share , for fiscal 2012. net income decreased due primarily to lower sales and related gross profit , higher research and development expenses and higher general , administrative and selling expenses , offset by higher gross margin percentage during fiscal 2013. net income increased $ 283,000 to net income of $ 77,000 , or $ 0.03 per diluted share , for fiscal 2012 as compared to a net loss of $ 205,000 , or $ 0.07 per diluted share , for fiscal 2011. net income increased due primarily to higher sales and related gross profit and lower research and development expenses , offset by higher general , administrative and selling expenses and a lower gross margin percentage during fiscal 2012. liquidity and capital resources the company 's working capital decreased $ 304,000 to $ 7.6 million as of may 31 , 2013 compared to $ 7.9 million as of may 31 , 2012. cash and cash equivalents decreased $ 868,000 from may 31 , 2012 to $ 1.9 million as of may 31 , 2013. cash used in operating activities was $ 679,000 in fiscal 2013 as compared to cash provided by operations of $ 163,000 in fiscal 2012. the increase in the amount of cash used for operating activities is primarily due to the impact of the fiscal 2013 net loss and the increase in inventory , offset by the decrease in accounts receivable . at may 31 , 2013 , accounts receivable decreased $ 513,000 to $ 2.0 million compared to $ 2.5 million as of may 31 , 2012. the decrease in accounts receivable is due to the decrease in sales during fiscal 2013. inventories increased $ 1.1 million to $ 5.1 million as of may 31 , 2013 compared to $ 4.0 million at may 31 , 2012 due to the decreases in sales activity coupled with an increase in inventories in our xact product line . at may 31 , 2013 , total current liabilities increased $ 75,000 to $ 1.6
| discussion of operating results replace_table_token_4_th sales sales in the balancer segment decreased $ 1.6 million , or 16.7 % , to $ 7.7 million for fiscal 2013 compared to $ 9.3 million for fiscal 2012. this decrease is primarily due to lower volumes of shipments into asia , particularly china , and also to a lesser extent to north america . north american sales decreased $ 311,000 , or 6.7 % , in fiscal 2013 compared to fiscal 2012. sales into asia decreased $ 1.2 million , or 34.7 % , in fiscal 2013 compared to the prior year . sales into europe increased $ 34,000 , or 3.8 % , in fiscal 2013 compared to fiscal 2012. sales in other regions of the world decreased $ 75,000 , or 24.9 % , during fiscal 2013 as compared to the prior year . the decreases in asia and north america are due to a reduction in orders as economic growth in china has slowed and the uncertainty regarding the u.s. economy continues to have a negative impact on manufacturing in the markets we serve . the levels of demand for our balancer products in any of these geographic markets can not be forecasted with any certainty given current economic trends and the historical volatility experienced in this market . sales in the measurement segment decreased $ 434,000 , or 8.4 % , to $ 4.7 million in fiscal 2013 compared to $ 5.2 million in fiscal 2012. sales of laser-based distance measurement and dimensional-sizing products decreased $ 380,000 , or 10.9 % , primarily due to a large sale during the fourth quarter of fiscal 2012 that was not repeated in the fourth quarter of fiscal 2013. sales of remote tank monitoring products increased $ 296,000 to $ 877,000 during fiscal 2013 due to the higher volume of shipments and the developing monitoring revenues associated with unit sales . sales of laser-based surface measurement products decreased $ 361,000 , or 40.8
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this guidance is effective for interim and annual periods beginning on or after december 15 , 2011 , and should be applied prospectively . the story_separator_special_tag overview our principal business consists of attracting deposits from the general public and the business community and making loans secured by various types of collateral , including real estate and other consumer assets in the markets in which we operate . attracting and maintaining deposits is affected by a number of factors , including interest rates paid on competing investments offered by other financial and non-financial institutions , account maturities , fee structures , and levels of personal income and savings . lending activities are affected by the demand for funds and thus are influenced by interest rates , the number and quality of lenders and regional economic conditions . sources of funds for lending activities include deposits , borrowings , repayments on loans , cash flows from investment securities and income provided from operations . our earnings depend primarily on our level of net interest income , which is the difference between interest earned on our interest-earning assets , consisting primarily of loans and investment securities , and the interest paid on interest-bearing liabilities , consisting primarily of deposits , borrowed funds , and trust-preferred securities . net interest income is a function of our interest rate spread , which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities , as well as a function of the average balance of interest-earning assets compared to the average balance of interest-bearing liabilities . also contributing to our earnings is noninterest income , which consists primarily of service charges and fees on loan and deposit products and services , fees related to insurance and investment management and trust services , and net gains and losses on the sale of assets . net interest income and noninterest income are offset by provisions for loan losses , general administrative and other expenses , including employee compensation and benefits and occupancy and equipment costs , as well as by state and federal income tax expense . our net income was $ 64.2 million , or $ 0.64 per diluted share , for the year ended december 31 , 2011 compared to $ 57.5 million , or $ 0.53 per diluted share , for the year ended december 31 , 2010 and $ 32.7 million , or $ 0.30 per diluted share , for the year ended december 31 , 2009. the loan loss provision was $ 34.2 million for the year ended december 31 , 2011 compared to $ 40.5 million for the year ended december 31 , 2010 and $ 41.8 million for the year ended december 31 , 2009. we recorded other-than-temporary impairment charges for securities , which were reflected as a reduction of noninterest income , of $ 937,000 , $ 1.5 million and $ 6.1 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . we did not significantly change our underwriting standards in the past several years nor did we add controversial residential loan products . other than our loans for the construction of one- to four-family residential mortgage loans , we do not solicit interest only mortgage loans on one- to four-family residential properties ( where the borrower pays interest for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as option arm loans , where the borrower can pay less than the interest owed on the loan , resulting in an increased principal balance during the life of the loan . we do not directly offer subprime loans ( loans that generally target borrowers with fico scores of less than 660 ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . however , a portion of the loans originated by one of our subsidiaries , northwest consumer discount company ( ncdc ) , consists of loans to persons with credit scores that would cause such loans to be considered subprime . ncdc has been in operation for over 25 years and has 52 offices throughout pennsylvania . ncdc offers a variety of consumer loans for automobiles , appliances and furniture as well as residential mortgage loans . at december 31 , 2011 , ncdc 's total loan portfolio was approximately $ 114.4 million with an average loan size of $ 4,400 , an average fico score of 620 and an average yield of approximately 17.7 % . ncdc 's total delinquency has remained steady at approximately 3.7 % of outstanding loans , with loans nonperforming for 90 days or more at 1.4 % of loans outstanding . annual net charge-offs average approximately $ 2.8 million , or 2.5 % of outstanding loans , and it maintains an allowance for loan losses of $ 5.5 million , or 4.9 % of loans . although loans originated through ncdc have higher average rates of delinquency and charge-offs than similar loans originated directly by northwest savings bank , management believes that the higher yields on loans originated through ncdc compensate for the incremental credit risk exposure . 30 critical accounting policies certain accounting policies are important to the understanding of our financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances , including , but without limitation , changes in interest rates , performance of the economy , financial condition of borrowers and laws and regulations . the following are the accounting policies we believe are critical . allowance for loan losses . story_separator_special_tag with the assistance of an independent third party , we evaluate goodwill for possible impairment using four valuation methodologies including a public market peers approach , a comparable transactions approach , a control premium approach and a discounted cash flow approach . future changes in the economic environment or the operations of the reporting units could cause changes to these variables , which could give rise to declines in the estimated fair value of the reporting unit . declines in fair value could result in impairment being identified . we have established june 30 of each year as the date for conducting our annual goodwill impairment assessment . quarterly , we evaluate if there are any triggering events that would require an update to our previous assessment . the variables are selected as of that date and the valuation model is run to determine the fair value of each reporting unit . we did not identify any individual reporting unit where the fair value was less than the carrying value . deferred income taxes . we use the asset and liability method of accounting for income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . pension benefits . pension expense and obligations are dependent on assumptions used in calculating such amounts . these assumptions include discount rates , anticipated salary increases , interest costs , expected return on plan assets , mortality rates , and other factors . in accordance with u.s. generally accepted accounting principles , actual results that differ from the assumptions are amortized over average future service and , therefore , generally affect recognized expense . while management believes that the assumptions used are appropriate , differences in actual experience or changes in assumptions may affect our pension obligations and future expense . in determining the projected benefit obligations for pension benefits at december 31 , 2011 and 2010 , we used a discount rate of 4.39 % and 5.57 % , respectively . we use the citigroup pension liability index rates matching the duration of our benefit payments as of the measurement date to determine the discount rate . our measurement date is december 31 . 32 balance sheet analysis assets . total assets at december 31 , 2011 were $ 7.958 billion , a decrease of $ 190.5 million , or 2.3 % , from $ 8.148 billion at december 31 , 2010. this decrease in assets was primarily caused by a decrease in our marketable securities portfolio of $ 168.6 million , or 12.9 % , to $ 1.140 billion at december 31 , 2011 from $ 1.308 billion at december 31 , 2010. cash and investments . total cash and investments decreased by $ 199.5 million , or 9.8 % , to $ 1.828 billion at december 31 , 2011 , from $ 2.028 billion at december 31 , 2010. this decrease was a result of the repurchase of 14,437,253 shares of common stock at a total cost of $ 172.7 million during 2011. we also repaid $ 50.0 million of fhlb advances that matured in 2011. loans receivable . net loans receivable increased by $ 22.8 million , or 0.4 % , to $ 5.480 billion at december 31 , 2011 , from $ 5.458 billion at december 31 , 2010. loan demand for most of the year was weak , with originations of $ 1.928 billion nearly offset by loan sales , maturities and repayments of $ 1.854 billion for the year ended december 31 , 2011. we reduced the sale of residential mortgage loans to $ 88.2 million in 2011 compared to $ 205.3 million in 2010 due to our strong liquidity position , low loan demand and low yields on investment securities . during the year ended december 31 , 2011 gross commercial real estate loans increased by $ 58.1 million , or 4.1 % , while all other loans classes decreased . total loans 30 days or more past due decreased by $ 26.8 million , or 13.3 % , to $ 174.9 million at december 31 , 2011 from $ 201.7 million at december 31 , 2010. the december 31 , 2011 amount consisted of 3,412 loans , while the december 31 , 2010 amount consisted of 3,517 loans . delinquencies for all classes of loans with the exception of other consumer loans decreased during the year ended december 31 , 2011. delinquencies on residential mortgage loans decreased by $ 4.4 million , or 5.9 % , delinquencies on home equity loans decreased by $ 1.9 million , or 9.1 % , delinquencies on commercial real estate decreased by $ 17.2 million , or 22.8 % and delinquencies on commercial loans decreased by $ 3.4 million , or 16.0 % .
| general . net income for the year ended december 31 , 2011 was $ 64.2 million , or $ 0.64 per diluted share , an increase of $ 6.7 million , or 11.5 % , from $ 57.5 million , or $ 0.53 per diluted share , for the year ended december 31 , 2010. the increase in net income resulted primarily from an increase in net interest income of $ 9.6 million and a decrease in provision for loan losses of $ 6.3 million . these items were partially offset by increases in income tax expense and noninterest expense and a decrease in noninterest income . a discussion of each significant change follows . net income for the year ended december 31 , 2011 represents 5.24 % and 0.80 % return on average equity and return on average assets , respectively , compared to 4.40 % and 0.71 % for the year ended december 31 , 2010. interest income . interest income decreased by $ 10.5 million , or 2.8 % , to $ 360.1 million for the year ended december 31 , 2011 from $ 370.6 million for the year ended december 31 , 2010. the decrease in interest income was due to a decrease in the average balance of interest-earning assets and a decrease in the average yield on interest-earning assets . the average balance of interest-earning assets decreased by $ 54.9 million , or 0.7 % , to $ 7.487 billion for the year ended december 31 , 2011 from $ 7.542 billion for the year ended december 31 , 2010. the average rate earned on interest-earnings assets decreased by 0.12 % , to 4.80 % for the year ended december 31 , 2011 from 4.92 % for the year ended december 31 , 2010. an explanation of the changes in the balances of interest-earnings assets and changes in the yield is discussed in each category below .
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to the extent that this discussion describes prior performance , the descriptions relate only to the periods listed , which may not be indicative of our future financial outcomes . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . factors that could cause such differences are discussed in the sections titled “ cautionary note regarding forward-looking statements , ” “ summary risk factors ” and “ risk factors ” in this annual report on form 10-k. we assume no obligation to update any of these forward-looking statements . in certain cases , numbers and percentages in the tables below may not foot due to rounding . overview we are a leading health insurance marketplace and medicare-focused digital health company whose mission is to improve access to healthcare in america . our proprietary technology platform leverages modern machine-learning algorithms powered by nearly two decades of insurance behavioral data to reimagine the optimal process for helping individuals find the best health insurance plan for their specific needs . our differentiated combination of a vertically-integrated consumer acquisition platform and highly skilled and trained agents has enabled us to enroll millions of people in medicare and individual and family plans since our inception . with a current commissionable market of nearly $ 30 billion , and nearly 11,000 americans turning 65 years old every day and our track record of significant growth in net revenues in the medicare space in the past five years , we believe we will continue to be one of the top choices for unbiased insurance advice to help navigate one of the most important purchasing decisions individuals make . business segments we have four reportable segments : ( i ) medicare—internal , ( ii ) medicare—external , ( iii ) individual and family plans , or ifp and other—internal and ( iv ) ifp and other—external . we organize the segments by product type , medicare and ifp and other , as well as by distribution channel , internal and external , as further described below . in addition , we separately report other expenses ( classified as “ corporate expenses ” in our financial statements ) , the primary components of which are corporate overhead expenses and shared service expenses that have not been allocated to the operating segments . the segment results provided herein may not be comparable to other companies . we refer to the medicare—internal and medicare—external segments collectively as the “ medicare segments ” and the ifp and other—internal and ifp and other—external segments as the “ ifp and other segments. ” medicare—internal : the medicare—internal segment relates to sales of products and plans by gohealth-employed agents offering qualified prospects plans from multiple carriers , gohealth-employed agents offering qualified prospects plans on a carrier-specific basis , or sales of products and plans through our online platform without the assistance of our agents , which we refer to as diy . in this segment , we sell medicare advantage , medicare supplement , medicare prescription drug plans , and medicare special needs plans , or snps . we earn revenue in this segment through commissions paid by carriers based on sales we generated , as well as enrollment fees , hourly fees and other fees for services performed for specific carriers and other partners . the medicare—internal segment is our largest and fastest growing segment , and represented 96 % of segment profits in 2020. medicare—external : the medicare—external segment relates to sales of products and plans under gohealth 's carrier contracts using an independent , national network of agents or external agencies , which are not employed by gohealth . these agents utilize our technology and platform to enroll consumers in health insurance plans and provide us with a means to earn a return on leads that otherwise may have not been addressed . in this segment , we sell medicare advantage , medicare supplement , medicare prescription drug plans , and snps . we earn revenue in this segment through commissions paid by carriers as a result of policy sales , as well as sales of consumer leads to external agencies . ifp and other—internal : the ifp and other—internal segment relates to sales of products and plans by gohealth-employed agents offering qualified prospects plans from multiple carriers , gohealth-employed agents offering qualified prospects plans on a carrier-specific basis , or diy . in this segment , we sell individual and family plans , dental plans , vision plans and other ancillary plans to individuals who are not medicare-eligible . we earn revenue in this segment through commissions paid by carriers based on sales we generate , as well as enrollment fees , and hourly fees and other fees for services performed for specific carriers and other partners . ifp and other—external : the ifp and other—external segment relates to sales of products and plans under gohealth 's carrier contracts using external agencies , who use agents that are not employed by gohealth . these agents utilize our technology and platform to enroll consumers in health insurance plans . we also sell consumer leads gohealth , inc. 2020 form 10-k 53 generated by us to external agencies . in this segment , we sell individual and family plans , dental plans , vision plans and other ancillary plans to individuals who are not medicare-eligible . we earn revenue in this segment through commissions paid by carriers as a result of policy sales , as well as sales of consumer leads to external agencies . the following table presents the percentages of revenues and profit ( loss ) generated by each of our operating segments for the periods presented : replace_table_token_2_th the transactions our historical results of operations prior to the completion of the transactions , including the ipo , do not reflect certain items that we expect will affect our results of operations and financial condition after giving effect to the transactions and the use of proceeds from the ipo . story_separator_special_tag marketing and advertising marketing and advertising expense was $ 206.9 million for the twelve months ended december 31 , 2020 compared to $ 24.8 million for the successor 2019 period and $ 37.8 million for the predecessor 2019 period . the $ 144.3 million , or 230.6 % , increase was primarily attributable to an increase in our advertising costs for the medicare—internal segment to generate more qualified prospects , which contributed to a 87 % increase in medicare—internal commissionable approved submissions . additionally , marketing and advertising expense for the twelve months ended december 31 , 2020 included $ 24.6 million of share-based compensation expense relating to the accelerated vesting of performance-vesting units in connection with the ipo . customer care and enrollment customer care and enrollment expense was $ 165.5 million for the twelve months ended december 31 , 2020 compared to $ 44.4 million for the successor 2019 period and $ 49.1 million for the predecessor 2019 period . the $ 72.0 million , or 77.0 % , increase was primarily attributable to the hiring of additional agents in the medicare—internal segment in order to drive the conversion of a greater number of qualified prospects into commissionable approved submissions . additionally , customer care and enrollment expense for the twelve months ended december 31 , 2020 included $ 11.5 million of share-based compensation expense relating to the accelerated vesting of performance-vesting units in connection with the ipo . our agent base increased approximately 60 % during the twelve months ended december 31 , 2020 compared to the twelve months ended december 31 , 2019. technology technology expense was $ 59.3 million for the twelve months ended december 31 , 2020 compared to $ 6.0 million for the successor 2019 period and $ 40.3 million for the predecessor 2019 period . the $ 13.0 million , or 28.1 % , increase was primarily attributable to the hiring of additional employees in our technology and data science teams , and the expansion of our business intelligence and analytics staffing in order to support the growth of the medicare—internal segment . technology expense for the twelve months ended december 31 , 2020 included $ 32.6 million of share-based compensation expense relating to the accelerated vesting of performance-vesting units in connection with the ipo . the predecessor 2019 period included share-based compensation expense of $ 27.1 million in connection with the accelerated vesting of certain legacy profit interests and legacy incentive share units granted prior to the centerbridge acquisition . general and administrative general and administrative expense was $ 197.2 million for the twelve months ended december 31 , 2020 compared to $ 13.7 million for the successor 2019 period and $ 79.2 million for the predecessor 2019 period . the $ 104.3 million , or 112.3 % , increase was primarily attributable to investments in corporate infrastructure , such as legal , human resources , and finance , to support general growth and implement the corporate resources needed to support a post-ipo business . general and administrative expense for the twelve months ended december 31 , 2020 included $ 140.6 million of share-based compensation expense relating to the accelerated vesting of performance-vesting units in connection with the ipo . general and administrative expense for the predecessor 2019 period included share-based compensation expense of $ 58.3 million in connection with the accelerated vesting of certain legacy profit interests and legacy incentive share units granted prior to the centerbridge acquisition . gohealth , inc. 2020 form 10-k 58 change in fair value of contingent consideration liability change in fair value of contingent consideration liability was $ 19.7 million and $ 70.7 million for the twelve months ended december 31 , 2020 and successor 2019 period , respectively , and relates to the earnout liability incurred in connection with the centerbridge acquisition , in which we agreed to pay additional consideration if certain financial targets are achieved . we had no earnout liability for the predecessor 2019 period . amortization of intangible assets amortization of intangible assets expense was $ 94.1 million for the twelve months ended december 31 , 2020 compared to $ 28.2 million for the successor 2019 period and no amortization of intangible assets expense for the predecessor 2019 period , and relates to the amortization of developed technology and customer relationships that were recognized as part of the purchase price allocation at the date of the centerbridge acquisition . interest expense interest expense was $ 33.0 million for the twelve months ended december 31 , 2020 compared to $ 8.1 million for the successor 2019 period and $ 0.1 million for the predecessor 2019 period . the $ 24.8 million increase was due to additional debt outstanding on our credit facilities . adjusted ebitda adjusted ebitda was $ 271.0 million for the twelve months ended december 31 , 2020 compared to $ 130.5 million for the successor 2019 period and $ 40.0 million for the predecessor 2019 period . the $ 100.6 million , or 59.0 % , increase was primarily attributable to an increase in commission revenues in the medicare segments as described above . segment information our operating segments have been determined in accordance with accounting standards codification ( “ asc ” ) 280 , segment reporting . we have four operating segments : medicare—internal , medicare—external , ifp and other—internal , and ifp and other—external . in addition , we separately report other expenses ( classified as “ corporate expense ” in the following table ) , the primary components of which are corporate overhead expenses and shared service expenses that have not been allocated to the operating segments , as they are not the responsibility of segment operating management . the segment measurements provided to and evaluated by the chief operating decision maker are described in the notes to consolidated financial statements included elsewhere in this annual report on form 10-k. these results should be considered in addition to , not as a substitute for , results reported in accordance with gaap . gohealth , inc. 2020 form 10-k 59 successor predecessor twelve months ended dec.
| results of operations the following is a discussion and analysis of changes in the financial condition and results of operations for fiscal year 2020 compared to fiscal year 2019. a discussion and analysis regarding our results of operations for fiscal year 2019 compared to fiscal year 2018 that are not included in this annual report on form 10-k can be found in our final prospectus for our ipo filed with the sec on july 16 , 2020 pursuant to rule 424 ( b ) under the securities act ( the “ prospectus ” ) . the following table sets forth the components of our results of operations for the periods presented : replace_table_token_3_th adjusted ebitda margin 30.9 % 42.3 % 17.3 % 15.4 % ebitda , adjusted ebitda and adjusted ebitda margin we use supplemental measures of our performance that are derived from our consolidated financial information , but which are not presented in our consolidated financial statements prepared in accordance with gaap . these non-gaap financial measures include net income ( loss ) before interest expense , income tax expense ( benefit ) and depreciation and amortization expense , or ebitda ; adjusted ebitda and adjusted ebitda margin . adjusted ebitda is the primary financial performance measure used by management to evaluate its business and monitor its results of operations . adjusted ebitda represents ebitda as further adjusted for share-based compensation , expense related to the accelerated vesting of certain equity awards , change in fair value of contingent consideration liability , centerbridge acquisition costs , severance costs and one time indirect costs in connection with the ipo . adjusted ebitda margin represents adjusted ebitda divided by net revenues . we use non-gaap financial measures to supplement financial information presented on a gaap basis .
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there were no other than temporary declines in market values for available-for-sale securities in the 181 day period ended december 28 , 2010. management evaluates securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market conditions warrant such evaluation . the investment securities portfolio is generally evaluated for other-than-temporary impairment under asc 320-35-17 , investmentsdebt and equity securities . the following table summarizes other-than-temporary impairment losses on securities for the 184 days ended june 30 , 2011 : successor company equity securities trust preferred securities total ( dollars in thousands ) total other-than-temporary impairment losses $ $ 7 $ 7 less : unrealized other-than-temporary losses recognized in other comprehensive loss ( 1 ) net impairment losses recognized in earnings ( 2 ) $ $ 7 $ 7 ( 1 ) represents the noncredit component of the other-than-temporary story_separator_special_tag the management 's discussion and analysis of financial condition and results of operations , which follows , presents a review of the consolidated operating results of northeast bancorp , inc. ( the company ) for the 184-day period ended june 30 , 2011 , the 181-day period ended december 28 , 2010 and the fiscal years ended june 30 , 2010 and 2009. this discussion and analysis is intended to assist you in understanding the results of our operations and financial condition . you should read this discussion together with your review of the company 's consolidated financial statements and related notes and other statistical information included in this report . certain amounts in the periods prior to 2011 have been reclassified to conform to the 2011 presentation . financial presentation on december 29 , 2010 , the merger ( merger ) of the company and fhb formation llc ( fhb ) was consummated . fhb is the entity through which a group of independent accredited investors ( the investors ) purchased 937,933 shares of the company 's outstanding common stock and 1,161,166 shares of newly-issued voting and non-voting common stock , at a price equal to $ 13.93 per share . as a result of this transaction , $ 16.2 million of new capital was contributed to the company , and the investors collectively own approximately 60 % of the outstanding common shares of the company . we have applied the acquisition method of accounting , as described in accounting standards codification ( asc ) 805 , business combinations , to this transaction , which represents an acquisition by fhb of northeast , with northeast as the surviving company . as a result of application of the acquisition method of accounting to the company 's balance sheet , the company 's financial statements from the periods prior to the transaction date are not directly comparable to the financial statements for periods subsequent to the transaction date . to make this distinction , we have labeled balances and results of operations prior to the transaction date as predecessor company and balances and results of operations for periods subsequent to the transaction date as successor company. the lack of comparability arises from the assets and liabilities having new accounting bases as a result of recording them at their fair values as of the transaction date rather than at historical cost basis . to denote this lack of comparability , a heavy black line has been placed between the successor company and predecessor company columns in the consolidated financial statements and in the tables in the notes to the statements and in this discussion . in addition , the lack of comparability means that the periods being reported in the fiscal year ending june 30 , 2011 in the statements and tables are not the same periods as reported for the fiscal year ended june 30 , 2010. critical accounting policies critical accounting policies are those that involve significant judgments and assessments by management , and which could potentially result in materially different results under different assumptions and conditions . northeast considers the following to be its critical accounting policies : allowance for loan losses the allowance for loan losses represents management 's estimate of probable losses inherent in the loan portfolio . this accounting policy is considered critical due to the high degree of judgment involved , the subjectivity of the underlying assumptions used , and the potential for changes in the economic environment that could result in material changes in the amount of the allowance for loan losses considered necessary . the allowance is evaluated on a regular basis by management and is based on a periodic review of the collectability of the loans in light of historical delinquency and credit loss experience , together with analyses that reflect current trends for delinquent , non-performing and classified loans , the nature and size of the loan portfolio , adverse situations that may affect borrowers ' ability to repay , the estimated value of any underlying collateral and prevailing economic conditions . for a further discussion of the allowance for loan losses , please refer to asset quality below . intangible assets northeast considers accounting for its intangible assets to be critical because significant judgment is exercised in performing periodic valuations of these assets , which consist of customer list and non-compete agreement 38 intangibles arising from insurance agency acquisitions , and a core deposit intangible arising from the recent merger with fhb . these assets are being amortized over their estimated useful lives and evaluated for potential impairment on an annual basis as of each june 30th , or more frequently if events or circumstances indicate a potential for impairment . if impairment is detected , the carrying value of an intangible is reduced through a charge to earnings . the evaluation of our intangible assets involves estimations of discount rates and the timing of projected future cash flows , which are subject to change with changes in economic conditions and other factors . story_separator_special_tag we intend to develop programs to refer bank customers with insurance needs to spence & matthews and the varney agency , and as such , nbig is expected to continue operations in order to facilitate any such referrals . with the additional capital provided as a result of the merger and the sale of nbig assets , the company is in the process of augmenting its traditional community banking strategy with two new business initiatives : 1. a loan acquisition and servicing group ( lasg ) , to purchase performing commercial loans for portfolio and to service commercial loans for third parties . in the second half of fiscal 2011 , the lasg made significant investments in staffing and infrastructure to build its purchasing and servicing capabilities , and launched loan purchasing activities in the fourth quarter of fiscal 2011 . 2. an online deposit program , to provide a new source of core deposit funding for the bank . this program is currently under development , and is expected to begin operation in the second half of fiscal 2012. economic conditions we believe that our market area in maine has generally witnessed an economic decline and a decrease in residential and commercial real estate values starting in 2009 and continuing to the present . most recently , the maine unemployment rate has improved slightly , to 7.7 % from a high of 8.4 % in 2009 , but remains high by historic standards . residential real estate values have been relatively stable over the past year , but home sales across the state are down 10 % over the past 12 months , and are off 18 % in the first 6 months of 2011 , compared to the first half of 2010. the economy and real estate markets in our market areas will continue to be significant determinants of the quality of our assets in future periods and our results of operations , liquidity and financial condition . we believe future economic activity will depend significantly on consumer confidence , consumer spending , the value of real estate in our markets and business expenditures for new capital equipment , all of which are tied to strong employment . 40 story_separator_special_tag style= '' font-family : times new roman '' > 5,486 36 0.66 % 5,392 98 1.82 % short-term investments ( 5 ) 75,080 90 0.24 % 39,212 39 0.20 % 8,761 12 0.14 % 5,162 62 1.20 % total interest- earning assets interest income/ average rates earned 562,154 13,342 4.71 % 591,878 14,378 4.90 % 570,246 31,474 5.52 % 568,216 33,970 5.98 % non-interest earning assets : cash & due from banks 3,432 3,340 5,967 6,231 bank premises and equipment , net 8,153 8,006 8,592 9,010 other assets 35,533 32 620 32,575 31,616 allowance for loan losses ( 18 ) ( 5,902 ) ( 5,915 ) ( 5,761 ) total non-interest earning assets 47,100 38,064 41,219 41,096 total assets $ 609,254 $ 629,942 $ 611,465 $ 609,312 42 successor company predecessor company 184 days ended june 30 , 2011 181 days ended december 28 , 2010 twelve months ended june 30 , 2010 twelve months ended june 30 , 2009 average daily balance interest income/ expense average yield/ rate average daily balance interest income/ expense average yield/ rate average daily balance interest income/ expense average yield/ rate average daily balance interest income/ expense average yield/ rate ( dollars in thousands ) liabilities & stockholders ' equity : interest-bearing liabilities : now $ 56,386 $ 160 0.56 % $ 53,780 $ 183 0.69 % $ 48,271 $ 379 0.79 % $ 45,814 $ 454 0.99 % money market 52,238 135 0.51 % 55,955 212 0.76 % 43,974 532 1.21 % 29,021 544 1.87 % savings 34,799 67 0.38 % 38,303 99 0.52 % 29,366 181 0.62 % 19,515 69 0.36 % time 207,251 1,302 1.25 % 196,318 2,301 2.36 % 224,399 6,023 2.68 % 240,371 8,301 3.45 % total interest-bearing deposits 350,674 1,664 0.94 % 344,356 2,795 1.64 % 346,010 7,115 2.06 % 334,721 9,368 2.80 % short-term borrowing ( 6 ) 19,764 76 0.76 % 53,873 376 1.41 % 42,940 655 1.53 % 36,412 718 1.97 % borrowed funds 117,932 1,155 1.94 % 120,150 2,440 4.10 % 119,002 4,984 4.19 % 138,670 5,935 4.28 % junior subordinate debentures 7,921 365 9.14 % 16,496 340 4.16 % 16,496 759 4.60 % 16,496 959 5.81 % total interest-bearing liabilities/interest expense/average rates paid 496,291 3,260 1.30 % 534,875 5,951 2.24 % 524,448 13,513 2.58 % 526,299 16,980 3.23 % non-interest bearing liabilities : demand deposit and escrow accounts 43,761 37,941 34,186 33,616 other liabilities 4,075 5,576 3,332 4,601 total liabilities 544,127 578,392 561,966 564,516 stockholders ' equity 65,127 51,550 49,499 44,796 total liabilities and stockholders ' equity $ 609,254 $ 629,942 $ 611,465 $ 609,312 net interest income $ 10,082 $ 8,427 $ 17,961 $ 16,990 interest rate spread 3.41 % 2.66 % 2.94 % 2.75 % net yield on interest earning assets ( 7 ) 3.56 % 2.87 % 3.15 % 2.99 % ( 1 ) the yield information does not give effect to changes in fair value that are reflected as a component of stockholders ' equity . interest income and yield are stated on a fully tax-equivalent basis using a 30.84 % tax rate . ( 2 ) non-accruing loans are included in computation of average balance , but unpaid interest on nonperforming loans has not been included for purposes of determining interest income . ( 3 ) interest income on loans includes amortization of net deferred cost of $ 127 for 184 days ended june 30 , 2011 , $ 234 for 181 days ended december 28 , 2010 , $ 617 in fiscal 2010 , and $ 871 in fiscal 2009 . ( 4 ) includes loans held-for-sale . ( 5 ) short term investments included frb deposits in excess of reserves and other interest-bearing deposits . ( 6 ) short-term borrowings included securities sold under repurchase agreement and sweep accounts .
| results of operations comparison of 184 days ended june 30 , 2011 , 181 days ended december 28 , 2010 and fiscal year ended june 30 , 2010 overview successor company for the 184 days ended june 30 , 2011 , we reported net income of $ 12.6 million , or $ 3.47 per diluted share . the significant factors affecting the company 's net income for the 184 days ended june 30 , 2011 were : merger related activity , including a bargain purchase gain of $ 15.4 million included in noninterest income , and merger related expenses of $ 3.2 million included in noninterest expense . an increase in net interest income due to the application of acquisition accounting . the fair values of deposits , fhlb advances , and structured repurchase agreements were higher than their recorded amounts . the resulting premiums are being amortized against interest expense , reducing it to an amount lower than the nominal interest rate for these deposits and borrowed funds . net securities gains of $ 1.2 million realized from a restructuring of the investment portfolio . increases in noninterest expense that included increases in staffing and occupancy costs for the new senior management team and two new business lines , the loan acquisition and servicing group and online deposit program . an increase in intangible amortization expense resulting from a new $ 6.3 million core deposit intangible asset recorded in connection with the merger , and a merger-related increase of $ 964 thousand in the insurance agency customer list intangible . the amortization of these intangibles is based on accelerated methods . predecessor company for the 181 days ended december 28 , 2010 , we reported net income of $ 1.8 million , or $ 0.71 per diluted share .
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this agreement amended the milestone date associated with the contingently issuable common stock warrants from february 15 , 2014 to february 21 , 2014. in connection with the closing of the ipo , all of the company 's outstanding redeemable convertible preferred stock automatically converted to common stock as of february 18 , 2014 , resulting in an additional 8,952,057 shares of 101 common stock of the company becoming outstanding . as the company 's ipo was completed prior to february 21 , 2014 these warrants expired . the following is a summary of the company 's convertible preferred stock as of december 31 , 2013 : replace_table_token_22_th the holders of the preferred stock had the following rights and preferences : voting rights the holders of preferred stock were entitled to vote , together with the holders of common stock , on all matters story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with item 6. selected financial data and our consolidated financial statements and related notes appearing elsewhere in this annual report . 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 item 1a . risk factors . 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 special note regarding forward-looking statements. overview we are a specialty pharmaceutical company focused on the development and commercialization of novel , local therapies for the treatment of patients with musculoskeletal conditions , beginning with osteoarthritis , a type of degenerative arthritis , referred to as oa . our portfolio of product candidates addresses the oa pain treatment spectrum , from moderate to severe pain , and provides us with multiple unique opportunities to achieve our goal of commercializing novel , patient-focused therapies . our pipeline consists of two proprietary product candidates : zilretta , a late-stage sustained-release , intra-articular steroid , and fx007 , a pre-clinical trka receptor antagonist for post-operative pain . we retain the exclusive worldwide rights to our product candidates . we were incorporated in delaware in november 2007 , and to date we have devoted substantially all of our resources to our development efforts relating to our product candidates , including conducting clinical trials with our product candidates , providing general and administrative support for these operations and protecting our intellectual property . we do not have any products approved for sale and have not generated any revenue from product sales . from our inception through december 31 , 2015 , we have funded our operations primarily through the sale of our common stock and convertible preferred stock and , to a lesser extent , debt financing . from our inception through december 31 , 2015 , we have raised $ 259.4 million from such transactions , including from our initial and follow-on public offerings . until such time , if ever , as we can generate substantial product revenue , we expect to finance our cash needs through a combination of equity offerings , debt or other financings , government or third-party funding , and licensing or collaboration arrangements . we have incurred net losses in each year since our inception in 2007. our net losses were $ 46.3 million , $ 27.3 million , and $ 18.2 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . as of december 31 , 2015 , we had an accumulated deficit of $ 139.8 million . substantially all of our net losses resulted from costs incurred in connection with our development programs and from general and administrative expenses associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our expenses will increase substantially in connection with our ongoing activities , as we : continue the development of our lead product candidate , zilretta , including our on-going and future clinical trials ; seek to obtain regulatory approvals for zilretta ; continue to scale-up manufacturing activities including the supply of clinical trial materials and registration and commercial batches ; prepare for the potential launch and commercialization of zilretta , if approved ; establish a sales and marketing infrastructure for the commercialization of zilretta , if approved ; 70 expand our development activities and advance additional product candidates ; maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts and operations as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for zilretta or one of our other product candidates , which is subject to significant uncertainty . we anticipate that we will need to raise additional capital after fda approval of zilretta and completing clinical development of any of our other product candidates . until such time that we can generate substantial revenue from product sales , if ever , we expect to finance our operating activities through a combination of equity offerings , debt or other financings , including convertible debt financings , government or other third-party funding and collaborations , and licensing arrangements . story_separator_special_tag other general and administrative expenses include an allocation of facility-related costs , patent filing expenses , and professional fees for legal , consulting , auditing and tax services . we anticipate that our general and administrative expenses will increase in the future as we continue to build our corporate and commercial infrastructure to support the continued development and potential launch of zilretta or any of our other product candidates . additionally , we anticipate increased expenses related to the audit , legal and compliance , regulatory , investor relations and tax-related services associated with maintaining compliance with the securities and exchange commission nasdaq requirements and healthcare laws and compliance requirements , director and officer insurance premiums and other costs associated with operating as a publicly-traded company . other income ( expense ) interest income . interest income consists of interest earned on our cash , cash equivalents , marketable securities , and long-term investments balances . the primary objective of our investment policy is capital preservation . interest expense . in january 2013 , we borrowed $ 5.0 million under a credit facility with midcap financial sbic , lp , or midcap , and began to incur interest related to this borrowing at a fixed rate of 8.0 % per annum . in march 2015 , we paid midcap $ 3,236,019 to satisfy our obligation related to the credit facility . in august 2015 , we borrowed $ 15.0 million under a credit facility with midcap financial funding xiii trust and silicon valley bank , and began to incur interest related to this borrowing at a fixed rate of 6.25 % per annum . we expect to incur future interest expense related to this borrowing until february 1 , 2020. see liquidity and capital resources for a more detailed description of our credit facility . other expense . other expense consists of the net amortization and accretion of premiums and discounts related to our marketable securities , and our realized gains ( losses ) on redemptions of our marketable securities . we will continue to incur expenses related to net amortization of premiums on marketable securities for as long as we hold these investments . income taxes as of december 31 , 2015 , we had $ 62.4 million and $ 56.9 million of federal and state net operating loss carryforwards , respectively , and $ 3.6 million and $ 2.7 million of federal and state research and development tax credit carryforwards , respectively , available to offset our future taxable income , if any . these federal net operating loss carryforwards and research and development tax credit carryforwards expire at various dates beginning in 2029 , if not utilized and are subject to review and possible adjustment by the internal revenue service . the state net operating loss carryforwards and research and development tax credit carryforwards expire at various dates beginning in 2030 and 2025 , respectively , if not utilized and are subject to review and possible adjustment by the state tax authorities . at december 31 , 2015 , a full valuation allowance was recorded against our net operating loss carryforwards and our research and development tax credit carryforwards . if we experience a greater than 50 percent aggregate change in ownership of certain stockholders over a three-year period , utilization of our then-existing net operating loss carryforwards and research and development tax credit carryforwards will be subject to an annual limitation . 73 critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , and the reported revenue and expenses during the reported periods . we evaluate these estimates and judgments , including those described below , on an ongoing basis . we base our estimates on historical experience , known trends and events , contractual milestones and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 3 to our consolidated financial statements appearing elsewhere in this form 10-k , we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements and , therefore , consider these to be critical for fully understanding and evaluating our financial condition and results of operations . research and development costs as part of the process of preparing our financial statements , we are required to estimate our accrued and third-party prepaid research and development expenses . we base our accrued expenses related to clinical trials on estimates of patient enrollment and related expenses at clinical investigator sites , as well as estimates for services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical trials on our behalf . we review new and open contracts and communicate with applicable internal and vendor personnel to identify services that have been performed on our behalf and estimate the level of service performed and the associated costs incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost for accrued expenses . the majority of our service providers invoice us monthly in arrears for services performed ; however , some require advanced payments .
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 ( certain items may not foot due to rounding ) : replace_table_token_6_th 75 research and development expenses replace_table_token_7_th research and development expenses were $ 32.7 million and $ 17.9 million for the years ended december 31 , 2015 and 2014 , respectively . the increase in research and development expenses year over year of $ 14.8 million was primarily due to $ 10.4 million in zilretta program expenses related to the previously completed pivotal phase 2b clinical trial , the conduct of the recently completed phase 3 clinical trial , and manufacturing expenses related to clinical trial and potential commercial supplies . in addition , $ 4.4 million in personnel and other employee-related costs for additional headcount , stock compensation expense , and consulting costs contributed to the increase . general and administrative expenses general and administrative expenses were $ 13.4 million and $ 9.1 million for the years ended december 31 , 2015 and 2014 , respectively . the increase in general and administrative expenses year over year of $ 4.3 million was primarily due to salary and related costs associated with additional headcount , costs related to the creation of commercial marketing and sales capabilities and stock compensation expense . other income ( expense ) interest income was $ 1.2 million and $ 0.5 million for the years ended december 31 , 2015 and 2014 , respectively . the increase in interest income was primarily due to a larger average investment balance during 2015. interest expense was $ 0.6 million and $ 0.4 million for the years ended december 31 , 2015 and 2014 , respectively .
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our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere in this annual report on form 10-k. we use certain non-gaap financial measures that we believe are important for purposes of comparison to prior periods . this information is also used by our management to measure the profitability of our ongoing operations and analyze our business performance and trends . some of the numbers included herein have been rounded for the convenience of presentation . in july 2019 , the financial accounting standards board ( which we refer to as “ fasb ” ) issued accounting standards update 2019-07 , “ codification updates to sec sections-amendments to sec paragraphs pursuant to sec final rule releases no . 33-10532 , disclosure update and simplification '' , which changes were meant to simplify certain disclosures in financial condition and results of operations , particularly by eliminating year-to-year comparisons between prior periods previously disclosed . this section of this form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this form 10-k can be found in “ management 's discussion and 42 analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2019. business overview we are engaged in the development , design , construction , marketing and sale of single-family attached and detached homes in metropolitan areas in 17 states . in many of our projects , in addition to building homes , we are responsible for the entitlement and development of the underlying land . we build and sell homes under our century communities and century complete brands . we build and sell an extensive range of home types across a variety of price points with an emphasis on homes at affordable price points in their markets . our century communities brand targets a wide range of buyer profiles including : entry-level , first and second time move-up , and lifestyle homebuyers , and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections . our century complete brand targets first time homebuyers , primarily sells homes through retail studios and the internet , and provides no option or upgrade selections . our homebuilding operations are organized into the following five reportable segments : west , mountain , texas , southeast , and century complete . additionally , our indirect wholly-owned subsidiaries , inspire home loans , inc. , parkway title , llc , and ihl home insurance agency , llc , which provide mortgage , title , and insurance services , respectively , to our home buyers have been identified as our financial services segment . impact of covid-19 pandemic the outbreak of the novel coronavirus , ( covid-19 ) , which was declared a pandemic by the world health organization on march 11 , 2020 , created significant volatility , disruption , and uncertainty across the nation and abroad . it resulted in government restrictions , such as “ stay-at-home ” or “ shelter-in-place ” directives , quarantines , travel advisories and the implementation of social distancing measures , leading to the closure of businesses and weakened economic conditions resulting in an economic slowdown and recession . the homebuilding industry started to experience slowing sales trends in mid-march through april of 2020 at the outset of the widespread uncertainty concerning the pandemic . however , home sales began to sharply rebound in may and june of 2020 , aided by historically low interest rates , lack of supply , and potentially renewed desire from customers to move out of urban areas and or apartments and into new homes in suburban areas , which desire was likely accelerated by the covid-19 pandemic . these positive trends continued throughout the remainder of 2020. in response to the pandemic and government restrictions , we shifted our sales process to offer additional virtual online tours and appointments and , where permitted , appointment-only in-person meetings that comply with social distancing and other health and safety requirements and protocols . construction and sale of residential real estate were deemed essential businesses in almost all of our markets ; and accordingly , our operations , other than in certain markets during the first weeks of april , were exempted from applicable health orders . while these circumstances did not materially adversely affect our 2020 financial results , we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry have yet to be known . there is still uncertainty regarding the extent and duration of the covid-19 pandemic as the situation has continued to evolve and associated government and consumer responses have remained in a state of flux . recent increases in covid-19 positive cases have resulted and could continue to result in the slowing or altering of the “ re-opening ” plans of numerous state and local municipalities . despite overall strong demand and sales of our homes during the remainder of 2020 , continued future demand is uncertain as economic conditions are uncertain , in particular with respect to unemployment levels , which remain at historically high levels , and the extent to which and how long covid-19 and related government directives , actions , and economic relief efforts will impact the u.s. economy , unemployment levels , financial markets , credit and mortgage markets , consumer confidence , availability of mortgage loans to homebuyers , and other factors , including those described elsewhere in this report . a decrease in demand for our homes would adversely affect our operating results in future periods , as well as have a direct effect on the origination volume of and revenues from our financial services segment . story_separator_special_tag additionally , our results could be impacted by a decrease in home affordability as a result of price appreciation or increases in mortgage interest rates or tightening of mortgage lending standards . strategy our strategy is focused on increasing the returns on our inventory while generating strong profitability . in general , we are focused on the following initiatives : maintaining a strong balance sheet and prudent use of leverage ; while we offer homes that appeal to a broad range of entry-level , move-up , and lifestyle homebuyers , offerings are heavily weighted towards providing affordable housing options in each of our homebuyer segments ; preferring building move-in-ready homes over built-to-order homes , which we believe allows for a faster construction process , advantageous pricing with subcontractors , and shortened time period from home sale to home delivery , thus allowing us to more appropriately price the home ; maintaining a strong pipeline of future land holdings , including favoring lot option contracts to manage our risk to land holdings ; increasing our market share within our existing markets through organic growth and or acquisitions of other homebuilders already operating in the market ; 44 expanding into new markets that meet our underwriting criteria either through organic start-up operations or through acquisitions of existing homebuilders ; and controlling costs , including costs of home sales revenue and selling , general and administrative expenses , and generating further efficiencies , including through the increased reliance on digital marketing and direct outreach to potential customers through our website and digital tools , to achieve increased profitability . our operating strategy has resulted in significant growth in revenue and income before income taxes over the last five years , and we believe it will continue to produce positive results . we expect our operating strategy will continue to adapt to market changes , and we can not provide any assurance that our strategies will continue to be successful . the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 . 45 replace_table_token_2_th ( 1 ) this is a non-gaap financial measure and should not be used as a substitute for the company 's operating results prepared in accordance with gaap . see the reconciliations to the most comparable gaap measure and other information within our homebuilding gross margin section in this management 's discussion and analysis of financial condition and results of operations . an analysis of any non-gaap financial measure should be used in conjunction with results presented in accordance with gaap . ( 2 ) homebuilding gross margin percentage is inclusive of $ 2.2 million and $ 2.0 million for the years ended december 31 , 2020 and 2019 , respectively , in inventory impairment included within inventory impairment and other on our consolidated statements of operations . see note 13 – fair value disclosures in the notes to the consolidated financial statements for further detail . ( 3 ) the selling communities at period end for 2019 has been adjusted from prior year presentations to reflect selling communities in our century complete segment of 95 , which business was acquired in 2018 , and for which selling communities was previously not disclosed . 46 story_separator_special_tag 0 ; margin-top : 0 ; text-align : justify ; '' > our century complete segment generated income before income tax of $ 33.4 million for the year ended december 31 , 2020 , a 51.7 % increase over the prior year . the increase was driven by the increase in homes sales revenue of $ 75.0 million and an increase of 150 basis points in the percentage of income before income tax to home sales revenues , primarily the result of increasing revenues on a partially fixed cost base , for the year ended december 31 , 2020 as compared to the prior year . the increase in revenue was generated by both an increase in the number of homes delivered of 6.6 % , as well as an increase of 10.3 % in the average price per home . the increase in the number of homes delivered was driven by an increase in the number of selling communities open period over period . the increase in our average price per home was driven by increased pricing power as a result of strong market dynamics . income before income tax for the year ended december 31 , 2019 includes $ 4.5 million of non-recurring items including $ 2.8 million of impairment charges associated with the rebranding of wade jurney homes to century complete and $ 1.7 million associated with purchase accounting . financial services our financial services segment generated income before income tax of $ 48.5 million for the year ended december 31 , 2020 , a 353.9 % increase over the prior year . the increase was driven by the year over year increase in the number of mortgages originated of 98 % to 6,918 for the year ended december 31 , 2020 , coupled with increasing spreads on loans sold to third parties as a result of the demand for mortgages . the increase in the number of mortgages originated was due to an increase in our capture rate from 43 % for the year ended december 31 , 2019 to 64 % for the year ended december 31 , 2020 and the increase in the number of homes delivered by our century communities and century complete brands year over year .
| results of operations by segment replace_table_token_3_th west our west segment generated income before income tax of $ 71.4 million for the year ended december 31 , 2020 , a 66.0 % increase over the prior year . the increase was driven by the increase in homes sales revenue of $ 143.4 million and an increase of 250 basis points in the percentage of income before income tax to home sales revenues , as a result of increasing revenues on a partially fixed cost base , for the year ended december 31 , 2020 as compared to the prior year . the increase in revenue was generated by both an increase in the number of homes delivered of 20.7 % , as well as an increase of 5.1 % in the average price per home . the increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 33.9 % , and the increase in the average sales price was driven by both the mix of deliveries within individual communities and markets between years , as well as increased pricing power as a result of strong market dynamics . mountain our mountain segment generated income before income tax of $ 114.7 million for the year ended december 31 , 2020 , a 28.6 % increase over the prior year . the increase was driven by the increase in homes sales revenue of $ 119.2 million and an increase of 130 basis points in the percentage of income before income tax to home sales revenues , as a result of increasing revenues on a partially fixed cost base , for the year ended december 31 , 2020 as compared to the prior year . the increase in revenue was generated by an increase in the number of homes delivered of 18.5 % , which was partially offset by a decrease of 1.6 % in the average price per home .
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in connection with the undertaking agreement , on march 23 , 2017 : ( i ) superior entered into a business combination agreement with uniwheels pursuant to which , subject to the provisions of the german stock corporation act , uniwheels and its subsidiaries undertook to , among other things , cooperate with the financing of the acquisition ; and ( ii ) superior and the significant holder entered into a guarantee and indemnification agreement pursuant to which superior will hold the significant holder harmless for claims that may arise relating to its involvement with uniwheels . as uniwheels was a company listed story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data in this annual report . this discussion contains forward-looking statements , which involve risks and uncertainties . please refer to the section entitled forward looking statements at the beginning of this annual report immediately prior to item 1. our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors , including but not limited to those discussed in item 1a , risk factors and elsewhere in this annual report . executive overview we believe we are the # 1 north american aluminum wheel manufacturer , the # 3 european aluminum wheel manufacturer and the # 1 european aluminum wheel aftermarket supplier . our oem aluminum wheels accounted for approximately 94 percent of our sales and are primarily sold for factory installation on many vehicle models manufactured by audi , bmw , fca , ford , gm , jaguar-land rover , mercedes-benz , mitsubishi , nissan , subaru , tesla , toyota , volkswagen and volvo . we sell aluminum wheels to the european aftermarket under the brands ats , rial , alutec and anzio . north america and europe represent the principal markets for our products 27 but we have a global presence and influence with north american , european and asian oems . with the acquisition of our european operations in 2017 , we diversified our customer base from predominately north american oems ( e.g . ford and g.m . ) to a global customer base of oems ( e.g . audi , mercedes-benz , and toyota ) . the following chart demonstrates the shift in diversification of our business from 2016 to 2017. diversification historically , the focus of the company was on providing wheels for relatively high-volume programs with lower degrees of competitive differentiation . in order to improve our strategic position and better serve our customers , we are augmenting our product portfolio with wheels containing higher technical content and greater differentiation . we believe this direction is consistent with current trends in the market and needs of our customers . to achieve this objective , we have invested in the past and continue to invest in new manufacturing capabilities in order to produce more sophisticated finishes and larger diameter products , which typically provide higher value in the market . the acquisition of our european operations and the construction of a new finishing facility align with this strategic mission . we are in the process of constructing a physical vapor deposition pvd finishing facility , which will establish us as the first oem automotive wheel manufacturer to have this capability in-house . pvd is a wheel coating process that creates bright chrome-like surfaces in an environmentally friendly manner . as a result of the acquisition of the european operations on may 30 , 2017 , we have broadened our product portfolio and acquired a significant customer share with european oems , including audi , jaguar-land rover , mercedes benz and volvo . the acquisition is not only complementary in terms of customers , market coverage and product offerings but also very much aligned with our strategic direction with a priority focus on larger diameter wheels , premium finishes , luxury brands and specialty wheels for high performance motorsport racing vehicles , all providing enhanced opportunity for higher margin business . with the acquisition , our global reach encompasses sales to nine of the ten largest oems in the world with sales surpassing $ 1.1 billion . the following charts show sales by major customer . the sales to our top four customers in 2017 represented 59 percent of total sales compared to 88 percent in 2016 . 28 sales by customer net sales in 2017 increased 51 percent to $ 1,108.1 million from $ 733 million in 2016 due to the inclusion of seven months of our european operations . our north american sales were $ 732 million and $ 733 million for 2017 and 2016 , respectively . during 2017 , we incurred $ 44.3 million in nonrecurring costs related to the acquisition of uniwheels and integration of our european business with our north american operations . excluding the nonrecurring costs , our income from operations improved compared to last year due to the inclusion of the seven months of european operations . we anticipate incurring further integration costs in 2018 to complete the integration of the two companies . the following charts show the impact of the nonrecurring costs on our 2017 operating results . sales and profitability * income from operations in 2017 includes $ 44.3 million in costs related to acquisition costs and integration costs . * see the non-gaap financial measures section of this annual report for a reconciliation of our adjusted ebida to income from operations . our current year income from operations decreased while our adjusted ebitda increased . income from operations decreased in 2017 to $ 21.5 million from $ 54.6 million in 2016 due to $ 44.3 million of nonrecurring expenses related to the acquisition of uniwheels and integration of our european business . story_separator_special_tag we continued to invest in our machinery through higher levels of maintenance than in past years to alleviate the production issues that we have experienced since the second quarter of 2016. europe we acquired the uniwheels business on may 30 , 2017 , which comprises our european operations . as a result , we have included seven months of our european operations in our consolidated statement of operations for 2017. the european operations sales increased over the same seven-month period last year by 18.6 percent . income from operations for this period included purchase accounting adjustments of $ 14.8 million related to inventory , and other expenses related to the acquisition and integration of the business . 2016 versus 2015 net sales net sales in 2016 increased $ 4.8 million to $ 732.7 million from $ 727.9 million in 2015. wheel shipments increased by 9 percent in 2016 compared to 2015 resulting in $ 60.8 million higher sales compared to 2015. net sales were unfavorably impacted by a decline in the value of the aluminum component of sales which we 33 generally pass through to our customers and resulted in $ 61.5 million lower revenues . the average selling price of our wheels decreased 8 percent due to the unfavorable impact of the decline in aluminum value . increases in unit shipments to gm , nissan , toyota and subaru were partially offset by decreases in unit shipments to ford and fca . wheel program development revenues totaled $ 10.0 million in 2016 and $ 6.9 million in 2015. u.s. operations net sales of our u.s. plants in 2016 decreased 32 percent , to $ 120.4 million from $ 177.2 million in 2015 , reflecting a decrease in unit shipments and a decrease in the average selling price of our wheels . unit shipments from our u.s. plants decreased 28 percent in 2016 , primarily reflecting the reallocation of production volume to our plants in mexico . the decline in volume resulted in $ 50.5 million lower sales . the average selling price of our wheels decreased 7 percent primarily due to the decline in the value of the aluminum component coupled with the mix of wheel sizes and finishes sold . the lower aluminum value decreased revenues by approximately $ 9.4 million when compared to 2015. mexico operations net sales of our mexico plants in 2016 increased 11 percent , to $ 612.3 million from $ 550.7 million in 2015 , reflecting a 20 percent increase in unit shipments offset partially by an 8 percent decrease in the average selling prices of our wheels . the unit shipment volume increase in 2016 resulted in $ 111.3 million higher sales . the 8 percent decrease in the average selling price of our wheels was primarily a result of the lower pass-through price of aluminum partially offset by a favorable mix of wheel sizes and finishes sold . the lower aluminum value decreased revenues by approximately $ 52.1 million when compared to 2015. our major customer mix , based on unit shipments , is shown below : replace_table_token_9_th according to ward 's auto info bank , overall north american production of passenger cars and light-duty trucks in 2016 increased approximately 3 percent , while production of the specific passenger car and light-duty truck programs using our wheels increased 1 percent . in contrast to the overall market , our total shipments increased by 9 percent , resulting in our share of the north american aluminum wheel market increasing by 1 percentage point on a year-over-year basis . the increase in market share was 4 percentage points in passenger car programs , offset by a 3 percentage point decline in light-duty trucks . cost of sales in 2016 , our consolidated cost of goods sold decreased $ 10.2 million to $ 646.5 million , or 88 percent of net sales , compared to $ 656.7 million , or 90 percent of net sales , in 2015. cost of sales in 2016 primarily reflects a decline in aluminum prices of approximately $ 53.8 million , which we generally pass through to our customers , offset by an increase in freight , maintenance and supply costs . freight costs increased $ 16.4 million to $ 20.4 million in 2016 , compared to $ 4.0 million in 2015 due mainly to expedited shipments of approximately $ 13 million to customers arising from the operating inefficiencies discussed in the executive overview section . repair and maintenance costs increased $ 4.3 million and supply costs increased $ 3.4 million in 2016 when compared to 2015. cost of sales associated with corporate services such as engineering support for wheel program development and manufacturing support increased $ 2.4 million in 2016 when compared to 2015 primarily due to pre-production charges incurred on new product platforms and increased compensation costs . 34 u.s. operations cost of sales for our u.s. operations decreased in 2016 by $ 61.6 million , or 30 percent when compared to 2015. the 2016 decline in cost of sales for our u.s. plant primarily reflects the effect of reallocating production volume to our mexico facilities which resulted in a 28 percent decline in unit shipments and the reduction of labor and aluminum costs by $ 6.1 million and $ 10.9 million , respectively , when compared to 2015. lower aluminum prices also contributed to the decline . mexico operations cost of sales for our mexico operations increased by $ 51.4 million in 2016 when compared to 2015 , which is mainly driven by a 20 percent increase in wheel shipments . during 2016 , plant labor and benefit costs , including overtime premiums , increased approximately $ 4.6 million , primarily as a result of higher average headcount and wage increases . direct material and contract labor costs increased approximately $ 1.9 million from 2015 primarily due to the 20 percent rise in unit shipments .
| results of operations replace_table_token_6_th ( 1 ) value added sales is a key measure that is not calculated according to gaap . in the discussion of operating results , we provide information regarding value added sales . value added sales represents net sales less the value of aluminum and services provided by outside service providers that are included in net sales . as discussed further below , arrangements with our customers allow us to pass on changes in aluminum prices and outside service provider costs ; therefore , fluctuations in underlying aluminum prices and the use of outside service providers generally do not directly impact our profitability . accordingly , value added sales is worthy 30 of being highlighted for the benefit of users of our financial statements . our intent is to allow users of the financial statements to consider our net sales information both with and without the aluminum and outside service provider cost components thereof . management utilizes value added sales as a key metric to determine growth of the company because it eliminates the volatility of aluminum prices . see the non-gaap financial measures section of this annual report for a reconciliation of value added sales to net sales . ( 2 ) adjusted ebitda is a key measure that is not calculated according to gaap . adjusted ebitda is defined as earnings before interest income and expense , income taxes , depreciation , amortization , restructuring and other closure costs , impairments of long-lived assets and investments , acquisition costs and integration costs . we use adjusted ebitda as an important indicator of the operating performance of our business . we use adjusted ebitda in internal financial forecasts and models when establishing internal operating budgets , supplementing the financial results and forecasts reported to our board of directors and evaluating short-term and long-term operating trends in our operations .
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comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 story_separator_special_tag serif ; margin : 0 ; text-align : justify '' > 11 level 2 : inputs other than quoted prices that are observable , either directly or indirectly . these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active . level 3 : unobservable inputs in which little or no market data exists , therefore developed using estimates and assumptions developed by us , which reflect those that a market participant would use . revenue recognition in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers , and issued subsequent amendments to the initial guidance in august 2015 , march 2016 , april 2016 , may 2016 , and december 2016 within asu 2015-14 , asu 2016-08 , asu 2016-10 , asu 2016-12 and asu 2016-20 , respectively . the core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . the new guidance defines a five-step process to achieve this core principle . the new guidance also requires more detailed disclosures to enable users of financial statements to understand the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers . the new guidance provides for two transition methods , a full retrospective approach and a modified retrospective approach . on january 1 , 2018 , the company adopted asc topic 606 using the modified retrospective method with no impact to the opening retained earnings and determined there were no changes required to its reported revenues as a result of the adoption . an analysis of contracts with customers under the new revenue recognition standard was consistent with the company 's current revenue recognition model , whereby revenue is recognized primarily on the date products are shipped to the customer . the company has enhanced its disclosures of revenue to comply with the new guidance . results for reporting periods beginning after january 1 , 2018 are presented under asc topic 606 , while prior period amounts were not adjusted and continue to be reported in accordance with asc topic 605 , “ revenue recognition. ” we recognize revenue for merchandise sales , net of expected returns and sales tax , at the time of in-store purchase or delivery of the product to our guest . when merchandise is shipped to our guests , we estimate receipt based on historical experience . revenue is deferred and a liability is established for sales returns based on historical return rates and sales for the return period . we recognize an asset and corresponding adjustment to cost of sales for our right to recover returned merchandise . at each financial reporting date , we assess our estimates of expected returns , refund liabilities and return assets . for merchandise sold in our stores and online , tender is accepted at the point of sale . when we receive payment before the guest has taken possession of the merchandise , the amount received is recorded as deferred revenue until the transaction is complete . our performance obligations for unfulfilled merchandise orders are typically satisfied within one week . shipping and handling fees charged to guests relate to fulfillment activities and are included in net sales with the corresponding costs recorded in cost of sales . we provide consulting services which were minimal for the years ended december 31 , 2019 and 2018 , respectively . these revenues are included in discontinued operations . stock-based compensation the company accounts for stock-based instruments issued to employees in accordance with asc topic 718. asc topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees . the company accounts for non-employee share-based awards in accordance with asc topic 505-50. the value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . recently issued accounting pronouncements we have decided to take advantage of the exemptions provided to emerging growth companies under the jobs act and as a result our financial statements may not be comparable to companies that comply with public company effective dates . we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies , including not being required to comply with the auditor attestation requirements of section 404 of the sarbanes-oxley act , delay compliance with new or revised accounting standards that have different effective dates for public and private companies until they are made applicable to private companies . company management does not believe that any other recently issued , but not yet effective accounting pronouncements , if adopted , would have a material effect on the accompanying financial statements . we are susceptible to general economic conditions , natural catastrophic events and public health crises , and a potential downturn in advertising and marketing spending by advertisers could adversely affect our operating results in the near future . our business is subject to the impact of natural catastrophic events , such as earthquakes , or floods , public health crisis , such as disease outbreaks , epidemics , or pandemics , and all these could result in a decrease or sharp story_separator_special_tag comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 story_separator_special_tag serif ; margin : 0 ; text-align : justify '' > 11 level 2 : inputs other than quoted prices that are observable , either directly or indirectly . these include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active . level 3 : unobservable inputs in which little or no market data exists , therefore developed using estimates and assumptions developed by us , which reflect those that a market participant would use . revenue recognition in may 2014 , the fasb issued asu 2014-09 , revenue from contracts with customers , and issued subsequent amendments to the initial guidance in august 2015 , march 2016 , april 2016 , may 2016 , and december 2016 within asu 2015-14 , asu 2016-08 , asu 2016-10 , asu 2016-12 and asu 2016-20 , respectively . the core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . the new guidance defines a five-step process to achieve this core principle . the new guidance also requires more detailed disclosures to enable users of financial statements to understand the nature , amount , timing , and uncertainty of revenue and cash flows arising from contracts with customers . the new guidance provides for two transition methods , a full retrospective approach and a modified retrospective approach . on january 1 , 2018 , the company adopted asc topic 606 using the modified retrospective method with no impact to the opening retained earnings and determined there were no changes required to its reported revenues as a result of the adoption . an analysis of contracts with customers under the new revenue recognition standard was consistent with the company 's current revenue recognition model , whereby revenue is recognized primarily on the date products are shipped to the customer . the company has enhanced its disclosures of revenue to comply with the new guidance . results for reporting periods beginning after january 1 , 2018 are presented under asc topic 606 , while prior period amounts were not adjusted and continue to be reported in accordance with asc topic 605 , “ revenue recognition. ” we recognize revenue for merchandise sales , net of expected returns and sales tax , at the time of in-store purchase or delivery of the product to our guest . when merchandise is shipped to our guests , we estimate receipt based on historical experience . revenue is deferred and a liability is established for sales returns based on historical return rates and sales for the return period . we recognize an asset and corresponding adjustment to cost of sales for our right to recover returned merchandise . at each financial reporting date , we assess our estimates of expected returns , refund liabilities and return assets . for merchandise sold in our stores and online , tender is accepted at the point of sale . when we receive payment before the guest has taken possession of the merchandise , the amount received is recorded as deferred revenue until the transaction is complete . our performance obligations for unfulfilled merchandise orders are typically satisfied within one week . shipping and handling fees charged to guests relate to fulfillment activities and are included in net sales with the corresponding costs recorded in cost of sales . we provide consulting services which were minimal for the years ended december 31 , 2019 and 2018 , respectively . these revenues are included in discontinued operations . stock-based compensation the company accounts for stock-based instruments issued to employees in accordance with asc topic 718. asc topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees . the company accounts for non-employee share-based awards in accordance with asc topic 505-50. the value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . the company estimates the fair value of each stock option at the grant date by using the black-scholes option-pricing model . recently issued accounting pronouncements we have decided to take advantage of the exemptions provided to emerging growth companies under the jobs act and as a result our financial statements may not be comparable to companies that comply with public company effective dates . we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies , including not being required to comply with the auditor attestation requirements of section 404 of the sarbanes-oxley act , delay compliance with new or revised accounting standards that have different effective dates for public and private companies until they are made applicable to private companies . company management does not believe that any other recently issued , but not yet effective accounting pronouncements , if adopted , would have a material effect on the accompanying financial statements . we are susceptible to general economic conditions , natural catastrophic events and public health crises , and a potential downturn in advertising and marketing spending by advertisers could adversely affect our operating results in the near future . our business is subject to the impact of natural catastrophic events , such as earthquakes , or floods , public health crisis , such as disease outbreaks , epidemics , or pandemics , and all these could result in a decrease or sharp
| results of operations revenue for the year ended december 31 , 2019 , the company had revenues from continuing operations of $ 3,821,106 compared to $ 3,558,483 for the same period in 2018. the increase in revenue of $ 262,623 , or 7.4 % , is primarily due to marketing programs with area schools . cost of revenues the cost of revenues for the year ended december 31 , 2019 was $ 2,042,422 compared to $ 2,141,722 for the same period in 2018. cost of revenues for 2019 was 53.5 % of revenue compared to 60.2 % of revenue for 2018. the primary cause of the decrease as a percentage of revenue was due to increased efficiencies from the purchased of manufacturing equipment in 2019 and 2018 . 9 general and administrative expenses the general and administrative expenses were $ 1,506,750 for the year ended december 31 , 2019 compared to $ 1,423,442 for the same period in 2018. the increase in 2019 in general and administrative expenses was approximately 5.9 % primarily due to growth . net income ( loss ) from continuing operations the net income from continuing operations for the year ended december 31 , 2019 was $ 231,663 compared to net loss from continuing operations of $ 228,882 for the same period in 2018. discontinued operations the net income from discontinued operations for the year ended december 31 , 2019 was $ 143,617 compared to a net loss from discontinued operations for the year ended december 31 , 2018 of $ 124,155. the majority of the net income from discontinued operations in 2019 is the gain on forgiveness of related party advances and compensation of $ 140,200. liquidity and capital resources general at december 31 , 2019 , we had cash of $ 275,422. we have historically met our cash needs through a combination of cash flows from operating activities and proceeds from loans and financing by our officers and
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69 community bankers trust corporation notes to consolidated financial statements ( continued ) the following table summarizes average recorded investment of impaired loans for the years ended december 31 , 2012 , 2011 , and 2010 ( dollars in thousands ) : replace_table_token_46_th the majority of impaired loans are also nonaccruing for which no interest income was recognized during each of the years ended december , 2012 , 2011 and 2010. no significant amounts of interest income were recognized on accruing impaired loans for the years ended december , 2012 , 2011 and 2010. the following table presents non-covered nonaccrual loans by category ( dollars in thousands ) : replace_table_token_47_th troubled debt restructurings , story_separator_special_tag the following discussion and analysis of the financial condition at december 31 , 2012 and results of operations for the year ended december 31 , 2012 of community bankers trust corporation ( the company ) should be read in conjunction with the company 's consolidated financial statements and the accompanying notes to consolidated financial statements included in this report . general community bankers trust corporation ( the company ) is a bank holding company that was incorporated under delaware law on april 6 , 2005. the company is headquartered in glen allen , virginia and is the holding company for essex bank ( the bank ) , a virginia state bank with 24 full-service offices in virginia , maryland and georgia . the bank also operates two loan production offices in virginia . the bank engages in general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses , including individual and commercial checking , savings and time deposit accounts , commercial and industrial loans , consumer and small business loans , real estate and mortgage loans , investment services , on-line and mobile banking products , and safe deposit box facilities . thirteen offices are located in virginia , primarily from the chesapeake bay to just west of richmond , seven are located in maryland along the baltimore-washington corridor and four are located in the atlanta , georgia metropolitan market . the company generates a significant amount of its income from the net interest income earned by the bank . net interest income is the difference between interest income and interest expense . interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon . the company 's cost of funds is a function of the average amount of interest-bearing deposits and borrowed money outstanding during the period and the interest rates paid thereon . the quality of the assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses . additionally , the bank earns noninterest income from service charges on deposit accounts and other fee or commission-based services and products . other sources of noninterest income can include gains or losses on securities transactions , gains from loan sales , transactions involving bank-owned property , and income from bank owned life insurance ( boli ) policies . the company 's income is offset by noninterest expense , which consists of salaries and benefits , occupancy and equipment costs , professional fees , the amortization of intangible assets and other operational expenses . the provision for loan losses and income taxes materially affect income . caution about forward-looking statements the company makes certain forward-looking statements in this report that are subject to risks and uncertainties . these forward-looking statements include statements regarding our profitability , liquidity , allowance for loan losses , interest rate sensitivity , market risk , growth strategy , and financial and other goals . these forward-looking statements are generally identified by phrases such as the company expects , the company believes or words of similar import . these forward-looking statements are subject to significant uncertainties because they are based upon or are affected by factors , including , without limitation , the effects of and changes in the following : the quality or composition of the company 's loan or investment portfolios , including collateral values and the repayment abilities of borrowers and issuers ; assumptions that underlie the company 's allowance for loan losses ; general economic and market conditions , either nationally or in the company 's market areas ; the ability of the company to comply with regulatory actions , and the costs associated with doing so ; the interest rate environment ; competitive pressures among banks and financial institutions or from companies outside the banking industry ; real estate values ; 27 the demand for deposit , loan , and investment products and other financial services ; the demand , development and acceptance of new products and services ; the company 's compliance with , and the timing of future reimbursements from the fdic to the company under , the shared loss agreements ; assumptions and estimates that underlie the accounting for loan pools under the shared loss agreements ; consumer profiles and spending and savings habits ; the securities and credit markets ; costs associated with the integration of banking and other internal operations ; management 's evaluation of goodwill and other assets on a periodic basis , and any resulting impairment charges , under applicable accounting standards ; the soundness of other financial institutions with which the company does business ; inflation ; technology ; and legislative and regulatory requirements . these factors and additional risks and uncertainties are described in the risk factors discussion in part i , item 1a , of this report . although the company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations , there can be no assurance that actual results , performance or achievements of the company will not differ materially from any future results , performance or achievements expressed or implied by such forward-looking statements . story_separator_special_tag fasb asc 310-30 , loans and debt securities acquired with deteriorated credit quality ( formerly sop 03-3 ) , applies to loans acquired in a transfer with evidence of deterioration of credit quality for which it is probable , at acquisition , that the investor will be unable to collect all contractually required payments receivable . the company is applying the provisions of fasb asc 310-30 to all loans acquired in the sfsb acquisition . the company has grouped loans together based on common risk characteristics including product type , delinquency status and loan documentation requirements among others . the covered loans acquired are subject to credit review standards described above for non-covered loans . if and when credit deterioration occurs subsequent to the acquisition date , a provision for credit loss for covered loans will be charged to earnings for the full amount without regard to the shared loss agreements . the company has made an estimate of the total cash flows it expects to collect from each pool of loans , which includes undiscounted expected principal and interest . the excess of that amount over the fair value of the pool is referred to as accretable yield . accretable yield is recognized as interest income on a constant yield basis over the life of the pool . the company also determines each pool 's contractual principal and contractual interest payments . the excess of that amount over the total cash flows it expects to collect from the pool is referred to as nonaccretable difference , which is not accreted into income . judgmental prepayment assumptions are applied to both contractually required payments and cash flows expected to be collected at acquisition . over the life of the loan or pool , the company continues to estimate cash flows expected to be collected . subsequent decreases in cash flows expected to be collected over the life of the pool are recognized as an impairment in the current period through allowance for loan loss . subsequent increases in expected or actual cash flows are first used to reverse any existing valuation allowance for that loan or pool . any remaining increase in cash flows expected to be collected is recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the pool . 29 fdic indemnification asset the company is accounting for the shared loss agreements as an indemnification asset pursuant to the guidance in fasb asc 805 , business combinations . the fdic indemnification asset is required to be measured in the same manner as the asset or liability to which it relates . the fdic indemnification asset is measured separately from the covered loans and other real estate owned assets ( oreo ) because it is not contractually embedded in the covered loan and oreo assets , and is not transferable should the company choose to dispose of them . fair value was estimated using projected cash flows available for loss sharing based on the credit adjustments estimated for each loan pool and other real estate owned and the loss sharing percentages outlined in the shared loss agreements . these cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the fdic . because the acquired loans are subject to shared loss agreements and a corresponding indemnification asset exists to represent the value of expected payments from the fdic , increases and decreases in loan accretable yield due to changing loss expectations will also have an impact to the valuation of the fdic indemnification asset . improvement in loss expectations will typically increase loan accretable yield and decrease the value of the fdic indemnification asset , and in some instances , result in an amortizable premium on the fdic indemnification asset . increases in loss expectations will typically be recognized as impairment in the current period through allowance for loan losses , resulting in additional noninterest income for the amount of the increase in the fdic indemnification asset . goodwill and other intangible assets the company is accounting for goodwill and other intangible assets in accordance with fasb asc 350 , intangiblesgoodwill and others . fasb asc 350 discontinues any amortization of goodwill and other intangible assets with indefinite lives , but requires an impairment review at least annually or more often if certain conditions exist . goodwill impairment charges of $ 5.727 million were realized in 2010. all of the company 's goodwill has been impaired and the carrying value at december 31 , 2010 was $ 0. additionally , under fasb asc 350 , acquired intangible assets ( such as core deposit intangibles ) are separately recognized if the benefit of the assets can be sold , transferred , licensed , rented , or exchanged , and amortized over their useful lives the costs of purchased deposit relationships and other intangible assets , based on independent valuation by a qualified third party , are being amortized over their estimated lives . core deposit intangible amortization expense charged to operations was $ 2.3 million for each of the years ended december 31 , 2012 , 2011 and 2010. the core deposit intangible is evaluated for impairment in accordance with fasb asc 350. income taxes deferred income tax assets and liabilities are determined using the liability ( or balance sheet ) method . under this method , the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws . when tax returns are filed , it is highly certain that some positions taken would be sustained upon examination by the taxing authorities , while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained .
| results of operations net income for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 , net income increased $ 4.1 million , or 286.6 % , from net income of $ 1.4 million in 2011 to net income of $ 5.6 million in 2012. net income available to common stockholders was $ 4.5 million , or $ 0.21 per common share on a diluted basis , for the year ended december 31 , 2012 compared with net income available to common stockholders of $ 354,000 , or $ 0.02 per common share on a diluted basis , for the year ended december 31 , 2011. the increase of $ 4.1 million in net income available to common stockholders was driven by a decrease in noninterest expense of $ 6.6 million , or 14.3 % , a decrease in noninterest income of $ 907,000 , or 16.8 % , and a reduction in provision for loan losses of $ 298,000 , or 19.9 % . this increase was offset by an increase in income tax expense of $ 2.1 million . for the year ended december 31 , 2011 compared to the year ended december 31 , 2010 , net income increased $ 22.4 million , or 106.9 % , from net loss of $ 21.0 million in 2010 to net income of $ 1.4 million in 2011. net income available to common stockholders was $ 354,000 , or $ 0.02 per common share on a diluted basis for the year ended december 31 , 2011 , compared with a net loss available to common stockholders of $ 22.1 million , or $ 1.03 per common share on a diluted basis , for the year ended december 31 , 2010. the improvement in net income for 2011 compared with 2010 was driven by a reduction of $ 25.9 million in provision for loan losses and a reduction of $ 5.7 million in impairment of
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there was no balance in the current portion of the deferred compensation plan liability at december 31 , 2019. the fair value of the long-term story_separator_special_tag overview the company is a leading provider of business management solutions for small and mid-sized companies . the company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry . this platform , through the effective leveraging of human capital , helps our business owner clients run their businesses more effectively . we believe this platform , delivered through a decentralized organizational structure , differentiates bbsi from our competitors . we report revenues in our financial results in two categories of services : professional employer services ( “ peo ” ) and staffing . with our peo clients , we enter into a co-employment arrangement in which we become the administrative employer while the client maintains physical care , custody and control of their workforce . our peo services are billed as a percentage of client payroll , with the gross amount invoiced including direct payroll costs , employer payroll-related taxes , workers ' compensation coverage ( if provided ) and a service fee . peo customers are invoiced following the end of each payroll processing cycle , with payment generally due on the invoice date . revenues for peo services exclude direct payroll billings because we are not the primary obligor for those payments . we generate staffing services revenues primarily from short-term staffing , contract staffing , on-site management and direct placement services . for staffing services other than direct placement , invoiced amounts include direct payroll , employer payroll-related taxes , workers ' compensation coverage and a service fee . staffing customers are invoiced weekly and typically have payment terms of 30 days . direct placement services are billed at agreed fees at the time of a successful placement . our business is concentrated in california , and we expect to continue to derive a majority of our revenues from this market in the future . revenues generated in our california operations accounted for 75 % of our total revenues in 2020 , 77 % in 2019 and 79 % in 2018. consequently , any weakness in economic conditions or changes in the regulatory or insurance environment in california could have a material adverse effect on our financial results . our cost of revenues for peo services includes employer payroll-related taxes and workers ' compensation costs . our cost of revenues for staffing services includes direct payroll costs , employer payroll-related taxes , employee benefits , and workers ' compensation costs . direct payroll costs represent the gross payroll earned by staffing services employees based on salary or hourly wages . payroll taxes and employee benefits consist of the employer 's portion of social security and medicare taxes , federal and state unemployment taxes and staffing services employee reimbursements for materials , supplies and other expenses , which are paid by our customer . workers ' compensation costs consist primarily of the costs associated with our workers ' compensation program , including claims reserves , claims administration fees , legal fees , medical cost containment ( “ mcc ” ) expense , state administrative agency fees , third-party broker commissions , risk manager payroll , premiums for excess insurance and the fronted insurance program , and costs associated with operating our two wholly owned insurance companies , aice and ecole . selling , general and administrative expenses represent both branch office and corporate-level operating expenses . branch operating expenses consist primarily of branch office staff payroll and personnel related costs , advertising , rent , office supplies , professional and legal fees and branch incentive compensation . corporate-level operating expenses consist primarily of executive and office staff payroll and personnel related costs , professional and legal fees , travel , occupancy costs , information systems costs , and executive and corporate staff incentive compensation . 24 depreciation and amortization represent depreciation of property and equipment , leasehold improvements , software and internally develop ed software costs . property , equipment , software and internally developed software costs are depreciated using the straight-line method over their estimated useful lives , which range from 3 to 39 years . leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life . critical accounting policies and estimates we have identified the following accounting estimate as critical to our business and the understanding of our results of operations . for a detailed discussion of the application of this and other accounting policies , see “ note 1 - summary of operations and significant accounting policies ” to the consolidated financial statements in item 8 of part ii of this report . the preparation of this annual report on form 10-k requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . workers ' compensation reserves we recognize our liability for the ultimate payment of incurred claims and claims adjustment expenses by establishing a reserve which represents our estimates of future amounts necessary to pay claims and related expenses with respect to workplace injuries that have occurred . when a claim involving a probable loss is reported , our independent third-party administrator for workers ' compensation claims ( “ tpa ” ) establishes a case reserve for the estimated amount of ultimate loss . story_separator_special_tag such factors with respect to the company include our ability to retain current clients and attract new clients , the effects of governmental orders imposing business closures and shelter-in-place and social distancing requirements , difficulties associated with integrating clients into our operations , economic trends in our service areas , the potential for material deviations from expected future workers ' compensation claims experience , changes in the workers ' compensation regulatory environment in our primary markets , security breaches or failures in the company 's information technology systems , collectability of accounts receivable , changes in effective payroll tax rates and federal and state income tax rates , the carrying values of deferred income tax assets and goodwill ( which may be affected by our future operating results ) , the impact of and potential changes to the patient protection and affordable care act , escalating medical costs , and other health care legislative initiatives on our business , the effect of conditions in the global capital markets on our investment portfolio , and the availability of capital , borrowing capacity on our revolving credit facility , or letters of credit necessary to meet state-mandated surety deposit requirements for maintaining our status as a qualified self-insured employer for workers ' compensation coverage or our fronted insurance program . additional risk factors affecting our business are discussed in item 1a of part i of this report . we disclaim any obligation to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future events or developments . results of operations the spread of covid-19 and resulting shelter-in-place and similar restrictions across the united states are having , and will continue to have , a negative impact on the operating results of the company . as our clients respond to the effects of efforts to address the consequences of the pandemic , including the measures taken at various levels of government to contain the virus 's spread , we expect that our ability to add new customers , as well as to grow revenues from existing customers , will be adversely affected due to economic slowdown , business closures , furloughs , hiring freezes and reductions in hours worked . the following table sets forth the percentages of total revenues represented by selected items in the company 's consolidated statements of operations for the years ended december 31 , 2020 , 2019 and 2018 , included in item 8 of part ii of this report . replace_table_token_5_th 27 we report peo revenues net of direct payroll costs because we are not the primary obligor for wage payments to our clients ' employees . however , management believes that gross billings and wages are useful in understanding the volume of our business activity and serve as an important performance metric in managing our operations , including the preparation of internal operating forecasts and establishing executive compensation performance goals . we therefore present for purposes of analysis gross billings and wage information for the years ended december 31 , 2020 , 2019 and 2018. replace_table_token_6_th because safety incentives represent consideration payable to peo customers , safety incentive costs are netted against peo revenue in our consolidated statements of operations . we therefore present below for purposes of analysis non-gaap gross workers ' compensation expense , which represents workers ' compensation costs including safety incentive costs . we believe this non-gaap measure is useful in evaluating the total costs of our workers ' compensation program . replace_table_token_7_th in monitoring and evaluating the performance of our operations , management also reviews the following ratios , which represent selected amounts as a percentage of gross billings . management believes these ratios are useful in understanding the efficiency and profitability of our service offerings . replace_table_token_8_th the presentation of revenues on a net basis and the relative contributions of staffing and professional employer services revenues can create volatility in our gross margin percentage . a relative increase in professional employer services revenue will result in a higher gross margin percentage . improvement in gross margin percentage occurs because incremental client services revenue dollars are reported as revenue net of all related direct payroll and safety incentive costs . 28 we refer to employees of our peo clients as worksite employees ( “ wses ” ) . management reviews averag e and ending wse growth to monitor and evaluate the performance of our operations . average wses are calculated by dividing the number of unique individuals paid in each month by the number of months in the period . ending wses represents the number of unique individuals paid in the last month of the period . replace_table_token_9_th years ended december 31 , 2020 and 2019 net income for 2020 was $ 33.8 million compared to net income of $ 48.3 million for 2019. diluted income per share for 2020 was $ 4.39 compared to diluted income per share of $ 6.27 for 2019. revenues for 2020 totaled $ 880.8 million , a decrease of $ 61.5 million or 6.5 % over 2019 , which reflects a decrease in the company 's professional employer service fee revenue of $ 42.4 million or 5.2 % and a decrease in staffing services revenue of $ 19.0 million or 15.6 % . the reduction in peo services revenues was primarily attributable to the effects of covid-19 on our clients and our business . gross billings for peo services to continuing customers increased 0.3 % compared to 2019. gross billings increased only slightly primarily due to the impacts of covid-19 during the year , which we expect to continue into future quarters . peo revenue is presented net of safety incentives of $ 23.5 million and $ 31.7 million in 2020 and 2019 , respectively . the decrease in staffing services revenue was due primarily to the impacts of covid-19 during the 2020 period .
| fluctuations in quarterly operating results we have historically experienced significant fluctuations in our quarterly operating results , including losses in the first quarter of each year , and expect such fluctuations to continue in the future . our operating results may fluctuate due to a number of factors such as seasonality , wage limits on statutory payroll taxes , claims experience for workers ' compensation , demand for our services , and competition . payroll taxes , as a component of cost of revenues , generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxes and social security taxes are exceeded on a per employee basis . our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers ' businesses in the agriculture , food processing and forest products-related industries . in addition , revenues in the fourth quarter may be reduced by many customers ' practice of operating on holiday-shortened schedules . workers ' compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims . in addition , positive or adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the company 's estimated workers ' compensation expense .
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the company has not conducted an r & d credit study to quantify the amount of credits story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations includes a number of forward-looking statements that reflect management 's current views with respect to future events and financial performance . you can identify these statements by forward-looking words such as “ may ” “ will , ” “ expect , ” “ anticipate , ” “ believe , ” “ estimate ” and “ continue , ” or similar words . those statements include statements regarding the intent , belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based . prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties , and that actual results may differ materially from those contemplated by such forward-looking statements . readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the securities and exchange commission . important factors known to us could cause actual results to differ materially from those in forward-looking statements . we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions , the occurrence of unanticipated events or changes in the future operating results over time . we believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the company . no assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions . factors that could cause differences include , but are not limited to , expected market demand for the company 's services , fluctuations in pricing for materials , and competition . business overview we are a clinical-stage pharmaceutical company dedicated to the invention and development of next-generation medicines . our clinical-stage product candidates , tnx-102 sl and tnx-201 , are directed toward conditions affecting the cns . in the second quarter of 2015 , we initiated a phase 3 clinical trial of our most advanced candidate , tnx-102 sl , for the treatment of fm . we are also developing tnx-102 sl as a potential treatment for ptsd , and we commenced a phase 2 trial for this indication in the first quarter of 2015. we completed a phase 2 trial of tnx-201 in etth in the first quarter of 2016. when the drug failed to show efficacy , development was terminated . our pipeline includes a preclinical program for the treatment of aud as well as two biodefense development programs for protection from smallpox virus and from radiation injury . we hold worldwide development and commercialization rights to all of our candidates . our therapeutic strategy in fm is supported by results from the randomized , double-blind , placebo-controlled phase 2b bestfit trial of tnx-102 sl in fm . although the bestfit trial demonstrated only a positive trend and did not achieve statistical significance for tnx-102 sl in the primary efficacy analysis of change in mean pain intensity at week 12 , it did demonstrate statistical significance ( p < 0.05 ) in a 30 % responder analysis of the primary pain data , a declared secondary endpoint in which a responder is defined as a subject for whom pain intensity was reduced by at least 30 % at week 12 as compared to baseline . the bestfit trial also showed statistically significant improvements with tnx-102 sl in the declared secondary analyses of the patient global impression of change ( p < 0.05 ) and the fibromyalgia impact questionnaire-revised , or fiq-r ( p < 0.05 ) . in addition , the study showed statistically significant improvement with tnx-102 sl on measures of sleep quality as well as on several fiq-r items . tnx-102 sl was well tolerated in the bestfit trial , and the most common adverse events were local in nature , with transient tongue or mouth numbness occurring in 44 % of participants on tnx-102 sl vs. 2 % on placebo , and bitter taste in 8 % on tnx-102 sl compared to none on placebo . these local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking tnx-102 sl . systemic adverse events were similar between tnx-102 sl and placebo . no serious adverse events were reported . among subjects randomized to the active and control arms , 86 % and 83 % , respectively , completed the 12-week dosing period . in august 2015 , we completed a 12-month open-label extension study of tnx-102 sl , into which patients who completed the bestfit study were eligible to enroll . on the basis of our discussions with the fda , we believe that positive results from two adequate , well-controlled efficacy and safety studies and long-term ( six- and 12-month ) safety exposure studies would provide sufficient evidence of efficacy and safety to support fda approval of tnx-102 sl for the management of fm . following the bestfit study , we received written guidance from the fda which accepted our proposal to use a 30 % pain responder analysis as the primary efficacy endpoint in our phase 3 program to support the approval of tnx-102 sl for the management of fm . we initiated the randomized , double-blind , placebo-controlled , 12-week phase 3 affirm trial of tnx-102 sl in 500 patients with fm in the second quarter of 2015 , from which we expect to report top line results from this trial in the third quarter of 2016. we plan to initiate a second phase 3 trial of tnx-102 sl in fm in the second quarter of 2016. an end-of-phase 2 chemistry , manufacturing and controls meeting was held in february 2016 to discuss the quality data requirement for the tnx-102 sl nda submission . story_separator_special_tag in addition , we may encounter regulatory delays or rejections as a result of many factors , including results that do not support the intended safety or efficacy of our product candidates , perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development . as a result of these risks and uncertainties , we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows , if any , from our product candidates . our business , financial condition and results of operations may be materially adversely affected by any delays in , or termination of , our clinical trials or a determination by the fda that the results of our trials are inadequate to justify regulatory approval , insofar as cash in-flows from the relevant drug or program would be delayed or would not occur . 45 results of operations ( in thousands except per share data ) we anticipate that our results of operations will fluctuate for the foreseeable future due to several factors , such as the progress of our research and development efforts and the timing and outcome of regulatory submissions . due to these uncertainties , accurate predictions of future operations are difficult or impossible to make . fiscal year ended december 31 , 2015 compared to fiscal year ended december 31 , 2014 revenues and cost of goods sold . we had no revenues or cost of goods sold during the fiscal years ended december 31 , 2015 and 2014. research and development expenses . research and development expenses for the fiscal year ended december 31 , 2015 were $ 35,504 , an increase of $ 16,887 , or 91 % , from $ 18,617 for the fiscal year ended december 31 , 2014. this increase is primarily due to increased development work related to tnx-102 sl and tnx-201 , including formulation development , manufacturing , human safety and efficacy trials as well as pharmacokinetic studies . in 2015 , we incurred $ 14,596 , $ 4,963 , $ 4,111 and $ 2,991 in clinical , non-clinical , manufacturing and medical research , respectively , as compared to $ 5,948 , $ 1,501 , $ 3,743 and $ 1,560 in 2014 , respectively . costs related to product development increased to $ 884 for the fiscal year ended december 31 , 2015 from $ 727 for the fiscal year ended december 31 , 2014 , an increase of $ 157 , or 22 % . the increase is primarily due to additional trials conducted in 2015. during the year ended december 31 , 2014 , we acquired intellectual property rights for $ 858 , as compared to $ 0 in the current period . compensation-related expenses increased to $ 4,085 for the fiscal year ended december 31 , 2015 , from $ 2,014 for the fiscal year ended december 31 , 2014 , an increase of $ 2,071 , or 103 % . we incurred $ 1,231 in stock-based compensation in connection with the vesting of stock options in 2015 , which were previously issued to officers and consultants , as compared to $ 655 in stock-based compensation in 2014. the increase in cash compensation-related costs of $ 1,495 was primarily a result of annual salary increases and added personnel . regulatory and legal costs increased to $ 1,763 for the fiscal year ended december 31 , 2015 , from $ 1,403 for the fiscal year ended december 31 , 2014 , an increase of $ 360 , or 26 % . the increase in regulatory and legal costs is primarily due to the increase in active trials . travel , meals and entertainment costs increased to $ 1,353 for the fiscal year ended december 31 , 2015 , from $ 580 for the fiscal year ended december 31 , 2014 , an increase of $ 773 , or 133 % . travel , meals and entertainment costs include travel related to clinical development , including investigator meetings and medical-related conferences , which primarily accounted for the increase from 2014. other research and development costs increased to $ 758 for the fiscal year ended december 31 , 2015 , from $ 283 for the fiscal year ended december 31 , 2014 , an increase of $ 475 , or 168 % . other research and development costs include rent , insurance and other office-related expenses . story_separator_special_tag ended december 31 , 2013. travel , meals and entertainment costs include travel related to investor relations activities , which accounted for the primary increase from 2013. rent for the fiscal years ended december 31 , 2014 and 2013 totaled $ 246 and $ 124 , respectively . in 2014 , we increased the size of our corporate headquarters in new york and opened a satellite office in california . market- related materials and analysis for the fiscal year ended december 31 , 2014 was $ 210 , an increase of $ 162 , or 338 % , from $ 48 incurred in the fiscal year ended december 31 , 2013.the increase is mainly due to updated company materials presented at investor relations events . depreciation expense in fiscal 2014 totaled $ 36 , an increase of $ 19 , or 112 % , over the expense of $ 17 incurred in fiscal 2013 , as a result of the purchase of new office computers . net loss . as a result of the foregoing , the net loss for the year ended december 31 , 2014 was $ 27,616 , compared to a net loss of $ 10,884 for the year ended december 31 , 2013 .
| general and administrative expenses . general and administrative expenses for the fiscal year ended december 31 , 2015 were $ 12,658 , an increase of $ 3,619 , or 40 % , from $ 9,039 incurred in the fiscal year ended december 31 , 2014. this increase is primarily due to compensation-related expenses and professional services . compensation-related expenses increased to $ 5,824 for the fiscal year ended december 31 , 2015 , from $ 4,511 for the fiscal year ended december 31 , 2014 , an increase of $ 1,313 , or 29 % . we incurred $ 3,158 in stock-based compensation in connection with the 2014 employee stock purchase plan and the vesting of restricted stock units and stock options in 2015 , which were previously issued to board members , officers and a consultant , as compared to $ 2,434 in stock-based compensation in 2014. the increase in cash compensation-related costs of $ 589 was primarily a result of annual salary increases and added personnel . professional services for the fiscal year ended december 31 , 2015 totaled $ 4,247 , an increase of $ 1,683 , or 66 % , over the $ 2,564 incurred for the fiscal year ended december 31 , 2014. of professional services , legal fees totaled $ 1,756 for the fiscal year ended december 31 , 2015 , an increase of $ 753 , or 75 % , from $ 1,003 incurred for the fiscal year ended december 31 , 2014. of the legal fees incurred , $ 1,173 were patent-related costs in 2015 , as compared to $ 554 in 2014. audit and accounting fees incurred in the fiscal years ended december 31 , 2015 and 2014 amounted to $ 513 and $ 515 , respectively , a decrease of $ 2 , or 0 % .
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see the section title `` forward-looking statements '' for more information . actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors , including those discussed in “ risk factors ” and elsewhere in this report . unless specifically noted otherwise , as used throughout this management 's discussion and analysis section , “ we , ” “ our , ” `` us , '' `` the company '' or “ kennedy wilson ” refers to kennedy-wilson holdings , inc. and its wholly-owned subsidiaries . “ kwe ” refers to kennedy wilson europe real estate plc , a london stock exchange listed company that we externally manage through a wholly-owned subsidiary . “ equity partners ” refers to the subsidiaries that we consolidate in our financial statements under u.s. gaap ( other than wholly-owned subsidiaries ) , including kwe , and third-party equity providers . “ kw group ” refers to the company and its subsidiaries that are consolidated in its financial statements under u.s. gaap ( including kwe ) . please refer to “ non-gaap measures and certain definitions ” for definitions of certain terms used throughout this report . overview kennedy wilson is a global real estate investment company . we own , operate , and invest in real estate both on our own and through our investment management platform . we currently focus on multifamily , office , retail and hotels located in the western u.s. , uk , ireland and to a lesser extent spain , italy and japan . to complement our investment business , the company also provides real estate services primarily to financial services clients . our value is primarily derived from our ownership in income producing real estate assets . we have an ownership stake in approximately 39 million square feet of property globally , including 25,943 multifamily rental units . in addition to our core income producing real estate , we engage in redevelopment and value add initiatives through which we enhance cashflows or reposition asset to increase disposal value . additionally , our investment management and property services business manages approximately $ 17 billion of imres aum the majority of which we have an ownership stake in and the balance we manage for third parties . we have over 500 employees in 25 offices throughout the united states , the united kingdom , ireland , jersey , spain , italy and japan and manage and work with approximately 6,000 operating associates . our operations are defined by two core business segments , kw investments and kw investment management and real estate services ( imres ) , which work closely together to identify attractive investment markets and opportunities around the world : kw investments we invest our capital in real estate assets and loans secured by real estate either on our own or with strategic partners through publicly traded companies , joint ventures , separate accounts , or funds . when we have partners , we are typically the general partner in the arrangement with a promoted interest in the profits of our investments beyond our ownership percentage . the company has an average ownership interest across all investments of approximately 42 % as of december 31 , 2016 . our equity partners include public shareholders , financial institutions , foundations , endowments , high net worth individuals and other institutional investors . the following are product types we invest in through the kw investments segment : multifamily we pursue multifamily acquisition opportunities where we believe we can unlock value through a myriad of strategies , including institutional management , asset rehabilitation , repositioning and creative recapitalization . we focus primarily on apartments in supply-constrained , infill markets . through our vintage housing holdings ( `` vhh '' ) partnership , we also utilize low-income housing tax credit structures for income and age restricted properties . as of december 31 , 2016 , we hold investments in 25,943 multifamily apartment units across 141 properties primarily located in the western united states , ireland , united kingdom and japan . commercial we source , acquire , and finance various types of commercial real estate which includes office , industrial , retail , and mixed-use assets . after acquisition , the properties are generally repositioned to enhance market value . assets are either sold as part of property-specific investment strategies designed to deliver above-market returns to our clients and shareholders or held if producing above average cash flows . as of december 31 , 2016 , we hold investments in 258 34 commercial properties , totaling over 18.1 million square feet , located throughout the united states , united kingdom , ireland , spain , italy and japan . loan originations/discounted loan purchases we acquire and or originate loans secured by real estate . our acquisitions and originations include individual notes on all real estate property types as well as portfolios of loans purchased from financial institutions , corporations and government agencies . we deliver value through loan resolutions , discounted payoffs , and sales . we also convert certain loans into a direct ownership in the underlying real estate collateral . our discounted loan pool portfolio as of december 31 , 2016 had current unpaid principal balance ( `` upb '' ) of $ 217.3 million . our loan investment portfolio is principally related to loans acquired at a discount from their contractual balance due as a result of deteriorated credit quality of the borrower . such loans are underwritten by us based on the value of the underlying real estate collateral . due to the discounted purchase price , we seek and are generally able to accomplish near term realization of the loan in a cash settlement or by obtaining title to the property . accordingly , the credit quality of the borrower is not of substantial importance to our evaluation of the risk of recovery from the investment . story_separator_special_tag investment management , property services and research fees - investment management , property services , and research fees are primarily comprised of base asset management fees , performance based fees , and acquisition fees generated by our investment management division , property management fees generated by our property services division , leasing fees and sales commissions generated by our brokerage and auction divisions , and consulting fees generated by meyers . fees earned from consolidated investments , for example kwe , are eliminated in consolidation with the amount relating to our equity partners being recognized through income attributable to noncontrolling interests . loans and other income - loans and other income is primarily composed of interest income earned on the company 's loan originations and investments in discounted loan purchases . expenses rental operating expenses - rental operating expenses consists of the operating expenses of our consolidated real estate investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . hotel operating expenses - hotel operating expenses consists of operating expenses of our consolidated hotel investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . commission and marketing expenses - commission and marketing expenses includes fees paid to third party sales and leasing agents as well as business development costs necessary to generate revenues . compensation and related expenses - compensation and related expenses include : ( a ) employee compensation , comprising of salary , bonus , employer payroll taxes and benefits paid on behalf of employees and ( b ) share-based compensation associated with the grants of share-based awards . general and administrative - general and administrative expenses represent administrative costs necessary to run kw group 's businesses and include things such as occupancy and equipment expenses , professional fees , public company costs , travel and related expenses , and communications and information services . 36 depreciation and amortization - depreciation and amortization is comprised of depreciation expense which is recognized ratably over the useful life of an asset and amortization expense which primarily consist of the amortization of assets allocated to the value of in-place leases upon acquisition of a consolidated real estate asset . non-operating income ( expense ) income from unconsolidated investments - income from unconsolidated investments consists of ( a ) the company 's share of income or loss earned on investments in which the company can exercise significant influence but does not have control , and ( b ) interest income from unconsolidated loan pool participations . additionally , interest income from loan pool participations are recognized on a level yield basis , where a level yield model is utilized to determine a yield rate which , based upon projected future cash flows , accretes interest income over the estimated holding period . see the unconsolidated investments footnote of the attached notes to the consolidated financial statements for summarized financial data , including balance sheet and income statement information of the underlying investments . acquisition-related gains - acquisition-related gains consist of non-cash gains recognized by the company upon a gaap required fair value remeasurement due to a business combination . these gains are typically recognized with the change of control of an existing investment . the gain amount is based upon the fair value of the company 's equity in the investment in excess of the carrying amount of the equity directly preceding the change of control or the separately determined fair value of an investment being an excess of cash paid . these gains also arise when kw group converts a loan into consolidated real estate owned and the fair value of the underlying real estate exceeds the basis in the previously held loan . acquisition-related expenses - acquisition-related expenses consists of the costs incurred to acquire assets . generally , the majority of these expenses relate to stamp duty taxes on foreign transactions ( primarily within kwe ) . acquisition-related expenses may also include any professional fees associated with closing the transactions and the write off of any costs associated with acquisitions which did not materialize . gain on sale of real estate - gain on sale of real estate relates to the amount received over the carrying value of assets sold that met the definition of a business under us gaap . interest expense - corporate debt - interest expense - corporate debt represents interest costs associated with our senior notes payable , junior subordinated debentures and line of credit facility . this debt is unsecured and we typically use the funds generated from corporate borrowings to fund new investments . interest expense - investment - interest expense -investment represents interest costs associated with mortgages on our consolidated real estate and unsecured debt held by kwe . the mortgages are typically secured by the underlying real estate collateral . other income - other income includes the realized foreign currency exchange income or loss relating to the settlement of foreign transactions during the year which arise due to changes in currency exchange rates , realized gains or losses related to the settlement of derivative instruments , the gain or loss on the sale of marketable securities , and other non-operating interest income . income taxes - the company 's services business operates globally as corporate entities subject to federal , state , and local income taxes and the investment business operates through various partnership structures to participate in multifamily , office and residential property acquisitions as well as originate loans and purchases loan pools . the company 's distributive share of income from its partnership investments will be subject to federal , state , and local taxes at the entity level and the related tax provision attributable to the company 's share of the income tax is reflected in the consolidated financial statements . noncontrolling interests - noncontrolling interests represents income or loss attributable to equity partners for their ownership in investments which the company controls .
| results of operations 4q & full year highlights growth in recurring noi : kennedy wilson 's share of 4q property noi grew by $ 6 million or 10 % to $ 61 million from 4q-2015 . for the year , kennedy wilson 's share of property noi grew by $ 35 million or 17 % to $ 241 million . continued strong same property performance : the 4q and fy change in same property multifamily and commercial real estate are as follows : replace_table_token_16_th dividend declaration : kennedy wilson announced a 21 % increase in the common dividend per share to $ 0.17 per quarter or $ 0.68 on an annualized basis . the dividend is payable on april 6 , 2017 to common shareholders of record as of march 31 , 2017. continued investment in revenue generating capex : during 4q-2016 , the company invested $ 40 million into capex ( including $ 10 million related to capital dock , a prime waterfront 690,000 sq . ft. commercial and multifamily development in dublin , ireland ) compared to $ 30 million during 4q-2015 . for the year , the company invested $ 110 million into capex ( vs. $ 100 million in 2015 ) . performance fees & gains : the company 's financial metrics were impacted by a decrease in the company 's pro-rata share of total performance fees and gains of $ 8 million in 4q and $ 55 million for the year : ◦ performance fees : the company had a decrease in performance fees of $ 32 million in 4q and fy-2016 , primarily resulting from no kwe performance fees during 2016 . ◦ realized gains : the company had an increase in realized gains on sale of real estate of $ 19 million in 4q-2016 ( vs. 4q-2015 ) and $ 36 million in fy-2016 ( vs. fy-2015 ) .
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the carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included in item 8 and the risk factors included in item 1a of part i of this annual report on form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references in this report to particular years or quarters refer to our fiscal years ended in july and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we provide a technology platform , composed of software , services , and a partner ecosystem , for the global property and casualty ( “ p & c ” ) insurance industry . guidewire insuranceplatform tm consists of cloud and on-premise applications to support core operations , data management and analytics , and digital engagement , and is connected to numerous data sources and third-party applications . our applications are designed to work together to strengthen our customers ' ability to adapt and succeed in a rapidly changing market . guidewire insurancesuite and guidewire insurancenow tm provide core transactional systems of record supporting the entire insurance lifecycle , including product definition , distribution , underwriting , policy holder services and claims management . guidewire insurancesuite is a highly configurable and scalable system comprised primarily of three applications ( policycenter , billingcenter , and claimcenter ) that can be licensed separately or together and can be deployed on-premise or in the cloud . guidewire insurancenow is a cloud-based system that offers policy , billing , and claims management functionality to insurers that prefer an all-in-one solution . our data and analytics applications enable insurers to manage data more effectively and gain insights into their business and underwrite new and evolving risks . our digital engagement applications enable digital sales , omni-channel service and enhanced claims experiences for policyholders , agents , vendor partners and field personnel . to support p & c insurers globally , we have localized , and will continue to localize , our software for use in a variety of international regulatory , language and currency environments . we sell our products to a wide variety of global p & c insurers , ranging from some of the largest global insurance carriers or their subsidiaries to national and regional carriers . our customer engagement is led by our direct sales model and supported by our system integrator ( “ si ” ) partners . we maintain and continue to grow our sales and marketing efforts globally , and maintain regional sales centers in the americas , europe and asia . strong customer relationships are a key driver of our success given the long-term nature of our engagements and the importance of customer references for new sales . we continue to focus on deepening our customer relationships through continued successful product implementations , robust product support , strategic engagement on new products and technologies , and ongoing account management . our sales cycles for new and existing customers remain protracted as customers are deliberate and the decision making and product evaluation process is long . these evaluation periods can extend further if the customer purchases multiple products or assesses the benefits of a cloud-based subscription in addition to our more traditional on-premises licensing models . sales to new customers also involve extensive customer due diligence and reference checks . we must earn credibility with each successful implementation as we expand our sales operations , market products that have been acquired or newly introduced , and expand the ways we deliver our software . the success of our sales efforts relies on continued improvements and enhancements to our current products , the introduction of new products , and the continued development of relevant local content and the automated tools that we believe are optimal for updating that content . to date , we have primarily licensed our software under term license contracts . we generally price our licenses based on the amount of direct written premiums ( “ dwp ” ) that will be managed by our solutions . our term licenses for both recurring term license and maintenance fees are typically invoiced annually in advance or , in certain cases , quarterly . term licenses that are greater than one year generally include extended payment terms . we assess whether a fee is fixed or determinable at the outset of the arrangement , primarily based on the payment terms associated with the transaction . for term licenses with extended payment terms entered into prior to august 1 , 2018 , term license fees are not considered to be fixed and determinable until they become due or payment is received , resulting in a deferral of the related revenue until this revenue recognition criteria is met , assuming all other revenue recognition criteria are satisfied . in preparing for our adoption of the new revenue recognition standard which will result in a majority of our term licenses being recognized as revenue upon delivery of the software rather than as payments are received or become due , we began revising our contracting practices in fiscal year 2017 by selling our term licenses with an initial two-year committed term and optional annual renewals . we also began a program to amend existing long-term contracts to the same committed term of two-years with optional annual renewals . a small portion of our revenue is derived from perpetual licenses , for which license revenue is recognized upon delivery of the software , provided that all revenue recognition criteria have been met . 31 we also offer subscriptions to our cloud-based services . story_separator_special_tag the results of firstbest 's operations have been included in our results of operations since august 31 , 2016 , the date of acquisition . 32 seasonality we have historically experienced seasonal variations in our license and other revenue as a result of increased customer orders in our second and fourth fiscal quarters . we generally see a modest increase in orders in our second fiscal quarter , which is the quarter ending january 31 , due to customer buying patterns . we also see increased orders in our fourth fiscal quarter , which is the quarter ending july 31 , due to efforts by our sales team to achieve annual incentives . this seasonal pattern , however , may be absent in any given year . for example , the timing of a small number of large transactions or the entry into term license agreements with a term of more than two years may be sufficient to disrupt seasonal revenue trends . additionally , the adoption of asc 606 will also heighten the seasonal impact on our new term licenses that are multi-year in nature with more revenue recognized upfront upon delivery of our software . on an annual basis , our maintenance revenue which is recognized ratably , may also be impacted in the event that seasonal patterns change significantly . during fiscal years in which subscriptions increase as a percentage of total sales , the revenue we can recognize in such fiscal year will be reduced , deferred revenue will increase , and our reported revenue growth will be adversely affected due to the ratable nature of these arrangements . the seasonal nature of our sales and the concentration of such sales in our fourth fiscal quarter magnifies this impact . our services revenue is also subject to seasonal fluctuations , though to a lesser degree than our license revenue . our services revenue is impacted by the number of billable days in a given fiscal quarter . the fiscal quarter ended january 31 usually has fewer billable days due to the impact of the thanksgiving , christmas and new year 's holidays . the fiscal quarter ended july 31 usually has fewer billable days due to the impact of vacation times taken by our professional staff . because we pay our services professionals the same amounts throughout the year , our gross margins on our services revenue is usually lower in these quarters . this seasonal pattern , however , may be absent in any given year . public offerings on march 13 , 2018 , we closed a public offering of 2,628,571 shares of our common stock , including the underwriters ' exercise in full of their option to purchase additional shares of our common stock . the public offering price of the shares sold in the offering was $ 87.50 per share . our stockholders did not sell any shares in this public offering . concurrently , we offered and sold $ 400.0 million aggregate principal amount of our 1.25 % convertible senior notes due 2025 , including the underwriters ' exercise in full of their option to purchase additional convertible senior notes . net of issuance costs , we received net proceeds of approximately $ 220.9 million related to the common stock offering and $ 387.2 million related to the convertible note offering . key business metrics we use certain key metrics to evaluate and manage our business , including rolling four-quarter recurring revenue from term licenses and total maintenance . in addition , we present selected gaap and non-gaap financial metrics , including operating cash flows and capital expenditures that we use internally to manage the business and that we believe are useful for investors . four-quarter recurring revenue we measure four-quarter recurring revenue by adding the total term license and other revenue and total maintenance revenue recognized under gaap in the preceding four quarters ended in the stated period . this metric excludes perpetual license revenue , revenue from perpetual buyout rights and services revenue . this metric has allowed us to better understand the trends in our recurring revenue because it typically reduces the variations in any particular quarter caused by seasonality , the effects of the annual invoicing of our term licenses and certain effects of contractual provisions that may accelerate or delay revenue recognition . this metric applies revenue recognition rules under gaap and does not substitute individually tailored revenue recognition and measurement methods . with our transition to more subscription-based contracts and our adoption of new revenue recognition rules effective on august 1 , 2018 , this metric will become less indicative of our future revenue trends and will not be disclosed in future quarters . our four-quarter recurring revenue for the last nine quarters was : replace_table_token_5_th 33 operating cash flows and capital expenditures we monitor our cash flows from operating activities and used for capital expenditures , as a key measure of our overall business performance , which enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation and amortization and stock-based compensation expenses . additionally , operating cash flows takes into account the impact of changes in deferred revenue , which reflects the receipt of cash payment for products before they are recognized as revenue . our operating cash flows are significantly impacted by the timing of invoicing and collections of accounts receivable , the size of our annual bonus payment , as well as payments of payroll and other taxes . as a result , our operating cash flows fluctuate significantly on a year-over-year basis . cash provided by our operations were $ 140.5 million , $ 137.2 million , and $ 99.9 million for fiscal years 2018 , 2017 and 2016 , respectively . additionally , cash flows used for capital expenditures were $ 12.0 million , $ 6.7 million , and $ 7.1 million for fiscal years 2018 , 2017 , and 2016 , respectively .
| quarterly results of operations the following table sets forth our selected unaudited quarterly financial information for each of the eight fiscal quarters ended july 31 , 2018 . in management 's opinion , the data below has been prepared on the same basis as the audited consolidated financial statements and reflect all necessary adjustments , consisting only of normal recurring adjustments , necessary for a fair statement of the data . the results of historical periods are not necessarily indicative of the results to be expected for a full year or any future period . replace_table_token_23_th our quarterly results of operations may fluctuate significantly due to a variety of factors , many of which are outside of our control , making our results of operations variable and difficult to predict . such factors include those discussed above and those set forth in “ risk factors—we may experience significant quarterly and annual fluctuations in our results of operations due to a number of factors ” and “ risk factors—seasonal sales patterns and other variations related to our revenue recognition may cause significant fluctuations in our results of operations and cash flows and may prevent us from achieving our quarterly or annual forecasts , which may cause our stock price to decline ” in item 1a of part i of this annual report on form 10-k. one or more of these factors may cause our results of operations to vary widely . as such , we believe that our quarterly results of operations may vary significantly in the future and that sequential quarterly comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of future performance .
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the principal business of southern bank consists of attracting deposits from the communities it serves and investing those funds in loans secured by one- to four-family residences and commercial real estate , as well as commercial business and consumer loans . these funds have also been used to purchase investment securities , mortgage-backed securities ( mbs ) , u.s. government and federal agency obligations and other permissible securities . southern bank 's results of operations are primarily dependent on the levels of its net interest margin and noninterest income , and its ability to control operating expenses . net interest margin is dependent primarily on the difference or spread between the average yield earned on interest-earning assets ( including loans , mortgage-related securities , and investments ) and the average rate paid on interest-bearing liabilities ( including deposits , securities sold under agreements to repurchase , and borrowings ) , as well as the relative amounts of these assets and liabilities . southern bank is subject to interest rate risk to the degree that its interest-earning assets mature or reprice at different times , or on a varying basis , from its interest-bearing liabilities . southern bank 's noninterest income consists primarily of fees charged on transaction and loan accounts , interchange income from customer debit and atm card use , gains on sales of loans to the secondary market , and increased cash surrender value of bank owned life insurance ( “ boli ” ) . southern bank 's operating expenses include : employee compensation and benefits , occupancy expenses , legal and professional fees , federal deposit insurance premiums , amortization of intangible assets , and other general and administrative expenses . southern bank 's operations are significantly influenced by general economic conditions including monetary and fiscal policies of the u.s. government and the federal reserve board . additionally , southern bank is subject to policies and regulations issued by financial institution regulatory agencies including the federal reserve , the missouri division of finance , and the federal deposit insurance corporation . each of these factors may influence interest rates , loan demand , prepayment rates and deposit flows . interest rates available on competing investments as well as general market interest rates influence the bank 's cost of funds . lending activities are affected by the demand for real estate and other types of loans , which in turn is affected by the interest rates at which such financing may be offered . lending activities are funded through the attraction of deposit accounts consisting of checking accounts , passbook and statement savings accounts , money market deposit accounts , certificate of deposit accounts with terms of 60 months or less , securities sold under agreements to repurchase , advances from the federal home loan bank of des moines , and , to a lesser extent , brokered deposits . the bank intends to continue to focus on its lending programs for one- to four-family residential real estate , commercial real estate , commercial business and consumer financing on loans secured by properties or collateral located primarily in southeast missouri and northeast and north central arkansas . non-gaap financial information this annual report on form 10-k contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( gaap ) . these measures include : · fiscal year 2011 net income available to common stockholders per diluted common share excluding bargain purchase gain , net of transaction expenses related to the december 2010 fdic-assisted acquisition involving the former first southern bank ( the “ fiscal 2011 acquisition ” ) , net of tax ; · fiscal year 2014 , 2013 and 2012 net income available to common stockholders excluding accretion of fair value discount on acquired loans , amortization of fair value premium on assumed time deposits , and bargain purchase gain , net of transaction expenses , related to the fiscal 2011 acquisition , net of tax ; · fiscal year 2014 , 2013 and 2012 return on average assets excluding accretion of fair value discount on acquired loans , amortization of fair value premium on assumed time deposits , and bargain purchase gain , net of transaction expenses , related to the fiscal 2011 acquisition , net of tax ; · fiscal year 2014 , 2013 and 2012 return on average common equity excluding accretion of fair value discount on acquired loans , amortization of fair value premium on assumed time deposits , and bargain purchase gain , net of transaction expenses , related to the fiscal 2011 acquisition , net of tax ; 55 · fiscal year 2014 , 2013 and 2012 net interest margin excluding accretion of fair value discount on acquired loans and amortization of fair value premium on assumed time deposits related to the fiscal 2011 acquisition ; management believes that showing these amounts and measures excluding these items is useful for investors because it better reflects our core operating results and provides useful information by which to evaluate the company 's operating performance on an ongoing basis from period to period . acquisitions which were not fdic-assisted resulted in less variation in what management believes to be core operating results . the following table presents a reconciliation of the calculation of fiscal 2011 diluted earnings per share available to common shareholders excluding bargain purchase gain and transaction expenses related to the fiscal 2011 acquisition : for the twelve months ended june 30 , 2011 diluted earnings per share available to common stockholders $ 5.12 less : impact of excluding bargain purchase gain , net of transaction expenses , related to the fiscal 2011 acquisition , net of tax 1.92 diluted earnings per share available to common stockholders - excluding bargain purchase gain , net of tax and transaction expenses , related to the fiscal 2011 acquisition $ 3.20 the following table presents a reconciliation of the calculation of net income available to common stockholders , excluding accretion of fair value discount on acquired loans , amortization of premium on acquired time deposits , and story_separator_special_tag the loans subject to credit classification represent the portion of the portfolio subject to the greatest credit risk and where adjustments to the allowance for losses on loans as a result of provisions and charge-offs are most likely to have a significant impact on operations . a periodic review of selected credits ( based on loan size and type ) is conducted to identify loans with heightened risk or probable losses and to assign risk grades . the primary responsibility for this review rests with the loan administration personnel . this review is supplemented with periodic examinations of both selected credits and the credit review process by applicable regulatory agencies . the information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit represents a probable loss or risk that should be recognized . loans are considered impaired if , based on current information and events , it is probable that southern bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . the measurement of impaired loans is generally based on the fair value of the collateral for collateral-dependent loans . if the loan is not collateral-dependent , the measurement of impairment is based on the present value of expected future cash flows discounted at the historical effective interest rate or the observable market price of the loan . in measuring the fair value of the collateral , management uses the assumptions ( i.e. , discount rates ) and methodologies ( i.e. , comparison to the recent selling price of similar assets ) consistent with those that would be utilized by unrelated third parties . impairment identified through this evaluation process is a component of the allowance for loan losses . if a loan that is individually evaluated for impairment is found to have none , it is grouped together with loans having similar characteristics ( i.e. , the same risk grade ) , and an allowance for loan losses is based upon a quantitative factor ( historical average charge-offs for similar loans over the past one to five years ) , and qualitative factors such as qualitative factors such as changes in lending policies ; national , regional , and local economic conditions ; changes in mix and volume of portfolio ; experience , ability , and depth of lending management and staff ; entry to new markets ; levels and trends of delinquent , nonaccrual , special mention , and classified loans ; concentrations of credit ; changes in collateral values ; agricultural economic conditions ; and regulatory risk . for portfolio loans that are evaluated for impairment as part of homogenous pools , an allowance is maintained based upon similar quantitative and qualitative factors . changes in the financial condition of individual borrowers , in economic conditions , in historical loss experience and in the conditions of the various markets in which collateral may be sold may all affect the required level of the allowance for losses on loans and the associated provision for losses on loans . 58 financial condition story_separator_special_tag and organic growth . the increase consisted of interest-bearing checking , certificate of deposit , noninterest-bearing checking , savings , and money market deposit accounts . the average loan-to-deposit ratio for the fourth quarter of fiscal 2014 was 99.5 % , as compared to 101.9 % for the same period of the prior fiscal year . 60 borrowings . fhlb advances were $ 85.5 million at june 30 , 2014 , an increase of $ 61.0 million , or 248.9 % , as compared to $ 24.5 million at june 30 , 2013. the increase was attributable primarily to the use of overnight borrowings to fund asset growth . securities sold under agreements to repurchase totaled $ 25.6 million at june 30 , 2014 , as compared to $ 27.8 million at june 30 , 2013 , a decrease of 8.0 % . at both dates , the full balance of repurchase agreements was due to local small business and government counterparties . the company has encouraged these counterparties to migrate to a swept deposit product that places their funds in other fdic-insured depositories , while providing funding to our institution under a reciprocal arrangement , in order to improve the company 's liquidity . subordinated debt . in march 2004 , $ 7.0 million of floating rate capital securities of southern missouri statutory trust i , with a liquidation value of $ 1,000 per share were issued . the securities mature in march 2034 , were redeemable beginning in march 2009 , and bear interest at a floating rate of three-month libor plus 275 basis points . in its october 2013 acquisition of ozarks legacy community financial , inc. ( olcf ) , the company assumed $ 3.1 million in floating rate junior subordinated debt securities . the securities had been issued in june 2005 by olcf , bear interest at a floating rate based on libor , and mature in 2035. stockholders ' equity . the company 's stockholders ' equity increased $ 9.3 million , or 9.1 % , to $ 111.1 million at june 30 , 2014 , from $ 101.8 million at june 30 , 2013. the increase was due primarily to retention of net income , as well as an increase in accumulated other comprehensive income , partially offset by dividends paid on common and preferred stock . comparison of operating results for the years ended june 30 , 2014 and 2013 net income . the company 's net income available to common stockholders for the fiscal year ended june 30 , 2014 , was $ 9.9 million , an increase of $ 159,000 , or 1.6 % , from the $ 9.7 million available to common stockholders for the prior fiscal year .
| general . the company experienced balance sheet growth in fiscal 2014 , with total assets increasing $ 225.0 million , or 28.3 % , to $ 1.0 billion at june 30 , 2014 , as compared to $ 796.4 million at june 30 , 2013. balance sheet growth was primarily due to the october 2013 acquisition of the bank of thayer and the february 2014 acquisition of citizens state bank ( the “ fiscal 2014 acquisitions ” ) , as well as organic loan growth . balance sheet growth was funded primarily with increases in deposit balances , both acquired and organic growth , and federal home loan bank ( fhlb ) advances . cash and equivalents . cash equivalents and time deposits were up $ 2.8 million , or 20.5 % , as compared to june 30 , 2013. loans . loans , net of the allowance for loan losses , increased $ 153.9 million , or 23.8 % , to $ 801.1 million at june 30 , 2014 , as compared to $ 647.2 million at june 30 , 2013. the increase was primarily attributable to organic growth and the fiscal 2014 acquisitions , which included $ 51.4 million in loans , at fair value . the increase consisted primarily of residential real estate and commercial real estate loans . the increase in residential real estate loans included , in roughly equal amounts , loans secured by single family and multi-family housing . allowance for loan losses .
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the amendments in this update remove from the assessment of effective control ( 1 ) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms , even in the event of default by the transferee , and ( 2 ) the collateral maintenance implementation guidance related to that criterion . the amendments in this update apply to all entities , both public and nonpublic . the amendments affect all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity . the guidance in this update is effective for the first interim or annual period beginning on or after december 15 , 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date . early adoption is not permitted . this asu is not expected to have a significant impact on the company 's financial statements . in may 2011 , the fasb issued asu 2011-04 , fair value measurement ( topic 820 ) : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss . the amendments in this update result in common fair value measurement and disclosure requirements in u.s. gaap and ifrss . consequently , the amendments change the wording used to describe many of the requirements in u.s. gaap for measuring fair value and for disclosing information about fair value measurements . the amendments in this update are to be applied prospectively . for public entities , the amendments are effective during interim and annual periods beginning after december 15 , 2011. for nonpublic entities , the amendments are effective for annual periods beginning after december 15 , 2011. early application by public entities is not permitted . this asu is not expected to have a significant impact on the company 's financial statements . in june 2011 , the fasb issued asu 2011-05 , comprehensive income ( topic 220 ) : presentation of comprehensive income . the amendments in this update improve the comparability , clarity , consistency , and transparency of financial reporting and increase the prominence of items reported in other comprehensive income . to increase the prominence of items reported in other comprehensive income and to facilitate convergence of u.s. gaap and ifrs , the option to present components of other comprehensive income as part of the statement of changes in stockholders ' equity was eliminated . the amendments require that all non-owner changes in stockholders ' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements . in the two-statement approach , the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income , the components of other comprehensive income , and the total of comprehensive income . all entities that report items of comprehensive income , in any period presented , will be affected by the changes in this update . for public entities , the amendments are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2011. for nonpublic entities , the amendments are effective for fiscal years ending after december 15 , 2012 , and interim and annual periods thereafter . the amendments in this update should be applied retrospectively , and early adoption is permitted . this asu is not expected to have a significant impact on the company 's financial statements . 13 in september 2011 , the fasb issued asu 2011-08 , intangibles – goodwill and other topics ( topic 350 ) , testing goodwill for impairment . the objective of this update is to simplify how entities , both public and nonpublic , test goodwill for impairment . the amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in topic 350. the more-likely-than-not threshold is defined as having a likelihood of more than 50 percent . under the amendments in this update , an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount . the amendments in this update apply to all entities , both public and nonpublic , that have goodwill reported in their financial statements and are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after december 15 , 2011. early adoption is permitted , including for annual and interim goodwill impairment tests performed as of a date before september 15 , 2011 , if an entity 's financial statements for the most recent annual or interim period have not yet been issued or , for nonpublic entities , have not yet been made available for issuance . this asu is not expected to have a significant impact on the company 's financial statements . in september 2011 , the fasb issued asu 2011-09 , compensation-retirement benefits-multiemployer plans ( subtopic 715-80 ) : disclosures about an employer 's participation in a multiemployer plan . the amendments in this update will require additional disclosures about an employer 's participation in a multiemployer pension plan to enable users of financial statements to assess the potential cash flow implications relating to an employer 's participation in multiemployer pension plans . story_separator_special_tag the cost of interest-bearing liabilities decreased to 1.25 % in 2011 from 1.66 % in 2010. this decrease is primarily the result of reduced cost of funds as follows : certificates of deposit costs decreased 52 basis points , ira costs decreased 29 basis points , repurchase agreement costs decreased 26 basis points and now accounts costs decreased 31 basis points . 17 statistical financial information regarding mvb financial corp. the following tables provide further information about mvb 's interest income and expense : average balances and analysis of net interest income : replace_table_token_2_th 18 replace_table_token_3_th replace_table_token_4_th 19 provision for loan losses mvb 's provision for loan losses for 2011 and 2010 were approximately $ 1.7 million and $ 1.1 million , respectively . this increase principally relates to the increase in loans outstanding . determining the appropriate level of the allowance for loan losses ( all ) requires considerable management judgment . in exercising this judgment , management considers numerous internal and external factors including , but not limited to , portfolio growth , national and local economic conditions , trends in the markets served and guidance from the bank 's primary regulators . management seeks to maintain an all that is appropriate in the circumstances and that complies with applicable accounting and regulatory standards . further discussion can be found later in this discussion under ‘ allowance for loan losses. ” non-interest income fees related to deposit accounts and cash management accounts and income on loans held for sale represent a significant portion of the bank 's primary non-interest income . the total of non-interest income for 2011 was $ 3.7 million versus $ 2.5 million in 2010. the most significant increase in non-interest income from 2011 to 2010 was $ 745,000 in gains on the sale of investment securities . other items of significance were as follows : income on loans held for sale increased $ 323,000 , other income increased by $ 89,000 and visa debit card income increased by $ 53,000 the bank is constantly searching for new non-interest income opportunities that enhance income and provide customer benefits . non-interest expense non-interest expense was $ 12.4 million in 2011 versus $ 9.1 million in 2010. approximately 54 % and 52 % of non-interest expense for 2011 and 2010 , respectively , related to personnel costs . personnel are the lifeblood of every service organization , which is why personnel cost , is such a significant part of the expenditure mix . salaries and benefits increased by $ 1.9 million in 2011 , the result of the addition of the morgantown office , a compliance officer , information technology staff , operations center staff , an entire year of expense relating to the commercial loan staff added midway through 2010 and increases for existing staff . legal expense increased by $ 465,000 , the result of a lawsuit brought about through the addition of the morgantown office . this claim was settled in february of 2012 and the company had adequately accrued for all expenses related to the claim as of december 31 , 2011. consulting expense increased by $ 197,000 in 2011. this increase related to the increased usage of consultants in the area of strategic planning and the continued development of our mvchecking and mvsavings products through bankvue . advertising increased by $ 144,000 , $ 96,000 of which related to the morgantown office . equipment and occupancy expense increased by $ 122,000 and $ 107,000 respectively . these increases were mainly the result of the addition of the morgantown office and the operations center . other operating expense increased by $ 335,000. this increase was driven by a $ 118,000 increase in travel and entertainment , an $ 83,000 increase in collections expense , a $ 40,000 increase in directors ' fees , a $ 27,000 increase in telephone expense and a $ 24,000 increase in training expense . 20 2010 compared to 2009 net interest income increased by $ 2.0 million when comparing 2010 with 2009 results . this increase is largely due to growth in average earning assets , primarily loans , of $ 61.2 million in 2010. average interest-bearing liabilities , mainly deposits , increased by $ 70.9 million in 2010. this increase was due mainly to the continued success of two products , the broker buster account designed to take back money lost to brokerage firms and mvchecking , a higher rate checking account designed to reward customer behaviors that increase the bank 's revenue stream a large portion of non-interest income is comprised of fees related to deposit accounts and cash management accounts . non-interest income was $ 2.5 million in 2010 compared to $ 2.2 million in 2009. this increase was due primarily to increased usage of the mvchecking account which provided $ 74,000 more in visa debit card income , $ 64,000 in gains on the sale of other real estate owned and $ 88,000 in gains on the sale of investment securities . non-interest expense reached $ 9.1 million in 2010 compared to $ 8.3 million in 2009. this increase was the result of the following : $ 555,000 increase in salaries and benefits , $ 136,000 in increased consulting expenses , $ 79,000 in additional fdic insurance expense and $ 57,000 in increased visa debit card expense . income taxes mvb incurred income tax expense of $ 1.0 million in 2011 and $ 795,000 in 2010. the effective tax rate was 27 % in 2011 and 26 % 2010. return on assets mvb 's return on average assets was .57 % in 2011 , .57 % in 2010 and .45 % in 2009. return on equity mvb 's return on average stockholders ' equity ( “ roe ” ) was 6.69 % in 2011 , compared to 7.98 % in 2010 and 5.26 % in 2009. the decreased return in 2011 is a direct result of the addition of $ 17 million in capital
| summary financial results mvb earned $ 2.7 million in 2011 compared to $ 2.2 million in 2010 , an increase of $ 465,000. the earnings equated to a 2011 return on average assets of .57 % and a return on average equity of 6.69 % , compared to prior year results of .57 % and 7.98 % , respectively . basic earnings per share were $ 1.24 in 2011 compared to $ 1.40 in 2010. diluted earnings per share were $ 1.21 in 2011 compared to $ 1.36 in 2010. the most significant factor in the increase in 2011 profitability was a 3.3 million increase in net interest income . this increase was largely the result of the following : a reduction in net interest expense of $ 570,000 despite deposit growth of $ 90.1 million , the result of a decrease in interest rates on interest-bearing liabilities ; the increase in net interest and fees on loans of $ 3.0 million which was the result of loan growth of $ 79.8 million in 2011 and an increase in interest on investment securities of $ 112,000 , the result of the investment portfolio increasing by $ 43.6 million in 2011. other income increased $ 1.2 million . this increase was the result of several items , mostly a $ 745,000 increase in gain on sale of investments .
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we have entered into indemnification agreements with our directors and officers that may require us to indemnify our directors and officers against liabilities that may arise by reason of their status or service as directors or officers , other than liabilities arising from willful misconduct of a culpable nature ; to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified story_separator_special_tag overview iridex corporation is an ophthalmic medical technology company focused on the development and commercialization of breakthrough products and procedures used to treat sight-threatening eye conditions , including glaucoma and retinal diseases . certain of our laser products are powered by our proprietary micropulse technology , which is a method of delivering laser energy using a mode which chops the continuous wave laser beam into short , microsecond-long laser pulses . our products consist of laser consoles , delivery devices and consumable instrumentation , including laser probes . our laser consoles consist of the following product lines : glaucoma – this product line includes our recently introduced cyclo g6 laser system used for the treatment of glaucoma ; medical retina – our medical retina product line includes our iq 532 and iq 577 laser photocoagulation systems , which are used for the treatment of diabetic macular edema and other retinal diseases ; and surgical retina – our surgical retina line of products includes our oculight tx , oculight sl , oculight slx , oculight gl and oculight glx laser photocoagulation systems . these systems are often used in vitrectomy 32 procedures , which are used to treat proliferative diabetic retinopathy , macular holes , retinal tears and detachments . our business generates recurring revenues through sales of consumable products , predominantly single-use laser probe devices and other instrumentation , as well as repair , servicing and extended service contracts for our laser systems . our laser probes consist of the following product lines : glaucoma – probes used in our glaucoma product line include our recently patented micropulse p3 ( “ mp3 ” ) probe and g-probe ; and surgical retina – our surgical retina probes include our endoprobe family of products used in vitrectomy procedures . ophthalmologists typically use our laser systems in hospital ors and ambulatory surgical centers ( “ ascs ” ) , as well as their offices and clinics . in the ors and ascs , ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a consumable , single use mp3 probe , g-probe or endoprobe . our products are sold in the united states , predominantly through a direct sales force , and internationally , through independent distributors . total revenues in 2017 , 2016 and 2015 were $ 41.6 million , $ 46.2 million and $ 41.8 million , respectively . we generated net ( loss ) income of $ ( 12.9 ) million , $ ( 11.7 ) million and $ 0.5 million in 2017 , 2016 and 2015 , respectively . sales to international distributors are made on open credit terms or letters of credit and are currently denominated in u.s. dollars and accordingly , are not subject to risks associated with currency fluctuations . however , increases in the value of the u.s. dollar against any local currencies could cause our products to become relatively more expensive to customers in a particular country or region , leading to reduced revenue or profitability in that country or region . cost of revenues consists primarily of the cost of components and sub-systems , assembling , packaging , shipping and testing components at our facility , direct labor and associated overhead , warranty , royalty and amortization of intangible assets and depot service costs . research and development expenses consist primarily of personnel costs , materials to support new product development and research support provided to clinicians at medical institutions developing new applications which utilize our products and regulatory expenses . research and development costs have been expensed as incurred . sales and marketing expenses consist primarily of costs of personnel , sales commissions , travel expenses , advertising and promotional expenses . general and administrative expenses consist primarily of costs of personnel , legal , accounting and other public company costs , insurance and other expenses not allocated to other departments . results of operations - 2017 , 2016 and 2015 our fiscal year ends on the saturday closest to december 31. fiscal 2017 ended on december 30 , 2017 , fiscal 2016 ended on december 31 , 2016 and fiscal 2015 ended on january 2 , 2016. fiscal years 2017 , 2016 and 2015 each included 52 weeks of operations . 33 the following table sets forth certain operating data as a percentage of revenue for the periods indicated . replace_table_token_6_th comparison of 2017 and 2016 revenues . our total revenues decreased $ 4.6 million or 10.0 % from $ 46.2 million in 2016 to $ 41.6 million in 2017. the decrease was due primarily from a decrease in our domestic systems revenues , international systems revenues , and recurring revenues of $ 2.3 million , $ 2.0 million and $ 0.3 million respectively . the decrease in domestic systems revenues was primarily due to a decrease in sales of our retina products and an increase in our sales return reserve related to our voluntary recall of 104 trufocus lio premiere laser indirect ophthalmoscopes ( “ lio ” ) . for further information about the lio recall , see footnote 17 “ subsequent events ” of item 8 “ financial statements and supplementary data ” of this report . the decrease in international systems revenues was primarily due to a decrease in sales of our retina products . the decrease in recurring revenues was due to a decrease in sales of our legacy probes that was partially offset by an increase in our g6 related probes . in 2017 we implemented the laser advantage program ( “ lap ” ) that some of our domestic customers have utilized . story_separator_special_tag sales and marketing expenses increased $ 1.4 million or 15.5 % , from $ 8.9 million in 2015 to $ 10.3 million in 2016. the increase was attributable primarily to an increase in headcount and associated costs , an increase in commission expense , an increase in trade shows , as well as an increase in other general selling and marketing expenses to support growth in revenues . story_separator_special_tag style= '' font-weight : bold ; font-size:10pt ; font-family : times new roman ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > contractual payment obligations as of december 30 , 2017 , our contractual payment obligations that were fixed and determinable to third parties for non-cancelable operating leases , contract manufacturers and other purchase commitments were as follows ( in thousands ) : replace_table_token_9_th ( 1 ) operating leases primarily relate to leases of office space with terms expiring through february , 2022. critical accounting policies revenue recognition . our revenues arise from the sale of laser consoles , delivery devices , consumables and service and support activities . revenue from product sales is recognized upon receipt of a purchase order and product shipment provided that no significant obligations remain and collectibility is reasonably assured . shipments are generally made with free-on-board ( “ fob ” ) shipping point terms , whereby title passes upon shipment from our dock . any shipments with fob receiving point terms are recorded as revenue when the shipment arrives at the receiving point . cost is recognized as product sales revenue is recognized . the company 's sales may include post-sales obligations for training or other deliverables . for revenue arrangements such as these , we recognize revenue in accordance with accounting standards codification ( “ asc ” ) 605 , “ revenue recognition , multiple-element arrangements ” . the company allocates revenue among deliverables in multiple-element arrangements using the relative selling price method . revenue allocated to each element is recognized when the basic revenue recognition criteria is met for each element . the company is required to apply a hierarchy to determine the selling price to be used for allocating revenue to deliverables : ( i ) vendor-specific objective evidence of selling price ( “ vsoe ” ) , ( ii ) third-party evidence of selling price ( “ tpe ” ) and ( iii ) best estimate of the selling price ( “ esp ” ) . in general , the company is unable to establish vsoe or tpe for all of the elements in the arrangement ; therefore , revenue is allocated to these elements based on the company 's esp , which the company determines after considering multiple factors such as management approved pricing guidelines , geographic differences , market conditions , competitor pricing strategies , internal costs and gross margin objectives . these factors may vary over time depending upon the unique facts and circumstances related to each deliverable . as a result , the company 's esp for products and services could change . revenues for post-sales obligations are recognized as the obligations are fulfilled . in 2017 we implemented lap that some of our domestic customers have utilized . under the lap , we ship a g6 laser along with an initial purchase of g6 probes and an agreement to purchase additional g6 probes . ownership on the console is transferred to the customer after they purchase the additional required number of probes on or before the end of a specified period . as title on the console does not transfer until the earlier of when the additional required probes are purchased or at the end of the term , in accordance with the multiple element arrangement guidance under asc 605 , the company has determined that revenue from lap sales of g6 lasers should be recognized only when that uncertainty is resolved and title of the console passes to the customers . in international regions , we utilize distributors to market and sell our products . we recognize revenue upon shipment for sales to these independent , third-party distributors as we have no continuing obligations subsequent to shipment . generally our distributors are responsible for all marketing , sales , installation , training and warranty labor coverage for our products . our standard terms and conditions do not provide price protection or stock retention rights to any of our distributors . royalty revenues are typically based on licensees ' net sales of products that utilize our technology and are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured , such as upon the earlier of the receipt of a royalty statement from the licensee or upon payment by the licensee . inventories . inventories are stated at the lower of cost or market and include on-hand inventory physically held at our facility , sales demo inventory and service loaner inventory . cost is determined on a standard cost basis which approximates actual cost on a first-in , first-out ( “ fifo ” ) method . lower of cost or market is evaluated by considering obsolescence , excessive levels of inventory , deterioration and other factors . adjustments to reduce the cost of inventory to its net realizable value , if required , are made for estimated excess , obsolete or impaired inventory and are charged to cost of revenues . once the cost of the inventory is reduced , a new lower-cost basis for that inventory is established , and subsequent changes in facts and 38 circumstances do not result in the restoration or increase in that newly established cost basis . factors influencing thes e adjustments include changes in demand , product life cycle and development plans , component cost trends , product pricing , physical deterioration and quality issues . revisions to these adjustments would be required if these factors differ from our estimate s. sales returns allowance and allowance for doubtful accounts . we estimate future product returns related to current period product revenue .
| general and administrative . general and administrative expenses increased $ 2.1 million or 37.6 % , from $ 5.6 million in 2015 to $ 7.6 million in 2016. the increase in spending was attributable primarily to an increase in severance costs , an increase in non-cash stock-based compensation charges , an increase in bonus and profit sharing , an increase in consulting and temporary employees , an increase in legal expenses , an increase in audit and tax expenses , and an increase in public company expenses . we expected an increase in our audit and tax expenses , as well as other public company expenses , as a result of the change in our filing status from a smaller reporting company to an accelerated filer . impairment of long-lived assets . impairment of intangible assets , which increased $ 0.1 million in 2016 compared to 2015 , was attributable primarily to the impairment of ocunetics assets . other ( expense ) income . other expense totaled $ 0.1 million in 2016 and was attributable to an increase in the fair value re-measurement of the contingent earn-out liabilities of the retinalabs acquisition . income taxes . based on our fiscal year 2015 performance and our forecast of future losses , it was more likely than not that we would not realize our deferred tax assets . therefore we recorded a full valuation allowance against all of our deferred tax assets . we recorded a provision for income taxes of $ 9.1 million in 2016 compared to a benefit from income taxes of $ 0.2 million in 2015 , which was attributed primarily to the establishment of a valuation allowance for the deferred tax asset . 36 liquidity and capital resources liquidity is our ability to generate sufficient cash flows from operating activities to meet our obligations and commitments . in addition , liquidity includes the ability to obtain appropriate financing or to raise capital .
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the changes in the carrying amount of goodwill by geographic segment are as follows : replace_table_token_38_th ( 1 ) americas goodwill additions during 2017 includes purchase accounting adjustments related to the pvi acquisition discussed in note 5 of the notes to the consolidated financial statements . replace_table_token_39_th on november 2 , story_separator_special_tag overview we are a leading supplier of products and solutions that conserve water and manage the flow of fluids and energy into , through and out of buildings in the residential and commercial markets of the americas , europe and apmea . for over 140 years , we have designed and produced valve systems that safeguard and regulate water systems , energy efficient heating and hydronic systems , drainage systems and water filtration technology that helps conserve water . we earn revenue and income almost exclusively from the sale of our products . our principal product lines include : · residential & commercial flow control products—includes products typically sold into plumbing and hot water applications such as backflow preventers , water pressure regulators , temperature and pressure relief valves , and thermostatic mixing valves . · hvac & gas products—includes commercial high‑efficiency boilers , water heaters and heating solutions , hydronic and electric heating systems for under‑floor radiant applications , custom heat and hot water solutions , hydronic pump groups for boiler manufacturers and alternative energy control packages , and flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications . hvac is an acronym for heating , ventilation and air conditioning . · drainage & water re‑use products—includes drainage products and engineered rain water harvesting solutions for commercial , industrial , marine and residential applications . · water quality products—includes point‑of‑use and point‑of‑entry water filtration , conditioning and scale prevention systems for both commercial and residential applications . our business is reported in three geographic segments : americas , europe , and apmea . we distribute our products through four primary distribution channels : wholesale , original equipment manufacturers ( oems ) , specialty , and do-it-yourself ( diy ) . in september 2015 , we divested a substantial portion of our diy business in the americas , which reduced the significance of diy as a distribution channel for our products in 2017 and 2016. prior to 2017 , our europe segment was formerly referred to as emea ( europe , middle east , and africa ) and our apmea segment was formerly referred to as asia-pacific . as of january 1 , 2017 , we began reporting the results of watts industries middle east , an indirect , wholly owned subsidiary , within our apmea segment to align with internal operating changes . these results had previously been reported within our former emea segment . this change does not affect our reportable segments but represents only a change in composition that better aligns with the structure of our internal organization . the 2016 and 2015 results by segment have been retrospectively revised for comparative purposes . we believe that the factors relating to our future growth include continued product innovation that meets the needs of our customers and our end markets ; our ability to make selective acquisitions , both in our core markets as well as in new complementary markets ; regulatory requirements relating to the quality and conservation of water and the safe use of water ; increased demand for clean water ; continued enforcement of plumbing and building codes ; and a healthy economic environment . we have completed 10 acquisitions in the last decade . our acquisition strategy focuses on businesses that promote our key macro themes around safety & regulation , energy efficiency and water conservation . we target businesses that will provide us with one or more of the following : an entry into new markets and or new geographies , improved channel access , unique and or proprietary technologies , advanced production capabilities or complementary solution offerings . our innovation strategy is focused on differentiated products that provide greater opportunity to distinguish ourselves in the market place . conversely , we want to migrate away from commoditized products where we can not add value . our 23 goal is to be a solutions provider , not merely a components supplier . we continually look for strategic opportunities to invest in new products and markets or divest existing product lines where necessary in order to meet those objectives . products representing a majority of our sales are subject to regulatory standards and code enforcement , which typically require that these products meet stringent performance criteria . together with our commissioned manufacturers ' representatives , we have consistently advocated for the development and enforcement of such plumbing codes . we are focused on maintaining stringent quality control and testing procedures at each of our manufacturing facilities in order to manufacture products in compliance with code requirements and take advantage of the resulting demand for compliant products . we believe that the product development , product testing capability and investment in plant and equipment needed to manufacture products in compliance with code requirements , represent a competitive advantage for us . in 2017 , we successfully completed our transformation programs and realized the benefits of our product portfolio rationalization , footprint optimization , and global sourcing initiatives , while simultaneously reinvesting in the business . we continued to drive commercial and operational excellence . we completed the integration of pvi industries , llc ( “ pvi ” ) to our portfolio during the year . we continued to streamline our product portfolio across the regions as we focus on our core product lines and rationalize certain low-margin , non-core products . our financial performance in 2017 was solid , driven by growth in the americas and europe segments and realization of our productivity and transformation savings . story_separator_special_tag in the third quarter of 2017 , the total expected costs of the planned actions were reduced to approximately $ 60 million , primarily related to reduced expected facility exit costs and reduced other transformation and deployment costs . all costs associated with the americas and apmea transformation program were incurred as of december 31 , 2017. refer to note 3 and note 4 of the notes to consolidated financial statements in this annual report on form 10-k for further details . acquisitions and disposals on november 2 , 2016 , we acquired 100 % of the shares of pvi riverside holdings , inc. , the parent company of pvi . the aggregate purchase price , including the final working capital adjustment , was approximately $ 79.1 million . pvi is a leading manufacturer of commercial stainless steel water heating equipment , focused on the high capacity market in north america and is based in fort worth , texas . pvi 's water heater product offering complements aerco 's boiler products , allowing us to address customers ' heating and hot water requirements . on february 26 , 2016 , we acquired an additional 50 % of the outstanding shares of watts korea for an aggregate purchase price of approximately $ 4 million . prior to february 26 , 2016 , the company held a 40 % interest in watts korea , which operated as a joint venture . we acquired the remaining 10 % ownership in the fourth quarter of 2016 and now own 100 % of watts korea . watts korea strengthens our strategic vision to expand solutions sales into the korean market . we accounted for the transaction as a step acquisition within a business combination . we recognized a $ 1.7 million pre-tax gain on the previously held 40 % ownership interest in the first quarter of 2016. on september 22 , 2015 , we signed an agreement to sell an operating subsidiary in china that was dedicated to the production of non-core products . the sale was finalized in the second quarter of 2016 , and we received total proceeds of approximately $ 8.4 million from the sale as of the fourth quarter of 2016. we recognized a pre-tax gain of $ 8.7 million , which includes a non-cash accumulated currency translation adjustment of $ 7.3 million . the net after-tax gain was approximately $ 8.3 million . on november 30 , 2015 , we acquired 80 % of the outstanding shares of apex valves limited ( “ apex ” ) . apex specializes in the design and manufacturing of control valves for low and high pressure hot water and filtration systems . apex also produces an extensive range of float and reservoir valves for the agricultural industry . the aggregate purchase price was approximately $ 20.4 million and we recorded a long-term liability of $ 5.5 million as the estimate of the acquisition date fair value on the contractual call option to purchase the remaining 20 % within three years of closing . apex manufactures high‑end valves for the new zealand market that we believe could be introduced in the china market and other countries in south east asia . we acquired an additional 10 % ownership in the first quarter of 2017 for approximately $ 2.9 million and now own 90 % of the outstanding shares of apex . we maintain a current liability of approximately $ 2.9 million for the estimated fair value on the remaining 10 % contractual call option , which is expected to be exercised in 2018 . 25 recent developments on february 8 , 2018 , we declared a quarterly dividend of nineteen cents ( $ 0.19 ) per share on each outstanding share of class a common stock and class b common stock payable on march 16 , 2018 to stockholders of record on march 2 , 2018. story_separator_special_tag style= '' width:100 % '' > 35 % to 21 % in 2018 , implementing a territorial tax system , and imposing a one-time deemed repatriation toll tax on cumulative undistributed foreign earnings . changes in tax rates and tax laws are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate . therefore , during the year ended december 31 , 2017 , we recorded a provisional charge of $ 25.1 million related to our current estimate of the provisions of the 2017 tax act , including an estimated $ 23.3 million expense under the toll tax . the toll tax will be paid over an eight-year period , starting in 2018 , and will not accrue interest . net income ( loss ) . net income for 2017 was $ 73.1 million , or $ 2.12 per common share , compared to $ 84.2 million , or $ 2.44 per common share , for 2016. results for 2017 include a charge of $ 25.1 million within income tax expense , or $ 0.73 per common share , related to the impact of the 2017 tax act , $ 1.9 million , or $ 0.06 per common share , for the europe and americas transformation costs ; $ 4.7 million , or $ 0.14 per common share , for restructuring charges ; $ 0.6 million , or $ 0.02 per common share for long-lived asset impairment charges , partially offset by $ 1.6 million or $ 0.05 per common share in tax benefits .
| results of operations year ended december 31 , 2017 compared to year ended december 31 , 2016 net sales . our business is reported in three geographic segments : americas , europe and apmea . our net sales in each of these segments for the years ended december 31 , 2017 and december 31 , 2016 were as follows : replace_table_token_4_th the change in net sales was attributable to the following : replace_table_token_5_th the change in organic net sales as a percentage of consolidated net sales and of segment net sales in the americas excludes divested sales for both periods presented . our products are sold to wholesalers , oems , various specialty channels , and diy chains . the change in organic net sales by channel was attributable to the following : replace_table_token_6_th the organic sales increase of $ 7.0 million was partially muted by the $ 15.1 million impact of our ongoing product rationalization efforts across our regions , as we continue to focus on our core product lines . the product rationalization mainly affected our diy and oem channels . organic net sales in the americas increased $ 7.4 million mainly from growth in the wholesale channel , driven by valve , hvac , and drainage products . this increase was partially offset by declines in the specialty channels , where we experienced weakness in our tankless water heater and condensing boiler products . there was also a decrease in the diy channel due to the product rationalization discussed above . 26 organic net sales in europe increased $ 2.5 million primarily due to growth in the wholesale channel from increased sales of our drains products . this increase was also due to higher demand for our electronics products in germany . these increases were partially offset by product rationalization and reduced demand for our hvac products in italy .
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the fair value of debrox , new skin and ecotrin , story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with the “ selected financial data ” and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and analysis may contain forward-looking statements that involve certain risks , assumptions and uncertainties that could cause actual results to differ materially from those implied or described by the forward-looking statements . future results could differ materially from the discussion that follows for many reasons , including the factors described in part i , item 1a “ risk factors ” in this annual report on form 10-k , as well as those described in future reports filed with the sec . general we are engaged in the marketing , sales and distribution of well-recognized , brand name otc healthcare and household cleaning products to mass merchandisers , drug stores , supermarkets , and club , convenience , and dollar stores in north america ( the united states and canada ) and in australia and certain other international markets . we use the strength of our brands , our established retail distribution network , a low-cost operating model and our experienced management team to our competitive advantage . we have grown our brand portfolio both organically and through acquisitions . we develop our existing brands by investing in new product lines , brand extensions and strong advertising support . acquisitions of otc brands have also been an important part of our growth strategy . we have acquired strong and well-recognized brands from consumer products and pharmaceutical companies . while many of these brands have long histories of brand development and investment , we believe that , at the time we acquired them , most were considered “ non-core ” by their previous owners . as a result , these acquired brands did not benefit from adequate management focus and marketing support during the period prior to their acquisition , which created significant opportunities for us to reinvigorate these brands and improve their performance post-acquisition . after adding a core brand to our portfolio , we seek to increase its sales , market share and distribution in both existing and new channels through our established retail distribution network . we pursue this growth through increased spending on advertising and promotional support , new sales and marketing strategies , improved packaging and formulations , and innovative development of brand extensions . acquisitions acquisition of insight pharmaceuticals on september 3 , 2014 , the company completed the acquisition of insight , a marketer and distributor of feminine care and other otc healthcare products , for $ 753.2 million in cash . the closing followed the ftc 's approval of the acquisition and was finalized pursuant to the terms of the purchase agreement announced on april 25 , 2014. pursuant to the insight purchase agreement , the company acquired 27 otc brands sold in north america ( including related trademarks , contracts and inventory ) , which extended the company 's portfolio of otc brands to include a leading feminine care platform in the united states and canada anchored by monistat , the leading north american brand in otc yeast infection treatment . the acquisition also added brands to the company 's cough/cold , pain relief , ear care and dermatological platforms . in connection with the ftc 's approval of the insight acquisition , we sold one of the competing brands that we acquired from insight on the same day as the insight closing . insight is primarily included in our north american otc healthcare segment . the insight acquisition was accounted for in accordance with the business combinations topic of the fasb asc 805 , which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition . we prepared an analysis of the fair values of the assets acquired and liabilities assumed as of the date of acquisition . the following table summarizes our preliminary allocation of the assets acquired and liabilities assumed as of the september 3 , 2014 acquisition date . 38 replace_table_token_8_th based on this analysis , we allocated $ 599.6 million to indefinite-lived intangible assets and $ 124.8 million to finite-lived intangible assets . we are amortizing the purchased finite-lived intangible assets on a straight-line basis over an estimated weighted average useful life of 16.2 years . the weighted average remaining life for finite-lived intangible assets at march 31 , 2015 was 15.6 years . we also recorded goodwill of $ 103.3 million based on the amount by which the purchase price exceeded the fair value of the net assets acquired . the full amount of goodwill is not deductible for income tax purposes . the operating results of insight have been included in our consolidated financial statements beginning september 3 , 2014. revenues of the acquired insight operations for the year ended march 31 , 2015 were $ 97.1 million . on september 3 , 2014 , we sold one of the brands we acquired from the insight acquisition for $ 18.5 million , for which we had allocated $ 17.7 million , $ 0.6 million and $ 0.2 million to intangible assets , inventory and property , plant and equipment , respectively . the following table provides our unaudited pro forma revenues , net income and net income per basic and diluted common share had the results of insight 's operations been included in our operations commencing on april 1 , 2013 , based upon available information related to insight 's operations . this pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by us had the insight acquisition been consummated at the beginning of the period for which the pro forma information is presented , or of future results . story_separator_special_tag the cost of these promotional programs varies based on the actual number of units sold during a finite period of time . these promotional programs consist of direct-to-consumer incentives , such as coupons and temporary price reductions , as well as incentives to our customers , such as allowances for new distribution , including slotting fees , and cooperative advertising . estimates of the costs of these promotional programs are based on ( i ) historical sales experience , ( ii ) the current promotional offering , ( iii ) forecasted data , ( iv ) current market conditions , and ( v ) communication with customer purchasing/marketing personnel . we recognize the cost of such sales incentives by recording an estimate of such cost as a reduction of revenue , at the later of ( a ) the date the related revenue is recognized , or ( b ) the date when a particular sales incentive is offered . at the completion of the promotional program , these estimated amounts are adjusted to actual amounts . our related promotional expense for 2015 , 2014 , and 2013 was $ 53.2 million , $ 33.4 million , and $ 35.6 million , respectively . in 2015 , 2014 , and 2013 , we participated in over 14,000 , 10,000 , and 9,000 promotional campaigns , respectively . of those campaigns , approximately 1,900 , 1,700 , and 1,400 payments were in excess of $ 5,000 in 2015 , 2014 , and 2013 , respectively . for all three years , the average cost per campaign was less than $ 5,000. we believe that the estimation methodologies employed , combined with the nature of the promotional campaigns , make the likelihood remote that our obligation would be misstated by a material amount . however , for illustrative purposes , had we underestimated the promotional program rate by 10 % for each of 2015 , 2014 , and 2013 , our operating income would have been reduced by approximately $ 5.3 million , $ 3.3 million , and $ 3.6 million , respectively . net income would have been adversely affected by approximately $ 3.4 million , $ 2.1 million , and $ 2.2 million , respectively . we also periodically run coupon programs in sunday newspaper inserts , on our product websites , or as on-package instant redeemable coupons . we utilize a national clearing house to process coupons redeemed by customers . at the time a coupon is distributed , a provision is made based upon historical redemption rates for that particular product , information provided as a result of the clearing house 's experience with coupons of similar dollar value , the length of time the coupon is valid , and the seasonality of the coupon drop , among other factors . during 2015 , we had 341 coupon events . the amount recorded against revenues and accrued for these events during the year was $ 5.2 million . cash settlement of coupon redemptions during the year was $ 3.6 million . allowances for product returns due to the nature of the consumer products industry , we are required to estimate future product returns . accordingly , we record an estimate of product returns concurrent with recording sales . such estimates are made after analyzing ( i ) historical return rates , ( ii ) current economic trends , ( iii ) changes in customer demand , ( iv ) product acceptance , ( v ) seasonality of our product offerings , and ( vi ) the impact of changes in product formulation , packaging and advertising . we construct our returns analysis by looking at the previous year 's return history for each brand . subsequently , each month , we estimate our current return rate based upon an average of the previous twelve months ' return rate and review that calculated rate for reasonableness , giving consideration to the other factors described above . our historical return rate has been relatively stable ; for example , for the years ended march 31 , 2015 , 2014 and 2013 , returns represented 4.2 % , 2.2 % and 2.9 % , respectively , of gross sales . at march 31 , 2015 and 2014 , the allowance for sales returns was $ 8.6 million and $ 7.0 million , respectively . while we utilize the methodology described above to estimate product returns , actual results may differ materially from our estimates , causing our future financial results to be adversely affected . among the factors that could cause a material change in the estimated return rate would be significant unexpected returns with respect to a product or products that comprise a significant portion of our revenues . based on the methodology described above and our actual returns experience , management believes the likelihood of such an event remains remote . as noted , over the last three years our actual product return rate has stayed within a range of 4.2 % to 2.2 % of gross sales . a hypothetical increase of 0.1 % in our estimated return rate as a percentage of gross sales would have decreased our reported sales and operating income for 2015 by approximately $ 0.8 million . net income would have been reduced by approximately $ 0.5 million . lower of cost or market for obsolete and damaged inventory we value our inventory at the lower of cost or market value . accordingly , we reduce our inventories for the diminution of value resulting from product obsolescence , damage or other issues affecting marketability , equal to the difference between the cost of the inventory and its estimated market value . factors utilized in the determination of estimated market value include ( i ) current sales data and historical return rates , ( ii ) estimates of future demand , ( iii ) competitive pricing pressures , ( iv ) new product introductions , ( v ) product expiration dates , and ( vi ) component and packaging obsolescence .
| results of operations 2015 compared to 2014 total segment revenues the following table represents total revenue by segment , including product groups , for each of the fiscal years ended march 31 , 2015 and 2014. replace_table_token_14_th revenues for 2015 were $ 714.6 million , an increase of $ 117.2 million , or 19.6 % , versus 2014. this increase was primarily related to an increase in the north american otc healthcare segment due to the acquisition of insight and an increase in the international otc healthcare segment due to the acquisition of the hydralyte brand . the increase was partially offset by a decline in some of the product groups within the north american otc healthcare segment . north american otc healthcare segment revenues for the north american otc healthcare segment increased $ 83.8 million , or 17.5 % , during 2015 versus 2014. this increase was primarily due to the acquisition of insight , which contributed $ 96.9 million to the segment overall , and included increases of $ 69.9 million , $ 15.4 million , and $ 5.0 million to the women 's health care , dermatologicals , and cough & cold product groups , respectively . these increases were partially offset by declines of $ 7.1 million and $ 5.1 million in the dermatologicals and gastrointestinal product groups ( exclusive of insight ) , respectively , due to lower revenues for certain of our products in the dermatologicals and gastrointestinal product groups . additionally , in our women 's health product group , a third-party manufacturer has failed to keep up with demand , leading to product being temporarily out of stock . we have begun utilizing an alternative manufacturer to supplement production , which 51 we expect will eliminate out of stock issues in the future .
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you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this annual report . this discussion and other parts of this annual report contain forward-looking statements that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in the “ risk factors ” section of this annual report . overview we are a biopharmaceutical company developing a diversified pipeline of targeted oncology and immuno-oncology therapies with transformative potential for cancer patients . in approximately four years , by leveraging our differentiated hub-and-spoke business model , we have efficiently developed or in-licensed a pipeline of seven distinct programs . our unique business model leverages a central operating company and separate subsidiaries that are established to hold and advance individual therapeutic candidates . cullinan oncology , inc. , or cullinan , employs or has consulting agreements with all of our team members and incubates discovery programs until we establish a “ spoke ” in which to further advance them . in addition , we centralize shared services , including all research and development operations , administrative services and business development , in cullinan , and allocate employees and resources to each spoke based on the needs and development stage of each therapeutic candidate . as of december 31 , 2020 , we had five partially-owned development subsidiaries ( together as the subsidiaries ) , or spokes : cullinan pearl corp. , or cullinan pearl , which is advancing cln-081 ; cullinan apollo corp. , or cullinan apollo , which was formed around vk-2019 , a drug that we decided to discontinue development of in may 2020 ; cullinan mica corp. , or cullinan mica , which is advancing cln-619 ; cullinan florentine corp. , or cullinan florentine , which is advancing cln-049 ; and cullinan amber corp. , or cullinan amber , which is developing our amber platform and advancing cln-617 as its first therapeutic candidate . cullinan pearl , cullinan apollo , cullinan mica , cullinan florentine and cullinan amber are collectively referred to as the asset subsidiaries . our earlier-stage programs , nexgem , opal and jade , are currently held in cullinan . as of december 31 , 2019 , we had five wholly and partially-owned development subsidiaries : cullinan management , inc. , cullinan amber , cullinan apollo , cullinan florentine and cullinan pearl . since our inception in 2016 , we have focused substantially all of our efforts and financial resources on raising capital , organizing and staffing our company , identifying , acquiring or in-licensing and developing product and technology rights , establishing and protecting our intellectual property portfolio and developing and advancing our programs . to support these activities , we ( i ) identify and secure new programs , ( ii ) set up new subsidiaries to further advance individual programs , ( iii ) recruit key management team members , ( iv ) raise and allocate capital across the portfolio and ( v ) provide certain shared services , including research and development operations , administrative services , and business development , to our subsidiaries . we do not have any products approved for sale and have not generated any revenue from product sales . since inception , we have funded our operations primarily through the sale of redeemable preferred units and common stock . in october 2016 , we received net proceeds $ 4.0 million from the purchase and sale of our series seed preferred units . subsequently , in april 2017 , we received net proceeds $ 50.0 million from the purchase and sale of our series a preferred units . in october and december 2019 , we received net proceeds $ 83.9 million for the purchase and sale of our series b preferred units . in february and march 2020 , we received net proceeds $ 14.0 million for the additional purchase and sale of our series b preferred units . in december 2020 , we received net proceeds $ 124.8 million for the purchase and sale of our series c preferred units . in january 2021 , we completed our initial public offering ( ipo ) and received net proceeds of $ 264.7 million from the offering , after deducting underwriting discounts , commissions and other offering expenses . as of december 31 , 2020 , we had cash , cash equivalents , and short-term investments of $ 210.2 million , which does not include net proceeds from our ipo , completed in january 2021 , nor does it include upfront proceeds from the zai lab license agreement , which were received in the first quarter of 2021. we have incurred operating losses and have had negative cash flows from operations since our inception . for the years ended december 31 , 2019 and 2020 , the company 's net loss was $ 21.7 million and $ 59.5 million , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 93.3 million . we expect to continue to generate operating losses for the foreseeable future . our future viability is dependent on the success of our research and development and our ability to access additional capital to fund our operations . there can be no assurance that our current operating plan will be achieved or that additional funding will be available on terms acceptable to us , or at all . 123 we are subject to risks and uncertainties common to early-stage companies in the biotechnology industry including , but not limited to , new technological innovations , protection of proprietary technology , dependence on key personnel , compliance with government regulations and the ability to obtain additional capital to fund operations . story_separator_special_tag in february 2019 , cullinan pearl entered into a licensing and collaboration agreement with taiho pharmaceutical , co. , ltd. , or taiho pharma , for the worldwide rights to cln-081 outside of japan , which taiho pharma retained . as of february 28 , 2021 , we and taiho ventures , llc , or taiho ventures , have purchased an aggregate of $ 23.0 million in series a preferred stock of cullinan pearl . specifically , in february 2019 , cullinan pearl issued to taiho ventures 1,860,000 shares of series a preferred stock at a price of $ 1.00 per share for an aggregate purchase price of $ 1,860,000. in august 2020 , at the election of the board of directors of cullinan pearl , cullinan pearl completed its subsequent closing of its series a preferred stock financing and issued to taiho ventures an additional 1,206,000 shares of series a preferred stock for an aggregate purchase price of $ 1,206,000. as of february 28 , 2021 , we own 87 % and taiho ventures owns 13 % of the series a preferred stock . assuming conversion of the series a preferred stock , we own 80 % , taiho ventures owns 10 % , and taiho pharma owns 10 % of the fully diluted common stock outstanding of cullinan pearl . pursuant to a voting agreement , by and among cullinan pearl , we , taiho ventures , and other stockholders of cullinan pearl , the series a preferred stockholders , acting by majority vote , have the right to appoint two members of the board of directors , taiho ventures has the right to appoint one director ; our chief executive officer , mr. hughes , serves as the fourth board member ; and two independent directors are appointed by a majority of the other four cullinan pearl board of directors . cullinan amber cullinan amber , incorporated in december 2019 , is our partially-owned operating subsidiary that has exclusive worldwide rights to the patents related to the technology that originated in the laboratory of professor dane wittrup at the massachusetts institute of technology , or mit . in december 2019 , cullinan amber entered into an exclusive patent license agreement with mit . we currently own 90 % of the issued equity of cullinan amber , on a fully-diluted basis , including 100 % of the shares of series a preferred stock . mit and dr. wittrup each own approximately 5 % , or an aggregate 10 % , of the issued and outstanding equity of cullinan amber on a fully-diluted basis . pursuant to the series a preferred stock purchase agreement , by and among cullinan amber and us , upon election by the cullinan amber board of directors , we will purchase up to an additional 9,000,000 series a preferred stock at a purchase price of $ 1.00 per share of series a preferred stock in one or more closings . pursuant to a voting agreement by and among cullinan amber , us , and other stockholders , of the three person board of directors , the holders of series a preferred stock , acting by majority vote , have the right to designate two members of the board of directors . cullinan florentine cullinan florentine , incorporated in december 2019 , is our partially-owned operating subsidiary that has exclusive worldwide rights to cln-049 , our bispecific antibody targeting flt3 and cd3 , pursuant to an exclusive license agreement with deutsches krebsforschungszentrum , or dkfz , eberhard karls university of tübingen , faculty of medicine , or university of tübingen , and universitätsmedizin gesellschaft für forschung und entwicklung mbh , tübingen , or ufe . through february 28 , 2021 , we have purchased an aggregate of $ 12.0 million of shares of series a preferred stock of cullinan florentine through two closings of a series a financing . in connection with the issuance of additional shares of series a preferred stock to us and pursuant to the license agreement with dkfz , ufe and the university of tubingen , cullinan florentine issued to each of dkfz and ufe an additional 261,540 and 120,270 shares of common stock of cullinan florentine , respectively . as a result , we currently own approximately 92 % of the fully diluted shares outstanding of cullinan florentine , including 100 % of the shares of series a preferred stock . dkfz and university of tübingen currently own , in the aggregate , approximately 8 % of the equity of cullinan florentine on a fully-diluted basis . pursuant to a voting agreement , in the form filed as exhibit 10.19 hereto , between cullinan florentine , we and other stockholders , of the four person board of directors , the holders of series a preferred stock , acting by majority vote , have the right to designate two members of the board of directors , dkfz and ufe , acting jointly , have the right to appoint one director , and the ceo of cullinan florentine , who is currently our ceo , mr. owen hughes , is the fourth board member . 126 cullinan mica cullinan mica corp. ( formerly known as pdi therapeutics , inc. ) , or cullinan mica , of which we assumed operational control in may 2020 , is our partially-owned operating subsidiary that owns intellectual property related to cln-619 , our mica/b-targeted humanized igg1 monoclonal antibody . we purchased 24 % of the issued equity of cullinan mica , on a fully-diluted basis , including 89 % of the outstanding shares of series a senior preferred stock . pursuant to the series a senior preferred stock purchase agreement by and among us , cullinan mica , and other stockholders of cullinan mica , we will purchase up to an additional $ 16.0 million of the aggregate $ 18.0 million series a senior preferred stock in two milestone-dependent closings .
| results of operations comparison of years ended december 31 , 2019 and 2020 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2020 : replace_table_token_3_th research and development expenses replace_table_token_4_th research and development expenses were $ 16.8 million for the year ended december 31 , 2019 , compared to $ 43.2 million for the year ended december 31 , 2020. we separately disclosed additional details for the research and development expenses incurred in connection with the research and development activities conducted for the therapeutic candidates and programs being developed by our partially-owned subsidiaries cullinan amber , cullinan florentine , cullinan mica and cullinan pearl , certain of our consolidated entities , as we believe they represent key portfolio value drivers . we also disclosed research and development expense detail for cullinan apollo , which we are planning to dissolve in the near future . the increase of $ 18.8 million of research and development expenses of the asset subsidiaries was primarily due to the acquisition of cln-619 in may 2020 , increase in pre-clinical and cmc costs to support ind-enabling activity for cln-049 , and increased trial enrollment for cln-081 . the remaining increase was primarily related to equity-based compensation expense for common unit options granted under the 2020 unit option and grant plan in the fourth quarter of 2020 , increase in the discovery and development of early stage therapeutic candidates and increased headcount . we are heavily dependent on the success of our therapeutic candidates , the most advanced of which are in preclinical or the early stages of clinical development , which is a lengthy and expensive process with uncertain outcomes and the potential for substantial delays . we can not give any assurance that any of our therapeutic candidates will receive regulatory approval or , if approved , achieve commercial success .
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common stock the company is authorized to issue 100,000,000 shares of no par value common stock , of which 27,187,702 and 27,252,463 shares were outstanding at december 31 , 2013 and 2012 , respectively . the company had a common stock repurchase plan structured to comply with rules 10b5-1 and 10b-18 under the securities exchange act of 1934 until termination of such plan in august 2013. under the plan , the company purchased 67,102 shares in 2012 and 655,818 shares in 2013. such purchased shares are recorded as treasury stock . 16. related party transactions the company has a license agreement with the chief executive officer of the company . see note 5. the chief executive officer of the company exercised a portion of his stock option in 2012. see note 14. during the years ended december 31 , 2013 , 2012 , and 2011 , the company paid $ 93,939 ; $ 91,086 ; and $ 96,787 , respectively , to a family member of its chief executive officer as an employee and consultant . the chief executive officer exchanged his preferred stock shares for common stock and cash in the fourth quarter of 2011 pursuant to the 2011 exchange offer on the same terms as were offered to all preferred stockholders . he received 86,607 shares of common stock and $ 95,843 in exchange for 5,000 shares of series iv preferred stock and 81,607 shares of series v preferred stock , and he waived a total of $ 58,110 in unpaid dividends in arrears . the company 's common stock had a closing stock price of $ 1.39 at november 4 , 2011 , the expiration date of the 2011 exchange offer . f-21 17. stock options stock options the company has approved stock option plans for the granting of stock options to employees , directors , and consultants . options for the purchase of 700 shares of common stock remain outstanding under the 1999 stock option plan , which terminated pursuant to its terms in 2009. options for the purchase of 2,899,108 shares of common stock have been issued under the 2008 stock option plan , which authorized a total of 3,000,000 shares of common stock upon the exercise of stock options . options for the purchase of 1,889,931 shares under the 2008 stock option plan were outstanding as of december 31 , 2013. options for the purchase of 1,000,000 shares of common stock remain outstanding under an option granted to mr. story_separator_special_tag forward-looking statement warning certain statements included by reference in this filing containing the words could , may , believes , anticipates , intends , expects , and similar such words constitute forward-looking statements within the meaning of the private securities litigation reform act . any forward-looking statements involve known and unknown risks , uncertainties , and other factors that may cause our actual results , performance , or achievements to be materially different from any future results , performance , or achievements expressed or implied by such forward-looking statements . such factors include , among others , our ability to maintain liquidity , our maintenance of patent protection , the impact of current litigation , our ability to maintain favorable third party manufacturing and supplier arrangements and relationships , our ability to quickly increase capacity in response to an increase in demand , our ability to access the market , our ability to maintain or lower production costs , our ability to continue to finance research and development as well as operations and expansion of production , the continuing interest of larger market players , specifically bd , in providing devices to the safety market , and other factors referenced in item 1a . risk factors . given these uncertainties , undue reliance should not be placed on forward-looking statements . 14 overview we have been manufacturing and marketing our products since 1997. safety syringes comprised 98.6 % of our sales in 2013. we also manufacture and market the blood collection tube holder , iv safety catheter , and vanishpoint ® blood collection set . we currently provide other safety medical products in addition to safety products utilizing retractable technology . one such product is the patient safe ® syringe , which is uniquely designed to reduce the risk of bloodstream infections resulting from catheter hub contamination . historically , unit sales have increased in the latter part of the year due , in part , to the demand for syringes during the flu season . the decrease in these sales for 2013 compared to 2012 was likely attributable to the timing of the release of national flu vaccination information . our products have been and continue to be distributed nationally and internationally through numerous distributors . although we have made limited progress in some areas , such as the alternate care market , our volumes are not as high as they should be given the nature and quality of our products and the federal and state legislation requiring the use of safe needle devices . the alternate care market is composed of alternate care facilities that provide long-term nursing and out-patient surgery , emergency care , and physician services . we have reported in the past that our progress is limited principally due to exclusive marketing practices engaged in by bd , the dominant maker and seller of disposable syringes . on september 19 , 2013 , a texas jury returned a verdict in our litigation against bd , finding that bd illegally engaged in anticompetitive conduct with the intent to acquire or maintain monopoly power in the safety syringe market and engaged in false advertising under the lanham act . the jury awarded us $ 113,508,014 in damages for the antitrust claim , which is subject to being trebled pursuant to statute . story_separator_special_tag our loss per share for 2013 and 2012 were materially different than in 2011 predominantly because of funds received in 2011 in connection with a settlement agreement pursuant to which we received quarterly option payments totaling $ 8 million from hospira for a one-year option to negotiate a licensing agreement for certain uses of the patient safe ® syringe . this option expired unexercised in july 2011. with increased volumes , our manufacturing unit costs have generally tended to decline . factors that could affect our unit costs include increases in costs by third party manufacturers , changing production volumes , costs of petroleum products , and transportation costs . increases in such costs may not be recoverable through price increases of our products . story_separator_special_tag roman '' size= '' 2 '' style= '' font-size:10.0pt ; '' > at the present time , management does not intend to raise equity capital . due to the funds received from prior litigation settlements , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing as the primary ongoing sources of cash . our note to katie petroleum was paid in full in september 2012. our payments were approximately $ 37,000 per month . the notes in the original principal amounts of $ 327,726 and $ 207,260 payable to deutsche leasing usa , inc. will be paid in full in april 2014 and november 2014 , respectively . 17 historical sources of liquidity we have historically funded operations primarily from the proceeds from revenues , private placements , litigation settlements , and loans . internal sources of liquidity margins and market access to routinely achieve break even quarters , we need minimal access to hospital markets which has been difficult to obtain . we will continue to attempt to gain access to the market through our sales efforts , innovative technology , the introduction of new products , and , when necessary , litigation . we continue to focus on methods of upgrading our manufacturing capability and efficiency in order to reduce costs . fluctuations in the cost and availability of raw materials and inventory and our ability to maintain favorable manufacturing arrangements and relationships could result in the need to manufacture all ( as opposed to 26.3 % ) of our products in the u.s. this could temporarily increase unit costs as we ramp up domestic production . the mix of domestic and international sales affects the average sales price of our products . generally , the higher the ratio of domestic sales to international sales , the higher the average sales price will be . typically international sales are shipped directly from china to the customer . purchases of product manufactured in china , if available , usually decrease the average cost of manufacture for all units . domestic costs , such as indirect labor and overhead , remain relatively constant . the number of units produced by us versus manufactured in china can have a significant effect on the carrying costs of inventory as well as cost of sales . we will continue to evaluate the appropriate mix of products manufactured domestically and those manufactured in china to achieve economic benefits as well as to maintain our domestic manufacturing capability . fluctuations in the cost of oil ( since our products are petroleum based ) and transportation and the volume of units purchased from double dove may have an impact on the unit costs of our product . increases in such costs may not be recoverable through price increases of our products . reductions in oil prices may not quickly affect petroleum product prices . seasonality historically , unit sales have increased in the latter part of the year due , in part , to the demand for syringes during the flu season . cash requirements due to funds received from prior litigation settlements , we have sufficient cash reserves and intend to rely on operations , cash reserves , and debt financing as the primary ongoing sources of cash . in the event we continue to have only limited market access and cash generated from operations becomes insufficient to support operations , we would take additional cost cutting measures to reduce cash requirements . such measures could result in the reduction of units being produced , the reduction of workforce , the reduction of salaries of officers and other employees , and the deferral of royalty payments . external sources of liquidity we have obtained several loans from our inception , which have , together with the proceeds from the sales of equities and litigation efforts , enabled us to pursue development and production of our products . given the current economic conditions , our ability to obtain additional funds through loans is uncertain . furthermore , the shareholders previously authorized an additional 5,000,000 shares of a class c preferred stock that could , if necessary , be designated and used to raise funds through the sale of equity . due to the current market price of our common stock , it is unlikely we would choose to raise funds by the sale of equity . 18 in 2010 and 2011 , in connection with a settlement agreement , the company received quarterly option payments , totaling $ 8 million , from hospira , inc. for a one-year option to negotiate a licensing agreement for certain uses of the patient safe ® syringe . this option expired unexercised in july 2011. on july 10 , 2012 , thomas j. shaw , our chief executive officer , exercised a portion of his stock option . the company issued 2,000,000 shares of common stock to him at an exercise price of $ 0.81 ( aggregate consideration of $ 1,620,000 ) . in 2013 , we received consideration of $ 536,925 from various other employees exercising stock options .
| results of operations the following discussion contains trend information and other forward-looking statements that involve a number of risks and uncertainties . our actual future results could differ materially from our historical results of operations and those discussed in the forward-looking statements . all period references are to our fiscal years ended december 2013 , 2012 , or 2011. dollar amounts have been rounded for ease of reading . comparison of year ended december 31 , 2013 and year ended december 31 , 2012 domestic sales accounted for 80.7 % and 75.4 % of the revenues in 2013 and 2012 , respectively . domestic revenues decreased 2.1 % principally due to lower average sales prices and lower volumes . domestic unit sales decreased 0.8 % . domestic unit sales were 71.8 % of total unit sales for 2013. international revenues decreased from $ 8.3 million in 2012 to $ 5.9 million in 2013 , primarily due to lower sales volumes . overall unit sales decreased 16 11.5 % . our international orders may be subject to significant fluctuation over time . such orders may fluctuate due to health initiatives at various times , as well as economic conditions . cost of sales decreased $ 2.0 million due to fewer units sold , mitigated by an increase in our inventory reserve . royalty expenses decreased $ 217 thousand due to lower gross sales . gross profit margins increased from 33.2 % in 2012 to 33.5 % in 2013. operating expenses increased 7.4 % from the prior year due to the effect of the medical device excise tax , restoration of a previous company-wide wage cut , and additional sales personnel . we increased our reserve for valuation of inventory by $ 530,000 primarily due to the likelihood that we will not use certain raw materials in production . our legal costs increased in 2013 due to increased patent expense mitigated by lower litigation costs .
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the expected dividend yield is derived by a mathematical formula which uses the expected annual dividends over the expected term divided by the fair market value of our common stock at the grant date . the average risk-free interest rate is derived from united states department of treasury published interest rates of daily yield curves for the same time period as the expected term story_separator_special_tag the following discussion should be read in conjunction with , and is qualified in its entirety by , the consolidated financial statements and the notes thereto and selected financial data included elsewhere in this form 10-k. historical operating results and percentage relationships among any amounts included in the consolidated financial statements are not necessarily indicative of trends in operating results for any future period . overview and management focus our strategy and management focus is based upon the following long-term objectives : growth from taking over the in-house ( captive ) production of components from our global customers by providing a competitive and attractive outsourcing alternative organic and acquisitive growth of our precision metal components platform global expansion of our manufacturing base to better address the global requirements of our customers management generally focuses on these trends and relevant market indicators : global industrial growth and economics global automotive production rates costs subject to the global inflationary environment , including , but not limited to : raw material wages and benefits , including health care costs regulatory compliance energy raw material availability trends related to the geographic migration of competitive manufacturing regulatory environment for united states public companies currency and exchange rate movements and trends interest rate levels and expectations management generally focuses on the following key indicators of operating performance : sales growth cost of products sold selling , general and administrative expense net income ( loss ) 18 cash flow from operations and capital spending customer service reliability external and internal quality indicators employee development critical accounting policies our significant accounting policies , including the assumptions and judgment underlying them , are disclosed in note 1 of the notes to consolidated financial statements . these policies have been consistently applied in all material respects and address such matters as revenue recognition , inventory valuation , asset impairment recognition , and business combination accounting . due to the estimation processes involved , management considers the following summarized accounting policies and their application to be critical to understanding our business operations , financial condition and results of operations . we can not assure you that actual results will not significantly differ from the estimates used in these critical accounting policies . revenue recognition . we recognize revenues based on the stated shipping terms with the customer when these terms are satisfied and the risks of ownership are transferred to the customer . we have an inventory management program for certain major metal bearing components segment customers whereby revenue is recognized when products are used by the customer from consigned stock , rather than at the time of shipment . under both circumstances , revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the sellers ' price is determinable and collectability is reasonably assured . accounts receivable . accounts receivable are recorded upon recognition of a sale of goods and ownership and risk of loss is assumed by the customer . substantially all of our accounts receivables are due primarily from the core served markets . in establishing allowances for doubtful accounts , we perform credit evaluations of our customers , considering numerous inputs when available including the customers ' financial position , past payment history , relevant industry trends , cash flows , management capability , historical loss experience and economic conditions and prospects . accounts receivable are written off or reserves established when considered to be uncollectible or at risk of being uncollectible . we believe that adequate allowances for doubtful accounts have been provided in the consolidated financial statements . however , it is possible that we could experience additional unexpected credit losses . inventories . inventories are stated at the lower of cost or market . cost is determined using the first-in , first-out method . inventory valuations are developed using normalized production capacities for each of our manufacturing locations . abnormal variances from excess capacity or under-utilization of fixed production overheads are expensed in the period incurred . our inventories are not generally subject to obsolescence due to spoilage or expiring product life cycles . we assess inventory obsolescence routinely and record a reserve when inventory items are deemed non recoverable in future periods . we operate generally as a make-to-order business ; however , we also stock products for certain customers in order to meet delivery schedules . while management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements , we could experience additional inventory write-downs in the future . goodwill and acquired intangibles . for new acquisitions , we use estimates , assumptions and appraisals to allocate the purchase price to the assets acquired and to determine the amount of goodwill . these estimates are based on market analyses and comparisons to similar assets . annual procedures are required to be performed to assess whether recorded goodwill is impaired . the annual tests require management to make estimates and assumptions with regard to the future operations of its reporting units , and the expected cash flows that they will generate . these estimates and assumptions could impact the recorded value of assets acquired in a business combination , including goodwill , and whether or not there is any subsequent impairment of the recorded goodwill and the amount of such impairment . goodwill is tested for impairment on an annual basis as of october 1 and between annual tests if a triggering event occurs . the impairment procedures are performed at the reporting unit level for the one unit that still has goodwill . story_separator_special_tag 20 results of operations the following table sets forth for the periods indicated selected financial data and the percentage of our net sales represented by each income statement line item presented . replace_table_token_5_th sales concentration sales to various u.s. and foreign divisions of skf , one of the largest bearing manufacturers in the world , accounted for approximately 34 % of consolidated net sales in 2012. during 2012 , sales to various u.s. and foreign divisions of our ten largest customers accounted for approximately 74 % of our consolidated net sales . none of our other customers individually accounted for more than 10 % of our consolidated net sales for 2012. the loss of all or a substantial portion of sales to these customers would cause us to lose a substantial portion of our revenue and have a corresponding negative impact on our operating profit margin due to the operational leverage these customers provide . this could lead to sales volumes not being high enough to cover our current cost structure or to provide adequate operating cash flows or cause us to incur additional restructuring and or impairment costs . due to a limit on the amount of excess bearing component production capacity in the markets we serve , we believe it would be difficult for any of our top ten customers to take a significant portion of our business away in the short term . 21 year ended december 31 , 2012 compared to the year ended december 31 , 2011. overall results replace_table_token_6_th non-recurring benefits/expense . included in the year ended december 31 , 2012 , net income were two items that we do not expect to recur and as such impact the overall analysis of the 2012 income statement in comparison to 2011 and future periods . the first item was net $ 7.3 million in favorable tax benefits from removing valuation allowances on deferred tax assets at our u.s. entities at december 31 , 2012 , partially offset by taxes on an international distribution . additionally , in the year ended december 31 , 2012 , net income was negatively impacted by the $ 1.0 million impairment charge , net of tax , related to our former manufacturing facility in kilkenny , ireland . net sales . net sales decreased in 2012 from 2011 primarily due to volume reductions experienced at the european operating units of our metal bearing components segment and to a lesser extent at our u.s. unit of the segment , which exports into europe , and at our asian unit of the segment . these effects were partially offset by increased sales volume at our precision metal components segment . the reduction of sales volumes in our metal bearings components segment was due in part to macro-economic issues within the european union , slowing asian macro-economic growth and overall lower automotive demand in europe . additionally , we believe demand for our products was affected by our customers and their customers adjusting inventory levels during 2012 , as our sales volume reductions were greater than the reductions in actual end market demand within the markets we serve . finally , sales were reduced as the strengthening of the us dollar in 2012 versus 2011 caused a lower translated value of euro denominated sales . cost of products sold ( exclusive of depreciation and amortization ) . the majority of the decrease was from the lower sales volumes discussed above and the related reductions in production costs at the units of the metal bearing components segment . additionally , 2012 cost of products sold was lower in comparison to 2011 , as the $ 6 million in start-up costs incurred during 2011 for new multi-year sales programs at our precision metal components segment did not repeat during 2012. the 2012 cost of products sold was further reduced by benefits from specific continuous improvement projects undertaken through our level 3 program during 2012. the level 3 continuous improvement activities were at historically high levels during 2012. finally , cost of products sold was reduced as the strengthening of the us dollar in 2012 versus 2011 caused a lower translated value of euro denominated costs . 22 selling , general and administrative . the increase in spending in selling , general and administrative expenses was primarily due to higher incentive based compensation costs and from the addition of certain key positions at our precision metal components segment to support growth in this business . depreciation and amortization . the increase was due to the carryover effects of depreciation expense generated by 2011 capital expenditures placed in service throughout 2011 and by 2012 capital expenditures placed in service during 2012. restructuring and impairment charges . the year ended december 31 , 2012 , included $ 1.0 of non-cash impairment charges related to the impairment of our former production facility in kilkenny , ireland . other expense ( income ) , net . included in other expense ( income ) , net , during 2012 , was $ 1.2 million related to foreign exchange losses on inter-company loans . during 2011 , inter-company loans generated foreign exchange gains of $ 0.9 million . the gains and losses are a function of the appreciation or depreciation of the euro versus the u.s. dollar . additionally , 2012 included $ 0.2 million in gains realized with receipt of the final payment of a note receivable . provision for income taxes . the main cause of the year ended december 31 , 2012 tax benefit was the net $ 7.3 million tax benefit posted in the fourth quarter of 2012 related to the removal of valuation allowances on the deferred tax assets of our u.s. units at december 31 , 2012 , partially offset by taxes related to an international distribution . this net benefit plus lower pre-tax income during 2012 , related to lower sales volumes discussed above , account for the variance in tax expense from 2011 to 2012 . ( see note 13 of the notes to consolidated financial statements ) .
| results by segment metal bearing components segment replace_table_token_11_th the sales volume increase in our metal bearings components segment has been in our u.s. and asian based businesses . sales volumes were more robust in the first half of 2011 with the second half witnessing sales reductions due to softening demand in europe during the last six months of 2011. additionally , sales increased due to the appreciation in value of euro denominated sales . 26 the segment net income was impacted primarily by the increase in sales volume and the related production efficiencies and leveraging of fixed production costs . additionally , the achieved price increases in 2011 had a significant impact on segment net income . finally , the segment results were favorably impacted by the implementation of planned cost reduction projects . the 2010 segment net income included $ 1.2 million in after-tax foreign exchange gains on certain inter-company loans as discussed above that were not included in 2011 segment net income . precision metal components segment replace_table_token_12_th the majority of the increase in sales at this segment was due to the addition of new multi-year sales programs with four new customers in 2011. partially offsetting the volume increases from the new sales programs was volume lost due to ceasing operations at the tempe plant during the third quarter of 2010. the price/mix increases were related to targeted price increases and favorable sales mix of certain higher priced products .
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we develop and publish products through our two wholly-owned labels rockstar games and 2k . our products are currently designed for console gaming systems such as sony 's playstation®3 ( `` ps3 '' ) , microsoft 's xbox 360® ( `` xbox 360 '' ) and nintendo 's wii ( `` wii '' ) and wii u ( `` wii u '' ) ; handheld gaming systems such as nintendo 's ds ( `` ds '' ) and sony 's playstation portable ( `` psp '' ) ; and personal computers including smartphones and tablets . we deliver our products through physical retail , digital download , online platforms and cloud streaming services . we endeavor to be the most creative , innovative and efficient company in our industry . our core strategy is to capitalize on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of genres . we focus on building compelling entertainment franchises by publishing a select number of titles for which we can create sequels and add-on content . most of our intellectual property is internally owned and developed , which we believe best positions us financially and competitively . we have established a portfolio of proprietary software content for the major hardware platforms in a wide range of genres , including action , adventure , family/casual , racing , role-playing , shooter , sports and strategy , which we distribute worldwide . we believe that our commitment to creativity and innovation is a distinguishing strength , enabling us to differentiate our products in the marketplace by combining advanced technology with compelling storylines and characters that provide unique gameplay experiences for consumers . we have created , acquired or licensed a group of highly recognizable brands to match the broad consumer demographics we serve , ranging from adults to children and game enthusiasts to casual gamers . another cornerstone of our strategy is to support the success of our products in the marketplace through innovative marketing programs and global distribution on all platforms and through all channels that are relevant to our target audience . our revenue is primarily derived from the sale of internally developed software titles and software titles developed by third-parties for our benefit . operating margins are dependent in part upon our ability to continually release new , commercially successful software products and to effectively manage their development costs . we have internal development studios located in australia , canada , china , czech republic , the united kingdom , and the united states . software titles published by our rockstar games label are primarily internally developed . we expect rockstar games , our wholly-owned publisher of the grand theft auto , max payne , midnight club , red dead and other popular franchises , to continue to be a leader in the action / adventure product category and create groundbreaking entertainment by leveraging our existing titles as well as developing new brands . we believe that rockstar has established a uniquely original , popular cultural phenomenon with its grand theft auto series , which is the interactive entertainment industry 's most iconic and critically acclaimed brand and has sold-in over 127 million units . rockstar continues to expand on our established franchises by developing sequels , offering downloadable episodes and content , and releasing titles for smartphones and tablets such as grand theft auto iii10 th anniversary edition , max payne mobile , and grand theft auto : vice city 10 th anniversary edition . in may 2011 , rockstar released the commercially successful and critically acclaimed l.a. noire , which became the first video game ever chosen as an official selection of the tribeca film festival and has become another key franchise for the company . rockstar is also well known for developing brands in other genres , including the bully and manhunt franchises . our 2k label has published a variety of popular entertainment properties across all key platforms and across a range of genres including shooter , action , role-playing , strategy , sports and family/casual entertainment . we expect 2k to continue to develop new and successful franchises in the future . 28 2k 's internally owned and developed franchises include the critically acclaimed , multi-million unit selling bioshock , mafia , and sid meier 's civilization series . 2k also publishes highly successful externally developed franchises , such as borderlands . 2k successfully launched borderlands 2 in september 2012 and is supporting the title with a robust add-on content campaign . in addition , in october 2012 , 2k released xcom : enemy unknown , which , along with borderlands 2 and nba 2k13 , was among the ten highest-rated console video game releases of 2012 based on average review score on metacritic.com . xcom : enemy unknown is being supported with add-on content and we expect the title to become another successful franchise for the company . 2k publishes a range of realistic sports simulation titles , including our flagship nba 2k series , which has been the top-ranked nba basketball video game for 12 years running , the major league baseball 2k series , and our top spin tennis series . we develop most of our sports simulations software titles through our internal development studios . 2k has secured long-term licensing agreements with the national basketball association ( `` nba '' ) . in addition , in february 2013 , 2k entered into an exclusive multi-year agreement with wwe to publish the wwe video game franchise worldwide . 2k also develops and publishes titles for the casual and family-friendly games market . internally developed titles include carnival games and let 's cheer ! . 2k also has an agreement with nickelodeon to publish video games based on its top rated nick jr. titles such as dora the explorer , go , diego , go ! , ni hao , kai-lan and the backyardigans . story_separator_special_tag as a result , our strategy is to focus our development efforts on a select number of the highest quality titles for these platforms , while also expanding our offerings for emerging platforms such as mobile and online games . online content and digital distribution . the interactive entertainment software industry is delivering a growing amount of content through digital online delivery methods . we provide a variety of online delivered products and offerings . a number of our titles that are available through retailers as packaged goods products are also available through direct digital download through the internet ( from websites we own and others owned by third-parties ) . we also offer downloadable add-on content to our packaged goods titles . in addition , we are publishing an expanding variety of titles for tablets and smartphones , which are delivered to consumers through digital download through the internet . note 15 to our consolidated financial statements , `` segment and geographic information , '' discloses that net revenue from digital online channels comprised approximately 21.1 % of the company 's net revenue by distribution channel for the fiscal year ended march 31 , 2013. we expect online delivery of games and game offerings to become an increasing part of our business over the long-term . 30 product releases we released the following key titles in fiscal year 2013 : replace_table_token_5_th product pipeline we have announced the following key titles to date ( this list does not represent all titles currently in development ) : replace_table_token_6_th fiscal 2013 financial summary our fiscal year ended march 31 , 2013 net revenue was led by titles from a variety of our top franchises , including borderlands 2 , nba 2k13 , grand theft auto products , bioshock infinite and max payne 3 . our net revenue increased to $ 1,214.5 million , an increase of $ 388.7 million or 47.1 % from the fiscal year ended march 31 , 2012. for the fiscal year ended march 31 , 2013 , our net loss was $ 29.5 million , as compared to a net loss of $ 108.8 million in the prior year . net loss per share for the fiscal year ended march 31 , 2013 was $ 0.34 , as compared to a net loss per share for the fiscal year ended march 31 , 2012 of $ 1.31. our decreased net loss for the fiscal year ended march 31 , 2013 as compared to our net loss for the fiscal year ended march 31 , 2012 was primarily as a result of ( 1 ) an increase of $ 388.7 million in net revenue , ( 2 ) an increase of 5 points in our gross profit as a percent of net revenue and ( 3 ) a decrease of 6 points in our operating expenses as a percent of net revenue , partially offset by an increase of $ 11.8 million in interest and other , net , expense , for the fiscal year ended march 31 , 2013. at march 31 , 2013 we had $ 402.5 million of cash and cash equivalents , compared to $ 420.3 million at march 31 , 2012. the decrease in cash and cash equivalents from march 31 , 2012 was primarily a result of our higher accounts receivable balance at march 31 , 2013 , primarily reflecting the release of bioshock infinite near the end of the fiscal year , and the purchases of fixed assets , partially offset by an increase in accounts payable and accruals primarily related to bioshock infinite and royalties payable . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( `` u.s. gaap '' ) requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net revenues and 31 expenses during the reporting periods . we base our estimates , assumptions 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 , assumptions , estimates and judgments to ensure that our financial statements are fairly presented in accordance with u.s. gaap . however , because future events and their effects can not be determined with certainty , actual amounts could differ significantly from these estimates . we have identified the policies below as critical to our business operations and the understanding of our financial results and they require management 's most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . the affect 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 . for a detailed discussion on the application of these and other accounting policies , see note 1 to the consolidated financial statements included in item 8. management has reviewed these critical accounting estimates and related disclosures with the audit committee of our board of directors . revenue recognition we recognize revenue upon the transfer of title and risk of loss to our customers . accordingly , we recognize revenue for software titles when there is ( 1 ) persuasive evidence that an arrangement with the customer exists , which is generally based on a customer purchase order , ( 2 ) the product is delivered , ( 3 ) the selling price is fixed or determinable and ( 4 ) collection of the customer receivable is deemed probable . certain products are sold to customers with a street date ( i.e. , the earliest date these products may be sold by retailers ) .
| results of operations the following table sets forth , for the periods indicated , the percentage of net revenue represented by certain line items in our statements of operations , net revenue by geographic region , net revenue by platform and net revenue by distribution channel : replace_table_token_7_th 38 fiscal years ended march 31 , 2013 and 2012 replace_table_token_8_th ( 1 ) includes $ 10,060 and $ 5,144 of stock-based compensation expense in 2013 and 2012 , respectively . net revenue increased $ 388.7 million for the fiscal year ended march 31 , 2013 as compared to the prior year . this increase was driven primarily by $ 681.2 million in net revenue from the releases of borderlands 2 in september 2012 , bioshock infinite in march 2013 , max payne 3 in may 2012 , xcom : enemy unknown in october 2012 and specops : the line in june 2012 , as well as higher sales of our nba 2k franchise and approximately $ 23.4 million in higher sales of our grand theft auto franchise . these increases were partially offset by $ 267.6 million in lower sales of l.a. noire , which released in may 2011 , duke nukem forever , which released in june 2011 and the darkness ii , which released in february 2012. net revenue on consoles decreased to 80.4 % of our total net revenue for the fiscal year ended march 31 , 2013 as compared to 85.1 % for the same period in the prior year primarily due to the increased proportion of total net revenue on pc and other platforms .
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december 31 , 2016 . because anadarko controls wes through its ownership and control of us , and because we own the entire interest in wes gp , each of wes 's acquisitions of wes assets from anadarko has been considered a transfer of net assets between entities under common control . as such , wes assets acquired from anadarko were initially recorded at anadarko 's historic carrying value , which did not correlate to the total acquisition price paid by wes ( see note 2—acquisitions and divestitures in the notes to consolidated financial statements under part ii , item 8 of this form 10-k ) . further , after an acquisition of wes assets from anadarko , we ( by virtue of our consolidation of wes ) and wes may be required to recast our financial statements to include the activities of such wes assets from the date of common control . for those periods requiring recast , the consolidated financial statements for periods prior to the acquisition of wes assets from anadarko have been prepared from anadarko 's historical cost-basis accounts and may not necessarily be indicative of the actual results of operations that would have occurred if wes had owned the wes assets during the periods reported . for ease of reference , we refer to the historical financial results of the wes assets prior to the acquisitions from anadarko as being “ our ” historical financial results . executive summary we were formed by anadarko in september 2012 by converting wgr holdings , llc into an mlp and changing its name to western gas equity partners , lp . we closed our ipo in december 2012 and own wes gp and a significant limited partner interest in wes , a growth-oriented delaware mlp formed by anadarko to acquire , own , develop and operate midstream energy assets . our consolidated financial statements include the consolidated financial results of wes due to our 100 % ownership interest in wes gp and wes gp 's control of wes . our only cash-generating assets consist of our partnership interests in wes , and we currently have no independent operations . wes currently owns or has investments in assets located in the rocky mountains ( colorado , utah and wyoming ) , north-central pennsylvania and texas . wes is engaged in the business of gathering , compressing , treating , processing and transporting of natural gas , and gathering , stabilizing and transporting condensate , ngls and crude oil . wes is also currently constructing two produced-water disposal systems in west texas , which are expected to be placed in service during the second quarter of 2017. wes provides these midstream services for anadarko , as well as for third-party producers and customers . as of december 31 , 2016 , wes 's assets and investments consisted of the following : replace_table_token_12_th 81 significant financial and operational events during the year ended december 31 , 2016 , included the following : we raised our distribution t o $ 0.46250 per unit for the fourth quarter of 2016 , representing a 3 % increase over the distribution for the third quarter of 2016 and a 15 % increase ove r the distribution for the fourth quarter of 2015 . wes completed the acquisition of springfield from anadarko for cash and wes common unit consideration totaling $ 750.0 million . see acquisitions and divestitures under part i , items 1 and 2 of this form 10-k for additional information . wes issued 21,922,831 series a preferred units to private investors , generating net proceeds of $ 686.9 million , a portion of which was used to fund the acquisition of springfield . see equity offerings under part i , items 1 and 2 of this form 10-k for additional information . wes completed the offering of $ 500.0 million aggregate principal amount of 2026 notes in july 2016 and an offering of an additional $ 200.0 million in aggregate principal amount of 2044 notes in october 2016. net proceeds were used to repay amounts then outstanding under the wes rcf and for general partnership purposes , including capital expenditures . see liquidity and capital resources within this item 7 for additional information . wes commenced operation of trains iv and v at the dbm complex in may 2016 and october 2016 , respectively . both are 200 mmcf/d processing plants . further , after sustaining damage during the december 3 , 2015 , incident at the dbm complex , train ii ( with capacity of 100 mmcf/d ) returned to service in december 2016 and train iii ( with capacity of 200 mmcf/d ) returned to service in may 2016. wes received $ 33.8 million in cash proceeds from insurers related to the incident at the dbm complex , including $ 16.3 million for business interruption insurance claims and $ 17.5 million for property insurance claims . see items affecting the comparability of financial results within this item 7 for additional information . wes raised its distribution to $ 0.860 per unit for the fourth quarter of 2016 , representing a 2 % increase over the distribution for the third quarter of 2016 and an 8 % increase over the distribution for the fourth quarter of 2015 . throughput attributable to wes for natural gas assets totaled 3,940 mmcf/d for the year ended december 31 , 2016 , representing a 5 % decrease compared to the year ended december 31 , 2015 . throughput for crude/ngl assets totaled 184 mbbls/d for the year ended december 31 , 2016 , representing a 1 % decrease compared to the year ended december 31 , 2015 . wes 's operating income ( loss ) was $ 708.2 million for the year ended december 31 , 2016 , representing a 350 % increase compared to the year ended december 31 , 2015 . story_separator_special_tag during the year ended december 31 , 2016 , wes added 226 receipt points to its systems . operating and maintenance expenses . wes monitors operating and maintenance expenses to assess the impact of such costs on the profitability of its assets and to evaluate the overall efficiency of its operations . operating and maintenance expenses include , among other things , field labor , insurance , repair and maintenance , equipment rentals , contract services , utility costs and services provided to wes or on its behalf . for periods commencing on the date of and subsequent to wes 's acquisition of its assets , certain of these expenses are incurred under and governed by wes 's services and secondment agreement with anadarko . general and administrative expenses . to help ensure the appropriateness of wes 's general and administrative expenses and maximize its cash available for distribution , wes monitors such expenses through comparison to prior periods , to the annual budget approved by wes gp 's board of directors , as well as to general and administrative expenses incurred by similar midstream companies . pursuant to the wes omnibus agreement , anadarko and wes gp perform centralized corporate functions for wes . general and administrative expenses for periods prior to wes 's acquisition of the wes assets include costs allocated by anadarko in the form of a management services fee , which approximated the general and administrative costs incurred by anadarko attributable to the wes assets . for periods subsequent to the acquisition of the wes assets , anadarko is no longer compensated for corporate services through a management services fee . instead , allocations and reimbursements of general and administrative expenses are determined by anadarko in its reasonable discretion , in accordance with wes 's partnership agreement and the wes omnibus agreement . amounts required to be reimbursed to anadarko under wes 's omnibus agreement also include those expenses attributable to its status as a publicly traded partnership , such as the following : expenses associated with annual and quarterly reporting ; tax return and schedule k-1 preparation and distribution expenses ; expenses associated with listing on the nyse ; and independent auditor fees , legal expenses , investor relations expenses , director fees , and registrar and transfer agent fees . see further detail in note 5—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k . 84 non-gaap financial measures adjusted gross margin attributable to western gas partners , lp . wes defines adjusted gross margin attributable to western gas partners , lp ( “ adjusted gross margin ” ) as total revenues and other , less cost of product and reimbursements for electricity-related expenses recorded as revenue , plus distributions from equity investments and excluding the noncontrolling interest owner 's proportionate share of revenue and cost of product . wes believes adjusted gross margin is an important performance measure of the core profitability of its operations , as well as its operating performance as compared to that of other companies in the industry . cost of product expenses include ( i ) costs associated with the purchase of natural gas and ngls pursuant to wes 's percent-of-proceeds and keep-whole processing contracts , ( ii ) costs associated with the valuation of wes 's gas imbalances , and ( iii ) costs associated with wes 's obligations under certain contracts to redeliver a volume of natural gas to shippers , which is thermally equivalent to condensate retained by wes and sold to third parties . these expenses are subject to variability , although a majority of wes 's exposure to commodity price risk inherent in its percent-of-proceeds and keep-whole contracts is mitigated through its commodity price swap agreements with anadarko . for a discussion of commodity price swap agreements , see risk factors under part i , item 1a and note 5—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k. to facilitate investor and industry analyst comparisons between wes and its peers , wes also discloses adjusted gross margin per mcf attributable to western gas partners , lp for natural gas assets and adjusted gross margin per bbl for crude/ngl assets . see key performance metrics within this item 7. adjusted ebitda attributable to western gas partners , lp . wes defines adjusted ebitda attributable to western gas partners , lp ( “ adjusted ebitda ” ) as net income ( loss ) attributable to western gas partners , lp , plus distributions from equity investments , non-cash equity-based compensation expense , interest expense , income tax expense , depreciation and amortization , impairments , and other expense ( including lower of cost or market inventory adjustments recorded in cost of product ) , less gain ( loss ) on divestiture and other , net , income from equity investments , interest income , income tax benefit , and other income . wes believes that the presentation of adjusted ebitda provides information useful to investors in assessing its financial condition and results of operations and that adjusted ebitda is a widely accepted financial indicator of a company 's ability to incur and service debt , fund capital expenditures and make distributions . adjusted ebitda is a supplemental financial measure that wes 's management and external users of wes 's consolidated financial statements , such as industry analysts , investors , commercial banks and rating agencies , use to assess the following , among other measures : wes 's operating performance as compared to other publicly traded partnerships in the midstream energy industry , without regard to financing methods , capital structure or historical cost basis ; the ability of wes 's assets to generate cash flow to make distributions ; and the viability of acquisitions and capital expenditure projects and the returns on investment of various investment opportunities . distributable cash flow .
| operating results the following tables and discussion present a summary of wes 's results of operations : replace_table_token_19_th ( 1 ) revenues and other include amounts earned by wes from services provided to its affiliates , as well as from the sale of residue and ngls to its affiliates . operating expenses include amounts charged by wes affiliates for services as well as reimbursement of amounts paid by affiliates to third parties on wes 's behalf . see note 5—transactions with affiliates in the notes to consolidated financial statements under part ii , item 8 of this form 10-k . ( 2 ) see note 1—summary of significant accounting policies in the notes to consolidated financial statements under part ii , item 8 of this form 10-k . ( 3 ) for reconciliations to comparable consolidated results of wgp , see items affecting the comparability of financial results within this item 7 . ( 4 ) adjusted gross margin attributable to western gas partners , lp , adjusted ebitda attributable to western gas partners , lp and distributable cash flow are defined under the caption key performance metrics within this item 7 . for reconciliations of adjusted gross margin attributable to western gas partners , lp , adjusted ebitda attributable to western gas partners , lp and distributable cash flow to their most directly comparable financial measures calculated and presented in accordance with gaap , see how wes evaluates its operations–reconciliation to non-gaap measures within this item 7 . for purposes of the following discussion , any increases or decreases “ for the year ended december 31 , 2016 ” refer to the comparison of the year ended december 31 , 2016 , to the year ended december 31 , 2015 , and any increases or decreases “ for the year ended december 31 , 2015 ” refer to the comparison of the year ended december 31 , 2015 , to the year ended december 31 , 2014 .
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note 3 cash , cash equivalents and marketable securities cash and cash equivalents consisted of money market instruments and cash maintained with various financial institutions at march 31 , 2013 and 2012. the following is a summary of marketable securities held by netscout at march 31 , 2013 classified as short-term and long-term ( in thousands ) : replace_table_token_33_th f-16 netscout systems , inc. notes to consolidated financial statements story_separator_special_tag the following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this annual report on form 10-k. in addition to historical information , the following discussion and other parts of this annual report contain forward-looking statements that involve risks and uncertainties . you should not place undue reliance on these forward-looking statements . actual events or results may differ materially due to competitive factors and other factors discussed in item 1a . risk factors and elsewhere in this annual report . these factors may cause our actual results to differ materially from any forward-looking statement . overview netscout was founded in 1984 and is headquartered in westford , massachusetts . we design , develop , manufacture , market , sell and support market leading unified service delivery management , service assurance and application performance management solutions focused on assuring service delivery for the world 's largest , most demanding and complex ip based service delivery environments . we manufacture and market these products in integrated hardware and software solutions that are used by commercial enterprises , large governmental agencies and telecommunication service providers worldwide . we have a single operating segment and substantially all of our identifiable assets are located in the united states . our operating results are influenced by a number of factors , including , but not limited to , the mix and quantity of products and services sold , pricing , costs of materials used in our products , growth in employee related costs , including commissions , and the expansion of our operations . factors that affect our ability to maximize our operating results include , but are not limited to , our ability to introduce and enhance existing products , the marketplace acceptance of those new or enhanced products , continued expansion into international markets , development of strategic partnerships , competition , successful acquisition integration efforts , our ability to achieve expense reductions and make structural improvements and current economic conditions . our key objectives have been to continue to gain market share in the wireless service provider market and to accelerate our enterprise growth by extending into the application performance management segment . a key common component of both initiatives has been our aggressive acquisition of the strongly complementary packet flow or monitoring switch technology . on october 31 , 2012 , we completed the acquisition of onpath technologies , inc. ( onpath ) , an established provider of scalable packet flow switching technology for high-performance networks for the aggregation and distribution of network traffic for data , voice , video testing , monitoring , performance 30 management and cybersecurity deployments . onpath 's packet flow switch technology is synergistic with our network monitoring switch strategy . the acquisition of the packet flow switch technology further strengthens our unified service delivery management strategy by enabling scalable access to all relevant network traffic across highly distributed network environments for use by any network monitoring , performance management and security system . onpath 's test automation technology is used to monitor networks in test environments which simulate existing and planned network environments . we paid $ 36.8 million in cash for the acquisition of onpath and $ 4.2 million of additional compensation consideration which could be paid out in the future . on july 20 , 2012 , we completed the acquisition of certain assets , technology and employees from accanto systems , s.r.l . ( accanto ) . accanto provides service assurance for telecommunication service providers enabling carriers to monitor and manage the delivery of voice services over converged , next generation network architectures . this technology is synergistic with our packet flow strategy and brings voice service monitoring capabilities for legacy voice environments and for next generation network voice services , including voice over ip ( voip ) and voice over long-term evolution ( volte ) for 4g wireless networks . we paid $ 15.0 million for the acquisition of accanto . at the end of our fiscal year ended march 31 , 2012 , we entered the market with the packet aggregation switch we acquired from simena . during the second half of our fiscal year ended march 31 , 2013 , we added a high capacity , chassis-based packet flow switch line that we acquired from onpath in october 2012. the combination of these two products has provided us with a wide range of price/performance and scale , well suited for both large enterprise and service provider applications . in the wireless service provider sector we continued to gain market share primarily driven by our leading 3g and lte data service assurance solutions globally . our strategy here has been to complement our solution portfolio with an integrated legacy and 3g/4g voice service assurance capability . a component of this strategy was the acquisition of accanto earlier in the fiscal year ended march 31 , 2013 , providing us important voice service monitoring for legacy voice environments and next generation network voice services . overall , in the service provider market we continue to capitalize on major growth drivers . we have gained market share in the tier 1 mobile packet switched core where we are servicing 2g/3g and now 4g infrastructures that are being driven further with capacity upgrades from existing customers . we have also been gaining new tier 2 customers as we expand our presence both in the u.s. and around the world . we have been building our product to capture the carriers ' rapid expansion of ip services where we have become a leader . story_separator_special_tag fair values determined by level 2 inputs utilize data points that are observable such as quoted prices , interest rates and yield curves . investments and marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary . we periodically evaluate whether a decline in fair value below cost basis is other-than-temporary by considering available evidence regarding these investments including , among other factors , the duration of the period that , and extent to which , the fair value is less than cost basis , the financial health of and business outlook for the issuer , including industry and sector performance and operational and financing cash flow factors , overall market conditions and trends and our intent and ability to retain our investment in the security for a period of time sufficient to allow for an anticipated recovery in market value . once a decline in fair value is determined to be other-than-temporary , a write-down is recorded and a new cost 33 basis in the security is established . assessing the above factors involves inherent uncertainty . write-downs , if recorded , could be materially different from the actual market performance of investments and marketable securities in our portfolio if , among other things , relevant information related to our investments and marketable securities was not publicly available or other factors not considered by us would have been relevant to the determination of impairment . revenue recognition product revenue consists of sales of our hardware products ( which include required embedded software that works together with the hardware to deliver the hardware 's essential functionality ) , licensing of our software products , and sale of hardware bundled with a software license . product revenue is recognized upon shipment , provided that evidence of an arrangement exists , title and risk of loss have passed to the customer , fees are fixed or determinable and collection of the related receivable is probable . because many of our solutions are comprised of both hardware and more than incidental software components , we recognize revenue in accordance with authoritative guidance on both hardware and software revenue recognition . service revenue consists primarily of fees from customer support agreements , consulting and training . we generally provide software and hardware support as part of product sales . revenue related to the initial bundled software and hardware support is recognized ratably over the support period . in addition , customers can elect to purchase extended support agreements for periods after the initial software warranty expiration . support services generally include rights to unspecified upgrades ( when and if available ) , telephone and internet-based support , updates and bug fixes . revenue from customer support agreements is recognized ratably over the support period . reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue , with the offsetting expense recorded in cost of service revenue . training services include on-site and classroom training . training revenues are recognized as the related training services are provided . generally , our contracts are accounted for individually . however , when contracts are closely interrelated and dependent on each other , it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts . multi-element arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . for multi-element arrangements comprised only of hardware products and related services , we allocate the total arrangement consideration to the multiple elements based on each element 's selling price compared to the total relative selling price of all the elements . each element 's selling price is based on management 's best estimate of selling price ( besp ) paid by customers based on the element 's historical pricing when vsoe or tpe does not exist . we have established besp for product elements as the average selling price the element was sold for over the past six quarters , whether sold alone or sold as part of a multiple element transaction . our internal list price for products , reviewed quarterly by senior management , with consideration in regards to changing factors in our technology and in the marketplace , is generated to target the desired gross margin from sales of product after analyzing historical discounting trends . we review sales of the product elements on a quarterly basis and update , when appropriate , besp for such elements to ensure that it reflects recent pricing experience . we have established vsoe for services related undelivered elements . for multi-element arrangements comprised only of software products and related services , we allocate a portion of the total arrangement consideration to the undelivered elements , primarily support agreements and training , using vsoe of fair value for the undelivered elements . the remaining portion of the total arrangement consideration is allocated to the delivered software , referred to as the residual method . vsoe of fair value of the undelivered elements is based on the price customers pay when the element is sold separately . we review the separate sales of the undelivered elements on a quarterly basis and update , when appropriate , its vsoe of fair value for such elements to ensure that it reflects recent pricing experience . if we can not objectively determine the 34 vsoe of the fair value of any undelivered software element , we defer revenue until all elements are delivered and services have been performed , or until fair value can objectively be determined for any remaining undelivered elements . for multi-element arrangements comprised of a combination of hardware and software elements , the total arrangement consideration is bifurcated between the hardware and hardware related deliverables and the software and software related deliverables based on the relative selling prices of all deliverables as a group .
| results of operations comparison of years ended march 31 , 2013 and 2012 revenue product revenue consists of sales of our hardware products and licensing of our software products . service revenue consists of customer support agreements , consulting and training . no one direct customer or indirect channel partner accounted for more than 10 % of our total revenue during the fiscal years ended march 31 , 2013 and 2012. replace_table_token_7_th 36 product . the 18 % , or $ 30.6 million , increase in product revenue was due to a $ 19.4 million increase in revenue from our general enterprise sector and an $ 18.8 million increase in our service provider sector . these increases were offset by a $ 7.6 million decrease in our government enterprise sector . compared to the same period in the prior year , we realized a 7 % increase in units shipped and a 6 % increase in the average selling price per unit of our products . the increase in average selling price is due to product mix . we expect continued growth in our fiscal year ended march 31 , 2014 and expect our service provider sector to continue to be a significant driver of future growth . service . the 8 % , or $ 11.3 million , increase in service revenue was due to a $ 10.8 million increase in revenue from maintenance contracts due to increased new maintenance contracts and renewals from a growing support base and a $ 1.7 million increase in premium support contracts . these were offset by a $ 1.3 million decrease in consulting revenue . we expect single digit percentage growth in our service revenues . we expect this to be generated by product revenue growth which increases our installed base and therefore our related maintenance contracts .
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on june 27 , 2014 , we drew the $ 17,500 of increased term loan commitments , bringing the total outstanding commitments under the term loan to $ 175,000 . borrowings under the amended credit facilities ( other than in respect of swing-line loans ) bear interest at a rate per story_separator_special_tag the following `` management 's discussion and analysis of financial condition and results of operations '' ( md & a ) , as well as disclosures included elsewhere in this form 10-k , include `` forward-looking statements '' within the meaning of the private securities litigation reform act of 1995. this act provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results . all statements other than statements of historical fact we make in this form 10-k are forward-looking . in particular , the statements herein regarding future sales and operating results ; company and industry growth , contraction or trends ; growth or contraction of the markets in which the company participates ; international events , regulatory or legislative activity ; various economic factors ; product performance ; the generation , protection and acquisition of intellectual property , and litigation related to such intellectual property ; new product introductions ; development of new products , technologies and markets ; natural disasters ; the acquisition of or investment in other entities ; uses and investment of the company 's cash balance ; financing facilities and related debt , payment of principal and interest , and compliance with covenants and other terms ; the company 's capital structure ; and the construction and operation of facilities by the company ; and statements preceded by , followed by or that include the words `` intends '' , `` estimates '' , `` plans '' , `` believes '' , `` expects '' , `` anticipates '' , `` should '' , `` could '' or similar expressions , are forward-looking statements . forward-looking statements reflect our current expectations and are inherently uncertain . our actual results may differ significantly from our expectations . we assume no obligation to update this forward-looking information . the section entitled `` risk factors '' describes some , but not all , of the factors that could cause these differences . the following discussion and analysis should be read in conjunction with our historical financial statements and the notes to those financial statements which are included in item 8 of part ii of this form 10-k. overview cabot microelectronics corporation ( `` cabot microelectronics '' , `` the company '' , `` us '' , `` we '' , or `` our '' ) supplies high-performance polishing slurries and pads used in the manufacture of advanced integrated circuit ( ic ) devices within the semiconductor industry , in a process called chemical mechanical planarization ( cmp ) . cmp polishes surfaces at an atomic level , thereby enabling ic device manufacturers to produce smaller , faster and more complex ic devices with fewer defects . we operate predominantly in one industry segment – the development , manufacture and sale of cmp consumables . we develop , produce and sell cmp slurries for polishing many of the conducting and insulating materials used in ic devices , and also for polishing the disk substrates and magnetic heads used in hard disk drives . we also develop , manufacture and sell cmp polishing pads , which are used in conjunction with slurries in the cmp process . we also pursue other demanding surface modification applications through our engineered surface finishes ( esf ) business where we believe we can leverage our expertise in cmp consumables for the semiconductor industry to develop products for demanding polishing applications in other industries . as we discussed throughout the past fiscal year , our fiscal 2014 results reflect the continued trend of seasonal changes in demand in the semiconductor industry around consumer-oriented `` back-to-school '' and `` holiday '' calendar periods . consistent with this trend , we experienced strengthening of demand for our products during the second half of the fiscal year after the relatively soft industry demand conditions we saw during the first half , similar to what we experienced during fiscal years 2013 and 2012. the semiconductor industry continues to be driven by growth in demand for mobile electronic devices , but that growth appears to have been muted by continued weak demand for personal computers ( pcs ) . since we serve the entire semiconductor market , fluctuations in demand for our products have generally reflected overall industry activity . there are many factors that make it difficult for us to predict future revenue trends for our business , including those discussed in part i , item 1a entitled `` risk factors '' in this form 10-k. 26 index as discussed in note 1 of the notes to the consolidated financial statements of this form 10-k and previously in our report on form 10-q for the quarter ended june 30 , 2014 , the company has revised prior year financial statements to reflect adjustments and corrections of amounts recorded in fiscal years 2011 through 2013. specifically , references in this md & a related to other income and expense , income tax expense , effective income tax rate , net income and diluted earnings per share for fiscal 2013 and fiscal 2012 reflect these revised amounts . story_separator_special_tag if we had increased our estimate of bad debts to 3.2 % of gross accounts receivable , our general and administrative expenses would have increased by $ 0.6 million . warranty reserve we maintain a warranty reserve that reflects management 's best estimate of the cost to replace product that does not meet our specifications and customers ' performance requirements , and costs related to such replacement . the warranty reserve is based upon a historical product replacement rate , adjusted for any specific known conditions or circumstances . should actual warranty costs differ substantially from our estimates , revisions to the estimated warranty liability may be required . as of september 30 , 2014 , our warranty reserve represented 0.2 % of the current quarter revenue . if we had increased our warranty reserve estimate to 1.2 % of the current quarter revenue , our cost of goods sold would have increased by $ 1.2 million . inventory valuation we value inventory at the lower of cost or market and write down the value of inventory for estimated obsolescence or if inventory is deemed unmarketable . an inventory reserve is maintained based upon a historical percentage of actual inventories written off applied against the inventory value at the end of the period , adjusted for known conditions and circumstances . we exercise judgment in estimating the amount of inventory that is obsolete . should actual product marketability be affected by conditions that are different from those projected by management , revisions to the estimated inventory reserve may be required . if we had increased our reserve for obsolete inventory at september 30 , 2014 by 10 % , our cost of goods sold would have increased by $ 0.2 million . valuation and classification of auction rate securities as of september 30 , 2014 , we owned two auction rate securities ( ars ) with an estimated fair value of $ 5.3 million and par value of $ 5.9 million which are classified as other long-term assets on our consolidated balance sheet and are considered held-to-maturity investments . in general , ars investments are securities with long-term nominal maturities for which interest rates are reset through a dutch auction every seven to 35 days . historically , these periodic auctions provided a liquid market for these securities . beginning in 2008 , general uncertainties in the global credit markets reduced liquidity in the ars market , and this illiquidity continues . our ars , when purchased , were issued by a-rated municipalities . although the credit ratings of both municipalities have been downgraded since our original investment , one of the ars is credit enhanced with bond insurance , and the other has become an obligation of the bond insurer . both ars currently carry a credit rating of aa- by standard & poor 's . we classify these investments as held-to-maturity based on our intention and ability to hold the securities until maturity . although there has been select trading activity on these securities , the ars market is not considered active . consequently , we determine the fair value of these securities using level 2 fair value inputs , including trading activity . the calculation of fair value and the balance sheet classification for our ars requires critical judgments and estimates by management , including the probabilities that a security may be monetized through a future successful auction , of a refinancing of the underlying debt , or of a default in payment by the issuer or the bond insurance carrier . 28 index an other-than-temporary impairment must be recorded when a credit loss exists ; that is when the present value of the expected cash flows from a debt security is less than the amortized cost basis of the security . however , we believe the gross $ 0.6 million unrecognized loss on these securities is due to illiquidity in the ars market rather than credit loss . if auctions involving our ars continue to fail , if issuers of our ars are unable to refinance the underlying securities , if the issuing municipalities are unable to pay their debt obligations and the bond insurance fails , or if credit ratings decline or other adverse developments occur in the credit markets , we may not be able to monetize our securities in the near term and may be required to adjust the carrying value of these instruments through an impairment charge that may be deemed other-than-temporary . impairment of long-lived assets and investments we assess the recoverability of the carrying value of long-lived assets , including finite lived intangible assets , whenever events or changes in circumstances indicate that the assets may be impaired . we perform a periodic review of our long-lived assets to determine if such impairment indicators exist . we must exercise judgment in assessing whether an event of impairment has occurred . for purposes of recognition and measurement of an impairment loss , long-lived assets are either individually identified or grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . we must exercise judgment in this grouping . if the sum of the undiscounted future cash flows expected to result from the identified asset group is less than the carrying value of the asset group , an impairment provision may be required . the amount of the impairment to be recognized is calculated by subtracting the fair value of the asset group from the net book value of the asset group . determining future cash flows and estimating fair values require significant judgment and are highly susceptible to change from period to period because they require management to make assumptions about future sales and cost of sales generally over a long-term period . as a result of assessments performed during fiscal 2014 , we recorded $ 2.3 million in impairment expense , primarily related to the write-off of certain operational assets . in fiscal 2013 , we recorded $ 0.2 million in impairment expense .
| results of operations the following table sets forth , for the periods indicated , the percentage of revenue of certain line items included in our historical statements of income : replace_table_token_5_th year ended september 30 , 2014 , versus year ended september 30 , 2013 revenue revenue was $ 424.7 million in fiscal 2014 , which represented a decrease of 2.0 % , or $ 8.5 million , from fiscal 2013. the decrease in revenue was primarily due to a $ 7.5 million decrease in sales volume and a $ 2.4 million decrease due to the effect of foreign exchange rate changes , primarily due to the weakening of the japanese yen versus the u.s. dollar , partially offset by a $ 1.3 million increase due to a higher-priced product mix . the decrease in revenue from fiscal 2013 was driven by lower revenue from qed , which is primarily capital-equipment oriented and , consequently , is volatile . we also recorded lower revenue from our data storage slurry products , which are tied to the contracting pc market . these decreases were partially offset by increased sales of our polishing pad products and increased sales of slurries for polishing tungsten and aluminum . similar to both fiscal 2013 and 2012 , we saw a strengthening of demand in the second half of fiscal 2014 after a period of softer demand during the first half of the fiscal year .
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for each performance year , the story_separator_special_tag the following discussion and analysis should be read in conjunction with the audited condensed consolidated financial statements and the notes thereto included in part ii , item 8 , “ financial statements and supplementary data ” of this annual report on form 10-k. the following discussion and analysis contain forward-looking statements that reflect our plans , estimates , and beliefs , including those discussed in the “ note about forward-looking statements ” at the beginning of this report . our actual results could differ materially from those plans , estimates , and beliefs . factors that could cause or contribute to these differences include those described below and elsewhere in this annual report on form 10-k , particularly in part i , item 1a , “ risk factors. ” overview we together with our affiliated physician groups and consolidated entities are a physician-centric integrated population health management company working to provide coordinated , outcomes-based medical care in a cost-effective manner and serves patients in california , the majority of whom are covered by private or public insurance such as medicare , medicaid and health maintenance organizations ( “ hmos ” ) , with a small portion of our revenue coming from non-insured patients . we provide care coordination services to each major constituent of the healthcare delivery system , including patients , families , primary care physicians , specialists , acute care hospitals , alternative sites of inpatient care , physician groups and health plans . our physician network consists of primary care physicians , specialist physicians and hospitalists . we operate primarily through the following subsidiaries of apollo medical holdings , inc. ( “ apollomed ” ) : network medical management ( “ nmm ” ) , apollo medical management , inc. ( “ amm ” ) , apa aco , inc. ( “ apaaco ” ) and apollo care connect , inc. ( “ apollo care connect ” ) , and their consolidated entities . led by a management team with over a decade of experience , we have built a company and culture that is focused on physicians providing high-quality medical care , population health management and care coordination for patients . we believe that we are well-positioned to take advantage of the growing trends in the u.s. healthcare industry towards value-based and results-oriented healthcare focusing on the triple aim of patient satisfaction , high-quality care and cost efficiency . through our next generation accountable organization ( “ ngaco ” ) model and a network of independent practice associations ( “ ipas ” ) with more than 4,000 contracted physicians , which physical groups have agreements with various health plans , hospitals and other hmos , we are currently responsible for coordinating the care for over one million patients in california . these covered patients are comprised of managed care members whose health coverage is provided through their employers or who have acquired health coverage directly from a health plan or as a result of their eligibility for medicaid or medicare benefits . our managed patients benefit from an integrated approach that places physicians at the center of patient care and utilizes sophisticated risk management techniques and clinical protocols to provide high-quality , cost effective care . to implement a patient-centered , physician-centric experience , we also have other integrated and synergistic operations , including ( i ) msos that provide management and other services to our affiliated ipas , ( ii ) outpatient clinics and ( iii ) hospitalists . recent developments the following describes certain developments from 2017 to date that are important to understanding our overall results of operations and financial condition . conversion to ngaco we operated three mssp acos , ap-aco , apcn-aco and apollo-aco . following the establishment of apaaco , our ngaco , and the selection of apaaco by cms to participate in the ngaco model , we have converted physicians and patients from our mssp acos to our ngaco . as providers continue to enroll in our ngaco and their patients become beneficiaries under our ngaco , we have transitioned the three mssp acos ' operations . to position ourselves to participate in the ngaco model , we have devoted , and intend to continue to devote , significant effort and resources , financial and otherwise , to the ngaco model , and refocused away from certain other parts of our historic business and revenue streams , which will receive less emphasis in the future and could result in reduced revenue from these activities . our ngaco currently is eligible for receiving monthly aipbp payments at a rate of approximately $ 7.3 million per month from cms . we currently anticipate that revenue from the ngaco model will be a significant source of revenue for us in fiscal 2018 and future periods , although no assurance of that can be given at this time . ap-aco terminated its participation in the mssp effective as of december 31 , 2016 , and apcn-aco and apollo-aco terminated their participation in the mssp effective as of december 31 , 2017. consummation of merger on december 8 , 2017 , apollomed completed its business combination with nmm following the satisfaction or waiver of the conditions set forth in the agreement and plan of merger , dated as of december 21 , 2016 ( as amended on march 30 , 2017 and october 17 , 2017 ) , among apollomed , apollo acquisition corp. ( “ merger sub ” ) , nmm and kenneth sim , as the shareholders ' representative ( the “ merger agreement ” ) , pursuant to which merger sub merged with and into nmm , with nmm surviving as a wholly owned subsidiary of apollomed ( the “ merger ” ) . the combination of apollomed and nmm brings together two complementary healthcare organizations to form one of the nation 's largest integrated population health management companies . story_separator_special_tag pursuant to the terms of the ten-year msa , nmm is responsible for managing all health plan members assigned or delegated to accountable ipa , as well as all hospital risk pools . this effort is expected to be supported by our population health management platform , which includes administrative , clinical and technology capabilities . one of our vies has extended a line of credit of up to $ 18 million to george m. jayatilaka , m.d . a shareholder of accountable ipa , to fund the working capital needs of accountable ipa . the vie has the right , but not the obligation , to convert a portion or all of the outstanding principal amount into shares of accountable ipa 's capital stock . concurrent with the funding , the board of directors of accountable ipa was reconstituted to be comprised of two directors , including one director appointed by apc-lsma . nmm entered into a msa with joseph m. molina , m.d. , professional corporation – southern california dba golden shore medical group , a california professional corporation ( “ gsmg ” ) , which provides quality healthcare services to more than 100,000 patients and operates 17 clinics in four california counties . the msa requires the payment of management fees in accordance with the management fee schedule therein . the initial term of the msa commenced on january 1 , 2018 and will expire on december 31 , 2020. the msa may be extended in writing at the sole option of gsmg for an additional two-year term following the expiration of the initial term . gsmg will have the right to terminate the msa if certain conditions , as defined in the msa , are met . we have expanded our operations , including hiring a significant number of employees and engaging other personnel , in preparation of serving additional patients that we are responsible for managing under the accountable ipa and gsmg msas . see item 1a , “ risk factors , ” with respect to risks in relation to our strategic transactions . key financial measures and indicators operating revenues our revenue primarily consists of capitation revenue , risk pool settlements and incentives , ngaco all-inclusive population-based payments ( “ aipbp ” ) revenue , management fee income , mssp surplus revenue and fee-for-services ( “ ffs ” ) revenue . revenue is recorded in the period in which services are rendered . the form of billing and related risk of collection for such services may vary by type of revenue and the customer . operating expenses our largest expense is the patient care cost paid to contracted physicians , cost of hiring staff to provide management and administrative support services to our affiliated physician groups , as further described below . these services include payroll , benefits , human resource services , physician practice billing , revenue cycle services , physician practice management , administrative oversight , coding services , and other consulting services . 42 story_separator_special_tag cash held in money market accounts which resulted in more interest earned and the interest from notes receivable . change in fair value of derivative instrument loss from change in fair value of derivative instrument in 2017 was approximately $ 50,000 , as compared to income from change in fair value of derivative instrument of $ 1.7 million in 2016 , a change of $ 1.8 million or 103 % , mainly due to a greater change in the stock price of apollomed 's common stock during 2016 in comparison with the change during 2017. gain on settlement of preexisting note receivable from apollomed gain on settlement of preexisting note receivable between nmm and apollomed prior to the merger was $ 0.9 million in 2017 and there was no comparable amount in 2016. gain from investments gain from investments in 2017 was $ 13.7 million , due to gain from nmm 's investment in apollomed 's preferred stock ( previously accounted for under the cost method ) of $ 8.6 million and gain from nmm 's noncontrolling interest in apaaco ( previously accounted for under the equity method ) of $ 5.1 million as a result of the fair value adjustment of the investments prior to the merger . 44 other income other income in 2017 was consistent with and comparable to 2016. provision for income taxes provision for income taxes was $ 3.9 million for 2017 , as compared to $ 8.8 million in 2016 , a decrease of $ 4.9 million or 56 % . this decrease is primarily attributable to a reduction in the amount of pre-tax income in 2017 as compared to 2016. net income attributable to noncontrolling interests net income attributable to noncontrolling interests was $ 20.0 million for the year ended december 31 , 2017 , compared to net loss attributable to noncontrolling interest of $ 1.4 million for the year ended december 31 , 2016 , a change of $ 21.4 million or 1497 % . this increase was primarily due to net income generated from apc mainly attributable to its increased revenue and certain tax benefits . liquidity and capital resources cash , cash equivalents and investment in marketable securities at december 31 , 2017 totaled $ 100.9 million . working capital totaled $ 34.5 million at december 31 , 2017 , compared to $ 30.5 million at december 31 , 2016 , an increase of $ 4.0 million , or 13 % . we have historically financed our operations primarily through internally generated funds . we generate cash primarily from capitations , risk pool settlements and incentives , fees for medical management services provided to our affiliated physician groups , as well as ffs reimbursements . we generally invest cash in money market accounts , which are classified as cash and cash equivalents .
| results of operations our consolidated operating results for the year ended december 31 , 2017 , as compared to the year ended december 31 , 2016 were as follows : apollo medical holdings , inc. consolidated statements of income replace_table_token_3_th net income our net income in 2017 was $ 45.8 million , as compared to $ 10.0 million in 2016 , an increase of $ 35.8 million or 357 % . physician groups and patients as of december 31 , 2017 and 2016 , the total number of affiliated physician groups managed by us was 11 groups , and the total number of patients for whom we managed the delivery of healthcare services was 795,960 and 632,546 , respectively . revenue our revenue in 2017 was $ 357.7 million , as compared to $ 305.9 million in 2016 , an increase of $ 51.8 million or 17 % . the increase in revenue was attributable to ( i ) an increase of $ 25.3 million in capitation revenue due to increase in membership and capitation rates , ( ii ) an increase of $ 22.0 million in risk pool revenue due to favorable healthcare utilization trends , ( iii ) an increase in management fee income of $ 2.2 million , which was mainly driven by an increase in the number of patients served by our affiliated physician groups , and ( iv ) an increases in fees-for-service revenue of $ 2.5 million , which was mainly due to increased surgery center income from the increase in patients and fees received , offset by decreases in other income of $ 0.2 million . apollomed 's operations acquired in merger accounted for $ 9.9 million of such increase . 43 cost of services expenses related to cost of services in 2017 were $ 274.7 million , as compared to $ 254.8 million in 2016 , an increase of $ 19.9 million , or 8 % .
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some of the statements in this report ( including in the following discussion ) constitute forward-looking statements , which relate to future events or the future performance or financial condition of new mountain finance holdings , l.l.c . ( `` nmf holdings '' , the `` operating company '' or the `` master fund '' ) , new mountain finance corporation ( `` new mountain finance '' ) or new mountain finance aiv holdings corporation ( `` aiv holdings '' ) . the forward-looking statements contained in this section involve a number of risks and uncertainties , including : statements concerning the impact of a protracted decline in the liquidity of credit markets ; the general economy , including interest and inflation rates , and its impact on the industries in which the operating company invests ; the ability of the operating company 's portfolio companies to achieve their objectives ; the operating company 's ability to make investments consistent with its investment objectives , including with respect to the size , nature and terms of its investments ; the ability of new mountain finance advisers bdc , l.l.c . ( the `` investment adviser '' ) or its affiliates to attract and retain highly talented professionals ; actual and potential conflicts of interest with the investment adviser and other affiliates of new mountain capital group , l.l.c . ; and the risk factors set forth in item 1a.risk factors . forward-looking statements are identified by their use of such terms and phrases such as `` anticipate '' , `` believe '' , `` could '' , `` estimate '' , `` expect '' , `` intend '' , `` may '' , `` plan '' , `` potential '' , `` should '' , `` will '' , `` would '' or similar expressions . actual results could differ materially from those projected in the forward-looking statements for any reason , including the factors set forth in item 1a.risk factors contained in this annual report . we have based the forward-looking statements included in this report on information available to us on the date of this report . we assume no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . although we undertake no obligation to revise or update any forward-looking statements , you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the securities and exchange commission , including annual reports on form 10-k , registration statements on form n-2 or form 10 , quarterly reports on form 10-q and current reports on form 8-k. overview nmf holdings is a delaware limited liability company . nmf holdings is externally managed and has elected to be treated as a business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . as such , nmf holdings is obligated to comply with certain 66 regulatory requirements . nmf holdings intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members . nmf holdings is externally managed by the investment adviser . new mountain finance administration , l.l.c . ( the `` administrator '' ) provides the administrative services necessary for operations . the investment adviser and administrator are wholly-owned subsidiaries of new mountain capital ( defined as new mountain capital group , l.l.c . and its affiliates ) . new mountain capital is a firm with a track record of investing in the middle market and with assets under management ( which includes amounts committed , not all of which have been drawn down and invested to date ) totaling approximately $ 9.0 billion as of december 31 , 2011. new mountain capital focuses on investing in defensive growth companies across its private equity , public equity , and credit investment vehicles . nmf holdings , formerly known as new mountain guardian ( leveraged ) , l.l.c. , was originally formed as a subsidiary of new mountain guardian aiv , l.p. ( `` guardian aiv '' ) by new mountain capital in october 2008. guardian aiv was formed through an allocation of approximately $ 300.0 million of the $ 5.1 billion of commitments supporting new mountain partners iii , l.p. , a private equity fund managed by new mountain capital . in february 2009 , new mountain capital formed a co-investment vehicle , new mountain guardian partners , l.p. , comprising $ 20.4 million of commitments . new mountain guardian ( leveraged ) , l.l.c . and new mountain guardian partners , l.p. , together with their respective direct and indirect wholly-owned subsidiaries , are defined as the `` predecessor entities '' . new mountain finance is a delaware corporation that was originally incorporated on june 29 , 2010. new mountain finance is a closed-end , non-diversified management investment company that has elected to be treated as a bdc under the 1940 act . as such , new mountain finance is obligated to comply with certain regulatory requirements . new mountain finance intends to be treated , and intends to comply with the requirements to qualify annually , as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended , ( the `` code '' ) commencing with its taxable year ended december 31 , 2011. aiv holdings is a delaware corporation that was originally incorporated on march 11 , 2011. guardian aiv , a delaware limited partnership , is aiv holdings ' sole stockholder . aiv holdings is a closed-end , non-diversified management investment company that has elected to be treated as a bdc under the 1940 act . as such , aiv holdings is obligated to comply with certain regulatory requirements . story_separator_special_tag on march 7 , 2012 , the operating company 's board of directors , and subsequently new mountain finance 's board of directors , declared a first quarter 2012 distribution of $ 0.32 per unit/share payable on march 30 , 2012 to holders of record as of march 15 , 2012. as of this record date , new mountain finance and aiv holdings own 10,697,691 units and 20,221,938 units , respectively , of the operating company and therefore will receive a total dividend of $ 3.4 million and $ 6.5 million , respectively . subsequently , aiv holdings ' board of directors declared a total dividend of $ 6.5 million payable on march 30 , 2012 to holders of record as of march 15 , 2012. critical accounting policies the preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the united states ( `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and revenues and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following items as critical accounting policies . basis of accounting nmf holdings consolidates its wholly-owned subsidiary , nmf slf . new mountain finance and aiv holdings do not consolidate the operating company . new mountain finance and aiv holdings apply investment company master-feeder financial statement presentation , as described in accounting 69 standards codification 946 , financial servicesinvestment companies , ( `` asc 946 '' ) to their interest in the operating company . new mountain finance and aiv holdings observe that it is industry practice to follow the presentation prescribed for a master fund-feeder fund structure in asc 946 in instances in which a master fund is owned by more than one feeder fund and that such presentation provides stockholders of new mountain finance and aiv holdings with a clearer depiction of their investment in the master fund . valuation and leveling of portfolio investments the operating company conducts the valuation of assets , pursuant to which its net asset value , and , consequently , new mountain finance 's and aiv holdings ' net asset values are determined , at all times consistent with gaap and the 1940 act . the operating company values its assets on a quarterly basis , or more frequently if required under the 1940 act . in all cases , the operating company 's board of directors is ultimately and solely responsible for determining the fair value of its portfolio investments on a quarterly basis in good faith , including investments that are not publicly traded , those whose market prices are not readily available , and any other situation where its portfolio investments require a fair value determination . security transactions are accounted for on a trade date basis . the operating company 's quarterly valuation procedures are set forth in more detail below : ( 1 ) investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from independent pricing services . ( 2 ) investments for which indicative prices are obtained from various pricing services and or brokers or dealers are valued through a multi-step valuation process , as described below , to determine whether the quote ( s ) obtained is representative of fair value in accordance with gaap . a. bond quotes are obtained through independent pricing services . analytics are performed by the investment professionals of the investment adviser to ensure that the quote obtained is representative of fair value in accordance with gaap and if so , the quote is used . if the investment adviser is unable to sufficiently validate the quote ( s ) internally and if the investment 's par value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) ; b. for investments other than bonds , the investment professionals of the investment adviser look at the number of quotes readily available and perform the following : i. investments for which more than two quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained ; ii . investments for which one or two quotes are received from a pricing service are validated internally . the investment professionals of the investment adviser analyze the market quotes obtained using an array of valuation methods ( further described below ) to validate the fair value . if the investment adviser is unable to sufficiently validate the quote ( s ) internally and if the investment 's par value exceeds the materiality threshold , the investment is valued similarly to those assets with no readily available quotes ( see ( 3 ) below ) . ( 3 ) investments for which quotations are not readily available through exchanges , pricing services , brokers , or dealers are valued through a multi-step valuation process : a. each portfolio company or investment is initially valued by the investment professionals of the investment adviser responsible for the credit monitoring ; 70 b. preliminary valuation conclusions will then be documented and discussed with the operating company 's senior management ; c. if an investment falls into ( 3 ) above for four consecutive quarters and if the investment 's par value exceeds the materiality threshold , then at least once each fiscal year , the valuation for each portfolio investment for which the investment professionals of the investment adviser do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by the operating company 's board of directors . d. also , when deemed appropriate by the operating company 's management , an independent valuation firm may be engaged to review and value investment ( s ) of a portfolio company , without any preliminary valuation being performed by the investment adviser .
| results of operations since new mountain finance and aiv holdings are holding companies with no direct operations of their own , and their only business and sole asset are their ownership of common membership units of the operating company , new mountain finance 's and aiv holdings ' results of operations are based on the operating company 's results of operations . under gaap , new mountain finance 's ipo did not step-up the cost basis of the operating company 's existing investments to fair market value at the ipo date . since the total value of the operating company 's investments at the time of the ipo was greater than the investments ' cost basis , a larger amount of amortization of purchase or original issue discount , and different amounts in realized gain and unrealized appreciation , may be recognized under gaap in each period than if the step-up had occurred . this will remain until such predecessor investments are sold or mature in the future . the operating company tracks the transferred ( or fair market ) value of each of its investment as of the time of the ipo and , for purposes of the incentive fee calculation , adjusts income as if each investment was purchased at the date of the ipo ( or stepped up to fair market value ) . the respective `` adjusted net investment income '' ( defined as net investment income adjusted to reflect income as if the cost basis of investments held at the ipo date had stepped-up to fair market value as of the ipo date ) is used in calculating both the incentive fee and dividend payments . see item 8.financial statements and supplementary datanote 5 , agreements for additional details . 75 the following table for the operating company for the three months ended december 31 , 2011 is adjusted to reflect the step-up to fair market value .
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refer to note 3 of our consolidated financial statements under item 8 for details of each of these transactions . salem is a domestic multi-media company with integrated business operations covering radio broadcasting , publishing and the internet . our programming is intended for audiences interested in christian and conservative opinion content . we maintain a website at www.salem.cc . our annual reports on form 10-k , quarterly reports on form 10-q , current reports on form 8-k , and any amendments to those reports are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the sec . any information found on our website is not a part of or incorporated by reference into , this or any other report of the company filed with , or furnished to , the sec . overview our radio broadcasting segment derives revenue primarily from the sale of broadcast time and radio advertising on a national and local basis . our principal sources of broadcast revenue include : the sale of block program time , both to national and local program producers ; the sale of advertising time on our radio stations , both to national and local advertisers ; and the sale of advertising time on our national radio network . our rates for broadcast time and advertising time vary based upon several factors , including : audience share ; how well our stations perform for our clients ; the size of the market ; the general economic conditions in each market ; and supply and demand on both a local and national level . our principal sources of internet revenue include : the sale of internet advertising ; the support and promotion to stream third-party content on our websites ; sales of software and support services ; and product sales and royalties for on-air host materials . our principal sources of publishing revenue include : subscription fees for our magazines ; the sale of print magazine advertising ; fees from authors for book publishing ; and the sale of books . broadcast segment broadcast revenues are impacted by the program rates our radio stations charge , the level of broadcast airtime sold and by the advertising rates our radio stations and networks charge . the rates for block programming time are based upon our stations ' ability to attract audiences that will support the program producers through contributions and purchases of their products . advertising rates are based upon the demand for advertising time , which in turn is based on our stations and networks ' ability to produce results for their advertisers . we do not subscribe to traditional audience measuring services for most of our radio stations . instead , we have 34 marketed ourselves to advertisers based upon the responsiveness of our audiences . in selected markets , we do subscribe to arbitron , which develops quarterly reports to measure a radio station 's audience share in the demographic groups targeted by advertisers . each of our radio stations and our networks has a pre-determined level of time that they make available for block programming and or advertising , which may vary at different times of the day . arbitron has developed technology to collect data for its ratings service . the ppm is a small device that does not require active manipulation by the end user and is capable of automatically measuring radio , television , internet , satellite radio and satellite television signals that are encoded for the service by the broadcaster . the ppm offers a number of advantages over the traditional diary ratings collection system including ease of use , more reliable ratings data and shorter time periods between when advertising runs and when audience listening or viewing habits can be reported . this service is already in a number of our markets and is scheduled to be introduced in more markets in the future . in markets where we subscribe to arbitron under the ppm , our ratings have been less consistent . ppm data can fluctuate when changes are made to the panel ( a group of individuals holding ppm devices ) . this makes all stations susceptible to some inconsistencies in ratings that may or may not accurately reflect the actual number of listeners at any given time . as is typical in the radio broadcasting industry , our second and fourth quarter advertising revenue generally exceeds our first and third quarter advertising revenue . this seasonal fluctuation in advertising revenue corresponds with quarterly fluctuations in the retail advertising industry . quarterly revenue from the sale of block programming time does not tend to vary significantly , however , because program rates are generally set annually and are recognized on a per program basis . we currently program 39 of our stations with our christian teaching and talk format , which is talk programming with christian and family themes . we also program 27 news talk stations , 11 contemporary christian music stations , 10 business format stations , and seven spanish-language christian teaching and talk stations . the business format features financial experts , business talk , and nationally recognized bloomberg programming . the business format operates similar to our christian teaching and talk format as it features long-form block programming . our cash flow is historically affected by a transitional period experienced by radio stations when , due to the nature of the radio station , our plans for the market and other circumstances , we find it beneficial to change its format . this transitional period is when we develop a radio station 's listener and customer base . during this period , a station may generate negative or insignificant cash flow . in the broadcasting industry , radio stations often utilize trade or barter agreements to exchange advertising time for goods or services in lieu of cash . story_separator_special_tag video and graphic downloads increased $ 1.6 million over the prior year due to higher volumes . publishing revenue replace_table_token_12_th publishing revenue increased due to higher submission fees and book sales from xulon press partially offset by declines in subscription revenues from our print magazines . our print magazines , and the print magazine industry as a whole , have continued to experience declines in the number of subscribers . broadcast operating expenses replace_table_token_13_th broadcast operating expenses increased due to higher variable expenses associated with higher revenues , including a $ 3.3 million increase in personnel-related costs including commissions and new local talent , a $ 0.8 million increase in facility related costs , a $ 0.4 million increase in advertising expenses , a $ 0.5 million increase in production and programming costs , a $ 0.1 million increase in lma fees , and a $ 0.2 million increase in music license fees partially offset by a reduction in bad debt expense of $ 0.4 million . internet operating expenses replace_table_token_14_th internet operating expenses increased due to higher variable expenses associated with higher revenues , including a $ 1.9 million increase in personnel-related costs including commissions , a $ 0.8 million increase in royalty expense , a $ 0.7 million increase in advertising expense , a $ 0.3 million increase in streaming and hosting , a $ 0.1 million increase in product costs related to scp , and $ 0.4 million increase in bad debt expense . publishing operating expenses replace_table_token_15_th operating expenses for xulon press increased due to higher variable costs associated with revenue growth . these costs include an increase of $ 0.8 million in personnel-related costs including commissions and a $ 0.1 million increase in advertising expense . this was offset by a decrease in our publishing printing costs associated with reduced distribution levels of our print magazines . corporate expenses replace_table_token_16_th 38 corporate expenses include shared general and administrative services . higher costs include a $ 0.9 million in personnel-related costs primarily due to strategic new-hires , a $ 0.3 million increase in non-cash stock-based compensation expense and a $ 0.3 million increase in accounting and public reporting costs partially offset by a $ 0.1 million decrease in repairs and maintenance . depreciation expense replace_table_token_17_th depreciation expense decreased slightly due to approximately $ 1.4 million of computer software and website development costs acquired in 2008 that were fully depreciated during the prior year offset by a $ 0.5 million net increase in capital expenditures placed in service during the current year as well as the composite of current year acquisitions . during 2012 we acquired approximately $ 0.5 million of buildings and towers with longer estimated useful lives of thirty to thirty five years compared to the prior year in which computer software and website development costs were recorded with useful lives of three years . amortization expense replace_table_token_18_th the decrease in amortization expense reflects the impact of higher amortization recognized during 2011 for intangibles , such as advertising agreements , customer lists and domain names that were acquired during that year and prior years with useful lives ranging from one to five years . impairment of long-lived assets replace_table_token_19_th during june 2012 , based on changes in managements ' planned usage , land in covina , ca was classified as held for sale and evaluated for impairment as of that date . in accordance with the authoritative guidance for impairment of long-lived assets held for sale , we determined the carrying value of the land exceeded the estimated fair value less cost to sell . we recorded an impairment charge of $ 5.6 million associated with this land based on the estimated sale price . in december 2012 , after several purchase offers for the land were terminated , we obtained a third party valuation for the land . based on this fair value appraisal , we recorded an additional $ 1.2 million impairment charge associated with the land . we completed our annual impairment testing for goodwill and other indefinite-lived intangible assets during the fourth quarter of 2012. as a result of our annual testing , we recorded a $ 0.1 million impairment on mastheads in our publishing segment . this impairment was driven by a reduction in publishing revenue specifically from our print magazines and is a trend in the industry as a whole that is not unique to our operations . ( gain ) loss on disposal of assets replace_table_token_20_th the net gain on disposal of assets for the twelve months ended december 31 , 2012 , includes a $ 0.2 million pre-tax gain on the sale of wbzs-am in pawtucket , rhode island and a $ 0.6 million gain from insurance proceeds for repairs of storm damage in our new york market , partially offset by various fixed asset and equipment disposals including an additional loss associated with the write-off of a receivable from a prior station sale . the net gain on disposal of assets for the same period of the prior year includes a $ 2.4 million pre-tax gain on the sale of kkmo-am in seattle , washington and a $ 2.1 million pre-tax gain on the sale of kxmx-am in los angeles , california , partially offset by various fixed asset and equipment disposals . 39 other income ( expense ) , net replace_table_token_21_th interest income represents earnings on excess cash . the decrease in interest expense is due to the lower principal balance outstanding on the 9 5 / 8 % notes , partially offset by higher interest on amounts outstanding under our revolver and subordinated debt . other income and expense , net relates to royalty income from real estate properties . loss on early retirement of debt of $ 1.1 million for the year ended december 31 , 2012 compared to $ 2.2 million for the same period of the prior year represents the redemptions at a price equal to 103 % of the face value and open market repurchases in each period of principle amounts of the 9 5 / 8 % notes .
| results of operations year ended december 31 , 2012 compared to year ended december 31 , 2011 the following factors affected our results of operations for the year ended december 31 , 2012 as compared to the prior year : financing on december 12 , 2012 , we redeemed $ 4.0 million of the 9 5 / 8 % notes for $ 4.1 million , or at a price equal to 103 % of the face value . this transaction resulted in a $ 0.2 million pre-tax loss on the early retirement of debt , including approximately $ 17,000 of unamortized discount and $ 0.1 million of bond issue costs associated with the 9 5 / 8 % notes . on june 1 , 2012 , we redeemed $ 17.5 million of the 9 5 / 8 % notes for $ 18.0 million , or at a price equal to 103 % of the face value . this transaction resulted in a $ 0.9 million pre-tax loss on the early retirement of debt , including approximately $ 80,000 of unamortized discount and $ 0.3 million of bond issue costs associated with the 9 5 / 8 % notes . on may 21 , 2012 , we entered into a new business loan agreement , promissory note and related loan documents with first california bank ( the fcb loan ) . the fcb loan is an unsecured , $ 10.0 million fixed-term loan with a maturity date of june 15 , 2014. at december 31 , 2012 , $ 7.5 million was outstanding on the fcb loan . on may 21 , 2012 , we entered into an additional subordinated line of credit with roland s. hinz , a salem board member . mr. hinz committed to provide an unsecured revolving line of credit in a principal amount of up to $ 6.0 million .
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for each contract , the company exercises judgement to identify separate performance obligations and to evaluate , at the inception of the contract , if each distinct performance obligation within the contract is satisfied at a point in time or over time . revenue is measured based on a consideration specified in a contract with a customer , and excludes any sales incentives and amounts collected on behalf of third parties . in certain arrangements with variable consideration , the company exercises judgement in order to estimate the amount of variable consideration to be included in the transaction price . in these arrangements , revenue is recognized over time as it is mainly attributed to ongoing services provided . revenue is allocated among performance obligations in a manner that reflects the consideration that the company expects to be entitled for the promised goods or services based on standalone selling prices “ ssp ” . ssp are estimated for each distinct performance obligation and judgment may be required in their determination . the best evidence of ssp is the observable price of a product or service when the company sells the goods separately in similar circumstances and to similar customers . the company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer . for an analysis of the performance obligations and the timing of revenue recognition , for each type of the contract , see also note 10. the new standard requires the company to provide more robust disclosures than required by previous guidance . such disclosures have been provided in note 10. in addition , when the company has an unconditional right to receive proceeds before the performance obligation was fulfilled , it is now required to record receivables against contract liabilities . l. research , development costs and intangible assets research and development costs , which consist mainly of labor costs , materials and subcontractors , are charged to operations as incurred . in accordance with asc topic 350-40 , “ internal use software ” , the subsidiary in poland capitalizes certain internal use software development costs associated with creating and enhancing internally developed software related to its operations . software development activities generally consist of three stages ( i ) the research and planning stage , ( ii ) the application and development stage , and ( iii ) the post-implementation stage . costs incurred in the research and planning stage and in the post-implementation stage are expensed as incurred . costs incurred in the application and infrastructure development stage are capitalized . these costs include personnel and related employee benefits expenses for employees who are directly associated with the software development . these capitalized costs are amortized on a straight-line basis over the estimated useful life of 5 years upon initial release of the software . as of december 31 , 2019 , the capitalized internal use software development costs , net of accumulated amortization , are $ 483 . f- 16 on track innovations ltd. and subsidiaries notes to the consolidated financial statements in thousands , except share and per share data note 2 - significant accounting policies ( cont 'd ) l. research , development costs and intangible assets ( cont 'd ) according to asc topic 350 , “ intangibles - goodwill and other , ” software that is part of a product or process to be sold to a customer shall be accounted for under asc subtopic 985-20. the company 's products contain embedded software story_separator_special_tag this discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto contained in “ item 8. financial statements and supplementary data ” of this annual report . overview we are a fintech pioneer and leading developer of cutting-edge secure cashless payment solutions providing global enterprises with innovative technology for almost three decades . we operate in two main segments : ( 1 ) retail and mass transit ticketing ; and ( 2 ) petroleum . our field-proven suite of cashless payment solutions is based on an extensive ip portfolio including registered patents and patent applications worldwide . since our incorporation in 1990 , we have built an international reputation for reliability and innovation , deploying a large number of solutions for the unattended retail , mass transit , banking , medical and petroleum industries . we operate a global network of regional offices and distributors to support various solutions deployed across the globe . story_separator_special_tag outside the united states , which are primarily received in currencies other than the u.s. dollar , have a varying impact upon our total revenues , as a result of fluctuations in such currencies ' exchange rates versus the u.s. dollar . the following table sets forth our revenues , by dollar amount ( in thousands ) and as a percentage of annual revenues by segments , during the past two years : replace_table_token_3_th revenues in 2019 from retail and mass transit ticketing segment decreased by $ 5.1 million , or 31 % , compared to 2018 mainly due to a decrease in sales of readers in the united states and a decrease in sales in japan . revenues in 2019 from the petroleum segment decreased by $ 2.0 million , or 38 % , compared to 2018 , mainly due to a decrease in petroleum products in the united states . cost of revenues and gross margin our cost of revenues , presented by gross profit and gross margin percentage , for each of the past two years has been as follows ( dollar amounts in thousands ) : replace_table_token_4_th cost of sales . cost of sales consists primarily of materials , as well as salaries , fees to subcontractors and related costs of our technical staff that assemble our products . story_separator_special_tag such adoption did not cause a cumulative adjustment to retained earnings or a material impact on our revenue recognition policies or on our consolidated financial statements . see also notes 2k and 10 to the consolidated financial statements contained in “ item 8. financial statements and supplementary data ” of this annual report . based on this asu , we recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer . license and transaction fees are recognized as earned based on actual usage . usage is determined by receiving confirmation from the users . patent litigation revenues are recognized upon final settlement of the litigation . revenues relating to customer services and technical support are recognized as the services are rendered ratably over the term of the related contract . licensing and transaction fees are recognized based on the volume of transactions or monthly licensing fees from systems that contain our products and usually bear no cost . our cost of warranty that the product will perform according to certain specifications and that we will repair or replace the product if it ceases to work properly , is insignificant and is treated according to accounting guidance for contingencies . discontinued operations . upon divestiture of a business , the company classifies such business as a discontinued operation , if the divested business represents a strategic shift that has ( or will have ) a major effect on an entity 's operations and financial results . for disposals other than by sale such as abandonment , the results of operations of business would not be recorded as a discontinued operation until the period in which the business is actually abandoned . we have concluded that the divestiture of the smartid division and the medismart activity qualify as discontinued operations and therefore have been presented as such . 33 the results of businesses that have qualified as discontinued operations have been presented as such for all reporting periods . results of discontinued operations include all revenues and expenses directly derived from such businesses ; general corporate overhead is not allocated to discontinued operations . any loss or gain that arose from the divestiture of a business that qualifies as discontinued operations have been included in the results of the discontinued operations . we also present cash flows from discontinued operations separately from cash flows of continuing operations . contingent consideration . certain sale arrangements consist of contingent consideration based on the divested businesses future sales or profits . we record the contingent consideration portion of the arrangement when the consideration is determined to be realizable . liquidity and capital resources since inception , our principal sources of liquidity have been revenues , proceeds from sales of equity securities , borrowings from banks , cash from the exercise of options and warrants as well as proceeds from the divestiture of part of our businesses . we had cash , cash equivalents and short-term investments representing bank deposits of $ 4,848,000 ( of which an amount of $ 105,000 has been pledged as securities for certain items ) as of december 31 , 2019. we believe that we have sufficient capital resources to fund our operations for at least the next 12 months . as disclosed in the proxy statement and mentioned above , if certain conditions are met , including the approval of our shareholders at the extraordinary general meeting of our shareholders that is scheduled for april 2020 , we expect to receive funds in a total amount of up to $ 1,200,000 in consideration for the issuance of up to 6,000,000 ordinary shares , all in accordance with the terms and provisions of the share purchase agreement . as of the reporting date , it is hard to assess the future influence of the coronavirus 2019 ( covid-19 ) on the company . we believe that one impact of the covid-19 on the company may be a decrease in the company 's revenues derived from mass transit activity in the polish market . we are aware of no other material short term adverse influences on the company . however , at this initial point in time , it is hard to predict what other impacts covid-19 may have on the company . our and certain of our subsidiaries ' manufacturing facilities and certain equipment have been pledged as security in respect of a loan received from a bank . the company 's short-term deposits in the amount of $ 105,000 have been pledged as security in respect of guarantees granted to third parties , loans and credit lines received from a bank . such deposits can not be pledged to others or withdrawn without the consent of the bank . as of december 31 , 2019 , we granted guarantees to third parties including performance guarantees and guarantees to secure customer advances in the sum of $ 404,000. the expiration dates of the guarantees ranged from april 2020 to september 2021. for the years ended december 31 , 2019 and december 31 , 2018 , we had a negative cash flow from continuing operations of $ 2.9 million and $ 2.2 million , respectively . 34 operating activities related to continuing operations for the year ended december 31 , 2019 , net cash used in continuing operating activities was $ 2.9 million primarily due to a $ 5.2 million net loss from operating activities , a $ 507,000 decrease in trade payables , a $ 328,000 gain on sale of property and equipment , a $ 270,000 decrease in other current liabilities , a $ 36,000 decrease in accrued interest and linkage differences and a $ 25,000 of deferred tax benefits , partially offset by a $ 1.6 million decrease in trade receivables , a $ 1.3 million of depreciation and amortization , a $ 228,000 decrease
| results of operations discontinued operations . in december 2018 , the company completed the sale of its medismart activities ( most of which is attributed to our former “ other ” segment ) to smart . in december 2013 , we completed the sale of certain assets , certain subsidiaries and ip directly related to our smartid division . the results from such operations and the cash flows for the reporting periods are presented in the statements of operations and in the statements of cash flow , respectively , as discontinued operations separately from continuing operations . all the data in this annual report that are derived from our financial statements , unless otherwise specified , exclude the results of those discontinued operations . 29 year ended december 31 , 2019 compared to year ended december 31 , 2018 for a comparison of consolidated results for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 please see item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the fiscal year ended december 31 , 2018. sources of revenue we have historically derived a substantial majority of our revenues from the sale of our products , including both complete systems and original equipment manufacturer components . in addition , we generate revenues from licensing and transaction fees , and also , less significantly , from engineering services , customer services , and technical support . during the past two years , the revenues that we have derived from sales and from licensing and transaction fees have been as follows ( in thousands ) : replace_table_token_1_th sales .
| 3,543 |
the forfeiture rate is based on an analysis of actual and estimated forfeitures . share-based compensation expense the classification of share-based compensation expense for the fiscal years ended : replace_table_token_25_th as of june 30 , 2020 , and 2019 , there was $ 242,000 and $ 907,000 , respectively , of unrecognized share-based compensation expense related to shares of common stock issued under the plan . 12. income taxes income story_separator_special_tag you should read the following discussion and analysis of financial condition and operating results together with our consolidated financial statements and the related notes and other financial information included in item 8 in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth in the section of the annual report captioned risk factors and elsewhere in this annual report , our actual results may differ materially from those anticipated in these forward-looking statements . overview we endeavor to become the leader in discovery , development , and commercialization of therapeutic agents capable of addressing significant unmet medical need via the application of the silence and replace approach to the treatment of genetic disorders . benitec biopharma inc. ( benitec or the company or in the third person , we or our ) is a development-stage biotechnology company focused on the advancement of novel genetic medicines with headquarters in hayward , california . the proprietary platform , called dna-directed rna interference , or ddrnai , combines rna interference , or rnai , with gene therapy to create medicines that facilitate sustained silencing of disease-causing genes following a single administration . the company is developing ddrnai-based therapeutics for chronic and life-threatening human conditions including oculopharyngeal muscular dystrophy ( opmd ) , and chronic hepatitis b. bb-301 is the most advanced ddrnai-based genetic medicine currently under development by benitec . bb-301 is an internally optimized , aav-based gene therapy agent that is designed to both silence the expression of mutated , disease-causing genes ( to slow , or halt , the underlying mechanism of disease progression ) and replace the mutant genes with normal , wild type genes ( to drive restoration of function in diseased cells ) . this fundamental approach to disease management is called silence and replace and this biological mechanism offers the potential to restore the underlying physiology of the treated tissues and , in the process , improve treatment outcomes for patients suffering from the chronic and , potentially , fatal effects of oculopharyngeal muscular dystrophy ( opmd ) . bb-301 has been granted orphan drug designation in the united states and the european union . through the combination of the targeted gene silencing effects of rnai and the durable transgene expression achievable via the use of modified viral vectors , the silence and replace approach has the potential to produce long-term silencing of disease-causing genes along with simultaneous replacement of wild type gene function following a single administration of the proprietary genetic medicine . we believe this novel attribute of the investigational agents under development by benitec may facilitate the achievement of robust clinical activity while greatly reducing the dosing frequencies traditionally expected for medicines employed for the management of chronic diseases . additionally , the establishment of chronic gene silencing and gene replacement may significantly reduce the risk of patient non-compliance during the course of medical management of potentially fatal clinical disorders . unless otherwise indicated , all dollar amounts in this section are provided in thousands . re-domiciliation on april 15 , 2020 , or the implementation date , the re-domiciliation of benitec limited , a public company incorporated under the laws of the state of western australia , or benitec limited , was completed in accordance with the scheme implementation agreement , as amended and restated as of january 30 , 2020 , between benitec limited and us . as a result of the re-domiciliation , the jurisdiction of incorporation was changed from australia to delaware , and benitec limited became our wholly owned subsidiary . 83 the re-domiciliation was effected pursuant to a statutory scheme of arrangement under australian law , or the scheme , whereby on the implementation date , all of the issued and outstanding ordinary shares of benitec limited were exchanged for newly issued shares of our common stock , on the basis of one share of our common stock , par value $ 0.0001 per share , for every 300 ordinary shares of benitec limited issued and outstanding . holders of benitec limited 's american depository shares , or adss ( each of which represented 200 ordinary shares ) , received two shares of our common stock for every three adss held . covid-19 in december 2019 , an outbreak of a novel strain of coronavirus was identified in wuhan , china . this virus continues to spread globally , has been declared a pandemic by the world health organization and has spread to nearly every country , including australia and the united states . the impact of this pandemic has been and will likely continue to be extensive in many aspects of society , which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world . the extent to which the coronavirus impacts us will depend on future developments , which are highly uncertain and can not be predicted , including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact , among others . certain of our research and development efforts are conducted globally , including the ongoing development of our silence and replace therapeutic for the treatment of oculopharyngeal muscular dystrophy ( opmd ) , and will be dependent upon our ability to initiate preclinical and clinical studies despite the ongoing covid-19 pandemic . story_separator_special_tag foreign currency translation and other comprehensive income ( loss ) the company 's functional currency and reporting currency is the united states dollar . bbl 's functional currency is the australian dollar ( aud ) . assets and liabilities are translated at the exchange rate in effect at the 85 balance sheet date . revenues and expenses are translated at the average rate of exchange prevailing during the reporting period . equity transactions are translated at each historical transaction date spot rate . translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders ' equity as accumulated other comprehensive income ( loss ) . gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive income ( loss ) as other comprehensive income ( loss ) . other comprehensive income ( loss ) for all periods presented includes only foreign currency translation gains ( losses ) . story_separator_special_tag the increase was due to increases in corporate costs offset by decreases in payroll , travel , and consultant costs . other income ( loss ) the following table sets forth a summary of our other income ( loss ) for each of the periods set forth below : replace_table_token_4_th the other income , net during the year ended june 30 , 2020 totaled $ 7 , which consists of foreign currency transaction loss , interest income , other income , unrealized loss on investment . during the year ended june 30 , 2019 , other income , net totaled $ 26. foreign currency transaction loss has increased due to a change in foreign exchange rates . interest income decreased due to fewer transactions with interest . other income , net increased due to covid-19 stimulus incentives from the australian government . unrealized loss on investment decreased due to the change in fair market value of the investments . liquidity and capital resources the company has incurred cumulative losses and negative cash flows from operations since our predecessor 's inception in 1995 , except for the year ended june 30 , 2019 where we had a net income of $ 2,609 and generated positive cash flows of $ 4,790 from operating activities . the company had accumulated losses of $ 116.6 million as of june 30 , 2020. we expect that our research and development expenses may increase due to the continued development of the opmd program . it is also likely that there will be an increase in the general 88 and administrative expenses due to the obligations of being a domestic public company in the united states as a result of the re-domiciliation and no longer a foreign private issuer under sec rules . we had no borrowings for the years ended june 30 , 2020 and 2019 and do not currently have a credit facility . as of june 30 , 2020 , we had cash and cash equivalents of $ 9.8 million . cash in excess of immediate requirements is invested in accordance with our investment policy , primarily with a view to liquidity and capital preservation . currently , our cash and cash equivalents are held in bank accounts . our short-term investments consist of term deposits with maturity within 180 days . the following table sets forth a summary of the net cash flow activity for each of the periods set forth below : replace_table_token_5_th operating activities net cash used in operating activities for the year ended june 30 , 2020 was $ 7,535. net cash provided by operating activities for the year ended june 30 , 2019 was $ 4,790. net cash used in operating activities was primarily the result of our net loss and change in working capital , partially offset by equity-based compensation expense and the lease liability . investing activities net cash used in investing activities for the year ended june 30 , 2020 and 2019 was $ 94 and $ 400 , respectively , and primarily related to purchases of equipment in 2020 and 2019. financing activities net cash provided by financing activities was $ 1,770 and $ 0 for the years ended june 30 , 2020 and 2019 , respectively . cash from financing activities related to the issuance of ordinary shares , including $ 2,250 in gross proceeds from a private placement and entitlement offer for the year ended june 30 , 2020 , partially offset by $ 480 in share issue transaction costs . there were no private placements for the year ended june 30 , 2019. the future of the company as an operating business will depend on its ability to generate revenues mostly from licensing , strategic alliances and collaboration arrangements with pharmaceutical companies . while we continue to progress discussions and advance opportunities to engage with pharmaceutical companies and continue to seek licensing partners for ddrnai in disease areas that are not our focus , there can be no assurance as to whether we will enter into such arrangements or what the terms of any such arrangement could be . while we have established some licensing arrangements , we do not have any products approved for sale and have not generated any revenue from product sales . we do not know when , or if , we will generate any revenue from product sales . we do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates . 89 unless and until we establish significant revenues from licensing programs , strategic alliances or collaboration arrangements with pharmaceutical companies , or from product sales , we anticipate that we will continue to generate losses for the foreseeable future , and we expect the losses to increase as we continue the development of product candidates and begin to prepare to commercialize any product that receives regulatory approval .
| results of operations revenues in the past benitec limited has generated revenue from its operations through two activities : revenue from customers and revenue from government research and development grants . in the fiscal year ended june 30 , 2020 , the company generated funds primarily from capital raising activities . the company has not generated any revenues from the sales of products . revenues from licensing fees and interest income are included in the revenue from customers line item on our statements of operations and comprehensive income ( loss ) . the research and development tax incentive is recognized as government research and development grants . our licensing fees have been generated through the licensing of our ddrnai technology to biopharmaceutical companies , and in the fiscal year-ended june 30 , 2019 , revenue was generated through a license and collaboration agreement with axovant sciences ( the axovant agreement ) . the following table sets forth a summary of our revenues for each of the periods set forth below : replace_table_token_2_th revenues from customers on july 9 , 2018 , the company entered into the axovant agreement . the axovant agreement granted axovant sciences an exclusive worldwide license to develop , manufacture , and commercialize products containing the company 's product known as bb-301 , which was designed for the potential treatment of oculopharyngeal muscular dystrophy . service revenue consists of payments for services provided to axovant sciences pursuant to the axovant agreement . on june 6 , 2019 , the termination of the axovant agreement was announced . the termination of the axovant agreement was effective as of september 3 , 2019. the termination discharges all future performance obligations under the contract at the termination date .
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during fiscal 2013 , the company increased its estimate of the cumulative performance period from 4 to 6 years to provide for additional research story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes beginning on page f-1 of this annual report on form 10-k. this discussion contains forward-looking statements , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ significantly from those anticipated or implied in these forward-looking statements as a result of many important factors , including , but not limited to , those set forth under item 1a , risk factors , and elsewhere in this report . overview we develop tiny , sustained-release products designed to deliver drugs and biologics at a controlled and steady rate for weeks , months or years . utilizing our core technology platforms , durasert and biosilicon , we are focused on treatment of chronic diseases of the back of the eye and are also exploring applications outside ophthalmology . we have developed three of the four sustained-release products for treatment of retinal diseases currently approved in the u.s. or european union ( eu ) , and our lead product candidate began a phase iii clinical trial in june 2013. our strategy includes developing products independently while continuing to leverage our technology platforms through collaboration and license agreements . iluvien ® , our most recently approved product , is an injectable , sustained-release micro-insert that provides treatment of vision impairment associated with chronic diabetic macular edema ( dme ) considered insufficiently responsive to available therapies over a period of up to three years . iluvien is licensed to and sold by alimera sciences , inc. ( alimera ) , and we are entitled to a share of the net profits , as defined , from alimera 's sales of iluvien for dme . alimera commenced the commercial launch of iluvien for dme in the u.k. and germany in the second quarter of 2013 and expects to launch in france in the first quarter of 2014. the international diabetes federation has estimated that approximately 19.0 million people have diabetes in the seven eu countries where iluvien has received or been recommended for marketing authorization , of which alimera has estimated that approximately 1.1 million people suffer from vision loss associated with dme . alimera is also seeking marketing approval for iluvien for dme in the u.s. in the second quarter of 2013 , alimera received a new prescription drug user fee act ( pdufa ) goal date of october 17 , 2013 after resubmitting its new drug application ( nda ) for iluvien for dme . the resubmission responded to a second complete response letter ( crl ) received from the u.s. food and drug administration ( fda ) in november 2011. medidur , our lead development product , commenced the first of our two planned phase iii clinical trials for the treatment of chronic non-infectious uveitis affecting the posterior segment of the eye ( posterior uveitis ) in june 2013. medidur uses the same durasert micro-insert used in iluvien and delivers a lower dose of the same drug as our fda-approved retisert ® for posterior uveitis , which is licensed to bausch & lomb . we are developing medidur independently . we are also developing a bioerodible , injectable micro-insert delivering latanoprost ( the latanoprost product ) to treat glaucoma and ocular hypertension . under an amended collaboration agreement , pfizer has an option , under certain circumstances , to license the development and commercialization of the latanoprost product worldwide . we are engaged in pre-clinical research with respect to both our biosilicon and durasert technology platforms . the primary focus of our biosilicon technology research is the sustained delivery of peptides , proteins , antibodies and other large biologic molecules using our tethadur technology in both ophthalmic and non-ophthalmic applications . our research program also includes the use of durasert technology in orthopedic applications and for systemic delivery of therapeutic agents . 35 our fda-approved retisert provides sustained release treatment of posterior uveitis for approximately two and a half years and is licensed to and sold by bausch & lomb . summary of critical accounting policies and estimates 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 united states generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires that we make certain estimates , judgments 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 periods . we base our estimates on historical experience , anticipated results and trends and various other factors 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 available from other sources . by their nature , these estimates , judgments and assumptions are subject to an inherent degree of uncertainty and management evaluates them on an ongoing basis for changes in facts and circumstances . changes in estimates are recorded in the period in which they become known . actual results may differ from our estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements , we believe that the following accounting policies are critical to understanding the judgments and estimates used in the preparation of our financial statements . it is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies discussed below . revenue recognition our business strategy includes entering into collaborative license and development agreements for the development and commercialization of product candidates utilizing our technology systems . story_separator_special_tag we will continue to review our intangible assets for impairment whenever events or changes in business circumstances indicate that the asset carrying values may not be fully recoverable or that the useful lives of assets are no longer appropriate . factors that could trigger an impairment review include the following : change relative to historical or projected future operating results , modification or termination of our existing collaboration agreements , 37 factors affecting the development of products utilizing the intangible assets , changes in the expected use of the intangible assets or the strategy for the overall business , and industry or economic trends and developments . if an impairment trigger is identified , we determine recoverability of an intangible asset by comparing projected undiscounted net cash flows to be generated by the asset to its carrying value . if the carrying value is not recoverable , an impairment charge is recorded equal to the excess of the asset 's carrying value over its fair value , and the carrying value is adjusted . estimated future undiscounted cash flows , which relate to existing contractual agreements as well as projected cash flows from future research and development collaboration agreements utilizing the underlying technology systems , require management 's judgment regarding future events and probabilities . actual results could vary from these estimates . future adverse changes or other unforeseeable factors could result in an impairment charge with respect to some or all of the carrying value of our intangible assets . such an impairment charge could materially impact future results of operations and financial position in the reporting period identified . a significant change in the estimation of the projected undiscounted net cash flows for the products and product candidates utilizing the durasert or biosilicon technology systems , among other things , could result in the further impairment of the carrying value of the respective assets . story_separator_special_tag style= '' font-family : times new roman '' > general and administrative costs decreased by $ 1.2 million , or 15 % , to $ 6.9 million for fiscal 2012 from $ 8.1 million for fiscal 2011 , primarily attributable to decreased stock-based compensation ( including performance stock option forfeitures ) , professional fees and the absence in fiscal 2012 of cash incentive compensation , payment of which was subject to future conditions . change in fair value of derivatives change in fair value of derivatives represented income of $ 170,000 for fiscal 2012 compared to income of $ 1.1 million for fiscal 2011. warrants denominated in a $ were recorded as derivative liabilities , subject to revaluation at subsequent reporting dates . fiscal 2011 income from the change in fair value of derivatives was predominantly due to the expiration of approximately 3.7 million , or 95 % , of the a $ -denominated warrants during that year . the derivative liabilities balance was reduced to zero during fiscal 2012 in connection with the july 2012 expiration of our last remaining a $ -denominated warrants , with the result that we will not recognize income or loss relating to the change in the fair value of derivatives from these warrants in the future . income tax benefit income tax benefit decreased by $ 49,000 , or 22 % , to $ 169,000 in fiscal 2012 from $ 218,000 in fiscal 2011 , primarily attributable to the absence in fiscal 2012 of a net reduction of deferred tax liabilities and federal alternative minimum tax expense in fiscal 2011 , partially offset by higher foreign research and development tax credits . inflation and seasonality our management believes inflation has not had a material impact on our operations or financial condition and that our operations are not currently subject to seasonal influences . recently adopted and recently issued accounting pronouncements new accounting pronouncements are issued periodically by the financial accounting standards board ( fasb ) and are adopted by us as of the specified effective dates . unless otherwise disclosed below , we believe that the impact of recently issued and adopted pronouncements will not have a material impact on our financial position , results of operations and cash flows or do not apply to our operations . in june 2011 , the fasb issued asu 2011-5 comprehensive income ( topic 220 ) presentation of comprehensive income , which provides new guidance on the presentation of comprehensive income . this guidance requires a company to present components of net income ( loss ) and other comprehensive income in one continuous statement or in two separate , but consecutive , statements . there are no changes to the components that are recognized in net income ( loss ) or other comprehensive income under current gaap . the company adopted this standard for the quarter ended september 30 , 2012 and has presented the required information in one continuous statement of operations and comprehensive loss on a comparative basis . other than a change in presentation , the adoption of this guidance did not have a material impact on the company 's consolidated financial statements . liquidity and capital resources during fiscal 2011 through fiscal 2013 , we financed our operations primarily from registered direct offerings of our equity securities in january 2011 and august 2012 , as well as operating cash flows from license fees and research and development funding from collaborations . at june 30 , 2013 , our principal source of liquidity consisted of cash , cash equivalents and marketable securities totaling $ 10.3 million . in july 2013 , we 41 enhanced our cash resources through the sale , in an underwritten public offering , of 3,494,550 shares of common stock for net proceeds of $ 9.9 million . our cash equivalents are invested in institutional money market funds , and our marketable securities are invested in investment-grade corporate debt and commercial paper with maturities at june 30 , 2013 ranging from one to seven months .
| results of operations years ended june 30 , 2013 and 2012 replace_table_token_6_th revenues we recognized total revenue of $ 2.1 million for fiscal 2013 as compared to $ 3.5 million for fiscal 2012. collaborative research and development revenue declined to $ 780,000 in fiscal 2013 , a 63 % decrease from $ 2.1 million in fiscal 2012 , primarily due to non-recurring revenue of $ 1.1 million in fiscal 2012 , which was recognized upon the termination of a field-of-use license . approximately half of our collaborative research and 38 development revenue was recognition of deferred revenue from collaboration agreements in fiscal 2013 compared to substantially all in the prior year . $ 738,000 of the remaining deferred revenue balance of $ 6.0 million at june 30 , 2013 is expected to be recognized as revenue during fiscal 2014. our retisert royalty income in fiscal 2013 increased to $ 1.4 million , a 3.6 % increase over the prior year . substantially all of the royalty income in both years was derived from sales of retisert by bausch & lomb . during fiscal 2013 , bausch & lomb discontinued sales of vitrasert . we do not expect retisert royalty income to increase significantly in the future , and it may decline .
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basic and diluted loss per share are computed by dividing net loss applicable to common stockholder by the weighted-average number of shares of common stock outstanding . outstanding options and warrants underlying 2,309,804 shares do not assume conversion , exercise or contingent exercise in the computation of diluted loss per share because the effect would be anti-dilutive . the calculation of the numerator and denominator for basic and diluted net loss per common share is as follows : replace_table_token_14_th 11. commitments and contingencies : lease commitments - the company leased warehouse and office space for the equipment and operations located in gardena , ca . the lease term continued through july 2015. the company was under a month-to-month agreement august 2015 through january 2016. total rent expense for the year ended december 31 , 2016 and 2015 was $ 2,250 and $ 50,035 , respectively . 39 vendors and debt - the company has significant liabilities as of december 31 , 2016 with limited cash flow generated by the sale of company assets and revenue . the company has $ 300,678 in accounts payable and accrued expenses from continuing operations . in addition , the company has $ 2,053,515 in debt and accrued interest from continuing operations . the company will work with their vendors and lenders to establish payment plans , explore extensions and conversion of debt . 12. related party transactions : justin yorke is the manager of the jmw fund , llc , the san gabriel fund , llc , and the richland fund , llc ; and is a director of the company . mr. mcgrain , our interim chief executive officer and interim chief financial officer is also a member of the jmw fund , llc , the san gabriel fund , llc , and the richland fund , llc . these funds own 4,725,721 shares of common stock and holds warrants to purchase 1,278,186 common shares in the aggregate . during the year ended december 31 , 2015 mr. yorke , converted $ 20,000 and $ 160,000 unsecured notes payable into senior secured notes payable . in addition , mr. yorke was issued warrants to purchase 2,857 common shares as part of the private equity offering dated october 1 , 2014 , during 2015. as of december 31 , 2016 and 2015 , the company has secured notes payable with mr. yorke in the aggregate amount of $ 962,361 and $ 947,361 , respectively . an outstanding balance of $ 138,000 on the revolving line of credit as of december 31 , 2016 and 2015. mr. yorke , as the manager , earned interest from loans payable for the years ended december 31 , 2016 and 2015 of $ 192,728 and $ 120,565 , respectively . total accrued interest as of december 31 , 2016 and 2015 was $ 332,566 and $ 139,838 , respectively . during the year ended december 31 , 2015 , mr. gus blass iii , a former member of our board of directors and a stockholder whom resigned september 15 , 2015 , earned dividends from preferred stock totaling $ 24,065 and $ 24,000 , for the years ended december 31 , 2016 and 2015 , respectively . total accrued dividends as of december 31 , 2016 and 2015 was $ 48,065 and $ 24,000 , respectively . during the year ended december 31 , 2015 , reginald greenslade , a former member of our board of directors and a stockholder , who resigned august 1 , 2015 ; earned interest totaling $ 5,533 and $ 5,519 for the years ended december 31 , 2016 and 2015 , respectively . total accrued interest as of december 31 , 2016 and 2015 was $ 10,158 and $ 4,626 , respectively . david dworsky , the former chief executive officer and board member of the company , whom resigned his officer position effective april 30 , 2015 and his board position effective august 31 , 2015. mr. dworsky earned dividends on 1,500 shares of series d preferred totaling $ 361 and $ 360 for the years ended december 31 , 2016 and 2015 , story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes thereto as filed with this report . this item 7 may contain forward-looking statements that involve substantial risks and uncertainties . when considering these forward-looking statements investors should keep in mind the cautionary statements in this report . please see the sections entitled cautionary notice regarding forward-looking statements and item 1a . risk factors elsewhere in the report . heatwurx , inc. was incorporated under the laws of the state of delaware on march 29 , 2011 as heatwurxaq , inc. and subsequently changed its name to heatwurx , inc. ( the company or heatwurx ) on april 15 , 2011. we are an asphalt preservation and repair , equipment company . our innovative , and eco-friendly hot-in-place recycling process corrects surface distresses within the top 3 inches of existing pavement by heating the surface material to a temperature between 325° and 375° fahrenheit with our electrically powered infrared heating equipment , mechanically loosening the heated material with our processor/tiller attachment that is optimized for producing a seamless repair , and mixing in additional recycled asphalt pavement and a binder ( asphalt-cement ) , and then compacting repaired area with a vibrating roller or compactor . we consider our equipment to be eco-friendly as the heatwurx process reuses and rejuvenates distressed asphalt , uses recycled asphalt pavement for filler material , eliminates travel to and from asphalt batch plants , and extends the life of the roadway . we believe our equipment , technology and processes provide savings over other processes that can be more labor and equipment intensive . story_separator_special_tag of $ 53,000 ; a decrease in advertising and promotion of approximately $ 35,000 ; and a decrease in bad debt expense of $ 5,000. impairment of assets held for sale as part of the strategy to keep operations running at minimum capacity , in 2015 we chose to sell assets or return collateralized assets to relieve the debt , which were not critical to the continued . we reclassified these non-critical assets for sale from equipment or inventory and recognized an impairment loss when the carrying amount of the assets exceeds its fair value . during the year ended december 31 , 2015 we recognized an impairment on assets held for sale in the amount of $ 186,068. impairment of intangible asset based on our current financial condition and the inability to obtain financing ; we are unable to pursue the necessary commercialization activities to drive us to profitability . we have therefore estimated no future cash flows related to the intangible assets and recognized an impairment of intangible assets in the amount of $ 1,517,859 for the year ended december 31 , 2015. research and development research and development decreased to approximately $ 6,000 for the year ended december 31 , 2016 from approximately $ 29,000 for the year ended december 31 , 2015 , as a result of fewer patent applications being filed thereby reducing the legal fees associated therewith , a decrease in manufacturing research and development costs , and a decrease in consulting fees . we currently have six issued u.s. patents : five utility patents and one design patent . we have two pending u.s. patent applications and three foreign patent applications . three issued utility patents , us patent nos . 8,556,536 ; 8,562,247 and 8,714,871 were issued on oct. 15 , 2013 , oct. 24 , 2013 , and may 6 , 2014 , respectively and cover certain unique device and method of use aspects of our asphalt repair equipment . our design patent , us patent no . d700,633 , was issued on march 4 , 2014 and covers the ornamental design of our asphalt processor . u.s. patent no . 8,801,325 issued august 12 , 2014 and covers aspects of our computer-controlled asphalt heater . u.s. patent no . 9,022,686 was issued may 5 , 2015 and covers complementary features of our computer-controlled asphalt heater . we intend to protect our intellectual property rights in the united states and in a limited number of countries outside of the united states . however , we do not have any assurance that our current pending patent applications will be granted or that we will be able to develop future patentable technologies . we do not believe our ability to operate our business is dependent on the patentability of our technology . income taxes we have incurred tax losses since we began operations . a tax benefit would have been recorded for losses incurred since march 29 , 2011 ; however , due to the uncertainty of realizing these assets , a valuation allowance was recognized which fully offset the deferred tax assets . 19 liquidity and capital resources story_separator_special_tag assumptions or conditions . we believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our financial statements . see note 2 of the accompanying notes to the financial statements included in item 8 of this form 10-k for additional information on these policies and estimates , as well as a discussion of additional accounting policies and estimates . 21 revenue recognition equipment sales revenue is recognized when equipment is shipped to our customer and collection is reasonably assured . we sell our equipment ( hwx-30 heater and hwx-ap-40 asphalt processor ) , as well as certain consumables , such as rxehab rejuvenation strips and polymer pellets , to third parties . equipment sales revenue is recognized when all of the following criteria are satisfied : ( a ) persuasive evidence of a sales arrangement exists ; ( b ) price is fixed and determinable ; ( c ) collectability is reasonably assured ; and ( d ) delivery has occurred . persuasive evidence of an arrangement and a fixed or determinable price exist once we receive an order or contract from a customer . we assess collectability at the time of the sale and if collectability is not reasonably assured , the sale is deferred and not recognized until collectability is probable or payment is received . typically , title and risk of ownership transfer when the equipment is shipped . research and development expenses research and development costs are expensed as incurred and consist of direct and overhead-related expenses . expenditures to acquire technologies , including licenses , which are utilized in research and development and that have no alternative future use are expensed when incurred . technology we develop for use in our products is expensed as incurred until technological feasibility has been established after which it is capitalized and depreciated . stock-based compensation we record equity instruments at their fair value on the measurement date by utilizing the black-scholes option-pricing model . stock compensation for all share-based payments , is recognized as an expense over the requisite service period . significant assumptions utilized in determining the fair value of our stock options included the volatility rate , estimated term of the options , risk-free interest rate and forfeiture rate . in order to estimate the volatility rate at each issuance date , given that the company has not established a historical volatility rate as it has minimal trading volume since we began trading in october 2013 , management reviewed volatility rates for a number of companies with similar manufacturing operations to arrive at an estimated volatility rate for each option grant . the term of the options was assumed to be five years , which is the contractual term of the options . the risk-free interest rate was determined utilizing the treasury rate
| overview we have incurred operating losses , accumulated deficit and negative cash flows from operations since inception . as of december 31 , 2016 , we had an accumulated deficit of approximately $ 15,255,000 from operating activities . the company had total cash on hand of approximately $ 3,000 as of december 31 , 2016. the company is not able to obtain additional financing adequate to fulfill its commercialization activities , nor achieve a level of revenues adequate to support the company 's cost structure . operating activities during 2016 , the company used $ 30,853 in cash for continuing operations and $ 12,350 for discontinued operations compared to cash used of $ 639,550 for continuing operations and $ 232,356 for discontinued operations during 2015. this decrease in cash used for operating activities was due to the significant reduction in employees and overhead expenses . the company has had little revenue since inception . the company does not currently have any revenue under contract nor does it have any immediate sales prospects . the company has significantly scaled back operations to maintain only a minimal level of operations necessary to support our licensee and look for potential merger candidates . for the year ended december 31 , 2016 , the company incurred a net loss from continuing operations of approximately $ 337,000. the operations of dr. pave , llc and dr. pave worldwide , llc have been discontinued . these business components are included in discontinued operations as of december 31 , 2016. it is the company 's intention to move forward as a public entity and to seek potential merger candidates . if the company fails to merge or be acquired by another company , we will be required to terminate all operations . investing activities during 2016 the company received $ 17,000 in cash for continuing operations from the sale of assets held for sale .
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these statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends , current conditions , expected future developments and other factors we believe are appropriate in these circumstances . we believe these judgments are reasonable , but you should understand that these statements are not guarantees of performance or results , and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors , both positive and negative , that may be revised or supplemented in subsequent reports . these statements involve risks , estimates , assumptions and uncertainties that could cause actual results to differ materially from those expressed in these statements , including , among other things : the effect of the restatement of our previously issued consolidated financial statements as described in note b restatement of previously issued consolidated financial statements contained in this annual report on form 10-k , and any claims , investigations or proceedings arising as a result , as well as our ability to remediate the material weaknesses in our internal controls over financial reporting described in item 9a . controls and procedures contained in this annual report on form 10-k , our ability to provide audited consolidated financial statements for years ended december 31 , 2016 and 2015 in accordance with our debt covenant , changes in the demand for our o & p products and services , uncertainties relating to the results of operations or recently acquired o & p patient care clinics , our ability to enter into and derive benefits from managed-care contracts , our ability to successfully attract and retain qualified o & p clinicians , federal laws governing the health care industry , uncertainties inherent in investigations and legal proceedings , governmental policies affecting o & p operations and other risks and uncertainties generally affecting the health care industry . readers are cautioned that all forward-looking statements involve known and unknown risks and uncertainties including , without limitation , those described in item 1a . risk factors contained in this annual report on form 10-k , some of which are beyond our control . although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable , any of the assumptions could be inaccurate . therefore , there can be no assurance that the forward-looking statements included in this report will prove to be accurate . actual results could differ materially and adversely from those contemplated by any forward-looking statement . in light of the significant risks and uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . we undertake no obligation to publicly release any revisions to any forward-looking statements in this discussion to reflect events and circumstances occurring after the date hereof or to reflect unanticipated events . forward-looking statements and our liquidity , financial condition and results of operations may be affected by the risks set forth in item 1a . risk factors or by other unknown risks and uncertainties . restatement of prior financial information in this annual report on form 10-k , the company : ( a ) restates its consolidated balance sheet as of december 31 , 2013 and the related statements of operations and comprehensive ( loss ) income , consolidated statements of changes in shareholders ' equity and consolidated statements of cash flows for the fiscal years ended december 31 , 2013 and december 31 , 2012 ; ( b ) restates its selected financial data in item 6 for fiscal years 2013 , 2012 , unaudited 2011 and unaudited 2010 ; and ( c ) restates its quarterly financial information ( unaudited ) for the first two quarters in the fiscal year ended december 31 , 2014 and each of the quarters in the fiscal year ended december 31 , 2013. the effects of the accounting adjustments made as a part of the restatement of our consolidated financial statements are more fully discussed in note b restatement of previously issued consolidated financial statements to our consolidated financial statements contained in this annual report on form 10-k. for a description of the material weaknesses identified by management as a result of the investigation and our internal reviews , including management 's plan to remediate those material weaknesses ( the material weaknesses ) , refer to item 9a . controls and procedures contained in this annual report on form 10-k. annual reports on form 10-k for the fiscal year ended december 31 , 2013 and all prior fiscal years , and quarterly reports on form 10-q for all quarterly periods prior to september 30 , 2014 , have not been amended . accordingly , investors should no longer rely upon the company 's previously released consolidated financial statements for these periods and any earnings releases or other communications 35 relating to these periods . see note w quarterly financial information ( unaudited ) , contained elsewhere in this annual report on form 10-k for the impact of these adjustments on the first two quarters of fiscal 2014 and each of the quarterly periods in 2013. these activities are referred to in this management 's discussion and analysis as the restatement. effect of delay in financial filings due to our detection of the material weaknesses and the necessity of our correction of previously issued financial information , we have not made a periodic filing with the sec since august of 2014. the delay in completing and filing this report was due in part to our efforts to retrieve , review , reconcile and correct the company 's source accounting records . story_separator_special_tag business of this annual report on form 10-k. our patient care segment is primarily comprised of hanger clinic which specializes in the design , fabrication and delivery of custom o & p devices through 706 patient care clinics and 115 satellite locations in 45 states and the district of columbia . we also provide payor network contracting services to other o & p providers through this segment . our products & services segment is comprised of our distribution and our rehabilitative solutions businesses . as a leading supplier of o & p products in the united states , we coordinate through our distribution business the procurement and distribution of a broad catalog of o & p parts , componentry and devices to independent o & p providers nationwide . to facilitate speed and convenience , we deliver these products through one of our five distribution facilities that are located in nevada , georgia , illinois , pennsylvania and texas . the other business in our products & services segment is our rehabilitative solutions business , which develops specialized rehabilitation technologies and provides evidence-based clinical programs for post-acute rehabilitation to patients at approximately 4,300 skilled nursing , long-term care and other sub-acute rehabilitation facilities throughout the united states . see note s segment and related information to our consolidated financial statements contained in this annual report on form 10-k for disclosure of financial information by operating segment for 2014 , 2013 and 2012. reimbursement trends in our patient care segment , we are reimbursed primarily through employer-based plans offered by commercial insurance carriers , medicare , medicaid and the va. the following is a summary of our payor mix , expressed as a percentage of cash collections for the periods indicated : replace_table_token_16_th patient care constitutes 82.7 % , 82.3 % and 81.5 % of our revenue for 2014 , 2013 and 2012 , respectively . our remaining revenue is produced in our products & services segment which derives its revenue from commercial transactions with independent o & p providers , healthcare facilities and other customers . in contrast to revenues from our patient care segment , payment for these products and services are not directly subject to third party reimbursement from health care payors . the amount of our reimbursement varies based on the nature of the o & p device we fabricate for our patients . given the particular physical weight and size characteristics , location of injury or amputation , capability for physical activity and mobility , cosmetic and other needs of each individual patient , each fabricated prostheses and orthoses is customized for each particular patient . the nature of this customization and the manner by which our claims submissions are reviewed by payors makes our reimbursement process administratively difficult . to receive reimbursement for our work , we must ensure that our clinical , administrative and billing personnel receive and verify certain medical and health plan information , record detailed documentation regarding the services we provide and accurately and timely perform a number of claims submission and related administrative tasks . traditionally , we have performed these tasks in a manual fashion and on a decentralized basis . in recent years , due to increases in payor pre-authorization processes , documentation requirements , pre-payment reviews and pre- and post-payment audits , our ability to successfully undertake these tasks using our traditional approach has become increasingly challenging . we believe these changes in industry trends have been brought about in part by increased nationwide efforts to reduce health care costs . 37 a measure of our effectiveness in securing reimbursement for our services can be found in the degree to which payors ultimately disallow payment of our claims . payors can deny claims due to their determination that a physician who referred a patient to us did not sufficiently document that a device was medically necessary or clearly establish the ambulatory ( or activity ) level of a patient . claims can also be denied based on our failure to ensure that a patient was currently eligible under a payor 's health plan , that the plan provides full o & p benefits , that we received prior authorization , that we filed or appealed the payor 's determination timely , on the basis of our coding , failure by certain classes of patients to pay their portion of a claim and for various other reasons . if any portion of , or administrative factor within , our claim is found by the payor to be lacking , then the entirety of the claim amount may be denied reimbursement . due to the increasing demands of these processes , the level and capability of our staffing , as well as our material weaknesses and other considerations , our consolidated disallowed revenue and bad debt expense , and their relationship to consolidated adjusted gross revenue , have increased over the past five years as follows ( dollars in millions , unaudited ) : replace_table_token_17_th adjusted gross revenue in the above chart reflects our gross billings after reduction for estimated contractual discounts . as can be seen by the chart , the percentage of our gross billings that have been disallowed increased to 6.3 % in 2013 from 2.9 % in 2010. due to industry trends and company specific administrative factors , the company 's actual collection experience degraded and disallowed revenue increased . industry trends related to there being an increased level of payor audits and more stringent requests by payors that referring physician documentation be provided in connection with claims . during that period of time , the company utilized a decentralized billing and collections approach , where invoicing and collections were undertaken at individual patient care locations . the company 's typical locations have an average of two office administrators who are required to handle patient administration , purchasing and clinician support tasks . due to increasing payor documentation demands and staffing levels during that period of time , administrative staff were increasingly unable to successfully address the growing levels of payor denials .
| general and administrative expenses . during the second quarter of 2014 , our general and administrative expenses were $ 22.5 million , which compared to $ 21.2 million reported during the second quarter of the prior year . the majority of this $ 1.3 million , or 6.1 % , increase was the result of a $ 1.4 million increase in salaries , benefits and payroll taxes , which related to our annual merit process as well as increases in our general and administrative staffing . additionally , we incurred $ 0.6 million in increased contract labor costs , primarily associated with our augmentation of corporate accounting functions . these increases were offset by a decrease of $ 0.7 million in facility and other office-related expenses . professional accounting and legal fees . professional accounting and legal fees grew by $ 1.1 million during the three month period ending june 30 , 2014 compared with the same period in the prior year . this increase brought these expenses to a total level of $ 2.6 million during the second quarter of 2014 as compared with $ 1.5 million during the second quarter of 2013. this increase related to increased professional accounting costs incurred during the quarter . depreciation and amortization . depreciation and amortization expenses were $ 9.8 million for the three month period ended june 30 , 2014 compared with $ 8.8 million for the three month period ended june 30 , 2013. this $ 1.0 million , or 11.4 % , increase related primarily to increased depreciation associated with the company 's commencement of its use of the new patient management and electronic health record system during 2014 , which contributed to $ 0.5 million of the increase . in addition to the effects of capital expenditures , the remainder of this increase also relates to the effects of acquisitions completed during the course of the year . income from operations .
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the seasonality of our sales volume causes our working capital needs to fluctuate throughout the year . ingredient and packaging costs represent a significant portion of our cost of sales . these costs are subject to global and regional commodity price trends . our most significant commodities are polyethylene terephthalate ( “ pet ” ) resin , high-density polyethylene ( “ hdpe ” ) and polycarbonate bottles , caps and preforms , labels and cartons and trays . we attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed . we conduct operations in countries involving transactions denominated in a variety of currencies . we are subject to currency exchange risks to the extent that our costs are denominated in currencies other than those in which we earn revenues . as our financial statements are denominated in u.s. dollars , fluctuations in currency exchange rates between the u.s. dollar and other currencies have had , and will continue to have an impact on our results of operations . in 2019 , our capital expenditures were devoted primarily to supporting growth in our business , maintaining existing facilities and making equipment upgrades . during the first quarter of 2019 , we reviewed and realigned our reporting segments to reflect how the business will be managed and the results will be reviewed by the chief executive officer , who is our chief operating decision maker . following such review , we realigned our three reporting segments as follows : route based services ( which includes our ds services of america , inc. ( “ dss ” ) , aquaterra corporation ( “ aquaterra ” ) , mountain valley spring company ( “ mountain valley ” ) , eden springs europe b.v. ( “ eden ” ) and aimia foods ( “ aimia ” ) businesses ) ; coffee , tea and extract solutions ( which includes our s. & d. coffee , inc. ( “ s & d ” ) business ) ; and all other ( which includes miscellaneous expenses and our cott beverages llc business , which was sold in the first quarter of 2019 ) . our segment reporting results have been recast to reflect these changes for all periods presented . see note 11 to the consolidated financial statements for segment reporting . our fiscal year is based on either a 52- or 53- week period ending on the saturday closest to december 31. for the fiscal years ended december 28 , 2019 , december 29 , 2018 and december 30 , 2017 , we had 52- weeks of activity . one of our subsidiaries uses a gregorian calendar year-end which differs from the company 's 52- or 53- week fiscal year-end . differences arising from the use of the different fiscal year-ends were not deemed material for the fiscal years ended december 28 , 2019 , december 29 , 2018 or december 30 , 2017 . 29 divestiture , acquisition and financing transactions divestitures on january 30 , 2020 , cott entered into a stock purchase agreement with cott holdings inc. , a wholly-owned subsidiary of cott ( “ holdings ” ) , s & d , a wholly-owned subsidiary of cott , and westrock coffee company , llc , a delaware limited liability company ( “ purchaser ” ) , pursuant to which purchaser will acquire all of the issued and outstanding equity of s & d from holdings ( the “ s & d disposition ” ) . the aggregate deal consideration is $ 405 million , payable at closing in cash , subject to adjustments for indebtedness , working capital , and cash . the s & d disposition is expected to close in the first quarter of 2020 and is subject to satisfaction of certain conditions , including receipt of u.s. regulatory clearance . we intend to use the proceeds of the s & d disposition to finance a portion of our acquisition of primo water corporation ( “ primo ” ) described below , depending on the timing of closing , or otherwise to pay down indebtedness . on february 8 , 2019 , we sold all of the outstanding equity of cott beverages llc to refresco group b.v. , a dutch company ( “ refresco ” ) . the aggregate deal consideration paid at closing was $ 50.0 million , subject to post-closing adjustments for working capital , indebtedness and other customary items . we used the proceeds of this transaction to repay a portion of the outstanding borrowings under our asset-based lending credit facility ( the “ abl facility ” ) . in july 2017 , we entered into a share repurchase agreement with refresco , pursuant to which we sold to refresco , in january 2018 , our carbonated soft drinks and juice businesses via the sale of our north america , united kingdom and mexico business units ( including the canadian business ) and our rci finished goods export business ( collectively , the “ traditional business ” and such transaction , the “ traditional business disposition ” ) . the traditional business disposition was structured as a sale of the assets of our canadian business and a sale of the stock of the operating subsidiaries engaged in the traditional business in the other jurisdictions after we completed an internal reorganization . the aggregate deal consideration was $ 1.25 billion , paid at closing in cash , with customary post-closing adjustments resolved in december 2018 by the payment of $ 7.9 million from us to refresco . the sale of the traditional business represented a strategic shift and had a major effect on our operations and , therefore , the traditional business is presented herein as discontinued operations . see note 3 to the consolidated financial statements for additional information on discontinued operations . story_separator_special_tag in march and april 2017 , we used a portion of the proceeds from the issuance of the 2025 notes ( as defined below ) to redeem all $ 625.0 million of our 6.75 % senior notes due january 1 , 2020 ( the “ 2020 notes ” ) . the redemption of our 2020 notes included $ 14.3 million and $ 7.1 million in premium payments , accrued interest of $ 7.4 million and $ 3.1 million , the write-off of $ 5.8 million and $ 2.9 million in deferred financing fees , and other costs of $ 0.1 million . in march 2017 , we issued $ 750.0 million of 5.500 % senior notes due april 1 , 2025 ( the “ 2025 notes ” ) to qualified purchasers in a private placement offering under rule 144a under the securities act of 1933 , as amended ( the “ securities act ” ) , and outside the united states to non-u.s. purchasers pursuant to regulation s under the securities act and other applicable laws . the 2025 notes were issued by holdings , and most of our u.s. , canadian , u.k. and dutch subsidiaries guarantee the 2025 notes . the 2025 notes will mature on april 1 , 2025 and interest is payable semi-annually on april 1st and october 1st of each year commencing on october 1 , 2017. we incurred $ 11.7 million of financing fees in connection with the issuance of the 2025 notes . summary financial results net loss from continuing operations in 2019 was $ 0.1 million or $ 0.00 per diluted common share , compared with net income from continuing operations of $ 28.9 million or $ 0.21 per diluted common share in 2018 . the following items of significance affected our 2019 financial results : net revenue increased $ 21.6 million , or 0.9 % , in 2019 compared to the prior year due primarily to the addition of revenues from the mountain valley and crystal rock businesses , pricing initiatives and growth within our home and office water delivery operations , as well as growth in other product sales in our route based services reporting segment , growth in coffee volumes , change in customer mix and growth in liquid coffee and extracts in our coffee , tea and extract solutions reporting segment , partially offset by the unfavorable impact of foreign exchange rates in our route based services reporting segment , lower green coffee commodity prices and a decrease in other product sales in our coffee , tea and extract solutions reporting segment , as well as a decrease in revenues contributed by our cott beverages llc business that was sold during the first quarter of 2019 ; gross profit increased to $ 1,227.8 million from $ 1,175.6 million in the prior year due primarily to the addition of the mountain valley and crystal rock businesses , pricing initiatives and growth within our home and office water delivery operations , as well as growth in other product sales in our route based services reporting segment , growth in coffee volumes , change in customer mix and growth in liquid coffee and extracts in our coffee , tea and extract solutions reporting segment , partially offset by the unfavorable impact of foreign exchange rates in our route based services reporting segment , as well as a decrease in gross profit contributed by our cott beverages llc business that was sold during the first quarter of 2019. gross profit as a percentage of net revenue increased to 51.3 % in 2019 compared to 49.5 % in the prior year ; 31 selling , general and administrative ( “ sg & a ” ) expenses increased to $ 1,113.0 million in 2019 compared to $ 1,092.1 million in the prior year due primarily to the addition of the mountain valley and crystal rock businesses and an increase of incentive costs in our route based services reporting segment , as well as an increase in selling and operating costs in our coffee , tea and extract solutions reporting segment , partially offset by lower sg & a expenses incurred by our cott beverages llc business that was sold during the first quarter of 2019 , and a decrease in professional fees and share-based compensation costs in the all other category , as well as the favorable impact of foreign exchange rates and a decrease in amortization expense within our route based services reporting segment . as a percentage of net revenue , sg & a expenses were 46.5 % in 2019 compared to 46.0 % in the prior year ; loss on disposal of property , plant and equipment , net was primarily related to the disposal of $ 7.5 million of equipment that was either replaced or no longer being used in our reporting segments ; acquisition and integration expenses increased to $ 16.9 million in 2019 compared to $ 15.3 million in the prior year due primarily to the increase in integration costs within our existing businesses ; other expense , net was $ 2.8 million in 2019 compared to other income , net of $ 42.9 million in the prior year due primarily to the loss recognized on the sale of our cott beverages llc business and an increase of net losses on foreign currency transactions , partially offset by gains recognized on the redemption of the dss notes and the sale of our polycycle solutions ( “ pcs ” ) business , mark to market gains on warrant securities , and income recognized from favorable legal settlements in the prior year ; income tax expense was $ 9.5 million on pre-tax income from continuing operations of $ 9.4 million in 2019 compared to income tax benefit of $ 4.8 million on pre-tax income from continuing operations of $ 24.1 million in the prior year due primarily to increased income incurred in taxable jurisdictions in 2019 and a canadian valuation allowance release and releases of various uncertain tax positions in 2018 ; adjusted ebitda increased to $ 328.7 million in 2019 compared to $ 306.8 million
| results of operations the following table summarizes the change in revenue by reporting segment for 2019 : replace_table_token_8_th 1 impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . 38 the following table summarizes the change in revenue by reporting segment for 2018 : replace_table_token_9_th 1 impact of foreign exchange is the difference between the current year 's revenue translated utilizing the current year 's average foreign exchange rates less the current year 's revenue translated utilizing the prior year 's average foreign exchange rates . 2 our eden business had two fewer trading days , our s & d business had three fewer trading days , and our aimia business had one fewer trading day for the year ended december 29 , 2018 as compared to the prior year . the following table summarizes our ebitda and adjusted ebitda for the fiscal years ended december 28 , 2019 , december 29 , 2018 and december 30 , 2017 , respectively . replace_table_token_10_th 1 includes an increase of $ 1.8 million , a reduction of $ 1.1 million , and an increase of $ 3.5 million of share-based compensation costs for the years ended december 28 , 2019 , december 29 , 2018 and december 30 , 2017 , respectively , related to awards granted in connection with the acquisitions of our s & d and eden businesses . 2 impact of our operations related to the cott beverages llc business , which was sold on february 8 , 2019 . 39 year ended december 28 , 2019 compared to year ended december 29 , 2018 revenue , net net revenue increased $ 21.6 million , or 0.9 % , in 2019 from 2018 . route based services net revenue increased $ 77.9 million , or 4.6
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at december 31 , 2016 and december 31 , 2015 , we had $ 0.2 million and $ story_separator_special_tag the following discussion should be read in conjunction with the audited historical consolidated financial statements and notes thereto appearing in “ item 8. financial statements and supplementary data ” of this report . as used in this section , unless the context otherwise requires , “ we , ” “ us , ” “ our , ” and “ our company ” mean american assets trust , inc. , a maryland corporation and its consolidated subsidiaries , including american assets trust , l.p. this discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward looking statements as a result of various factors , including those set forth under “ item 1a . risk factors ” or elsewhere in this document . see “ item 1a . risk factors ” and “ forward-looking statements. ” overview our company we are a full service , vertically integrated and self-administered reit that owns , operates , acquires and develops high quality retail , office , multifamily and mixed-use properties in attractive , high-barrier-to-entry markets in southern california , northern california , oregon , washington , texas , and hawaii . as of december 31 , 2016 , our portfolio was comprised of eleven retail shopping centers ; seven office properties ; a mixed-use property consisting of a 369-room all-suite hotel and a retail shopping center ; and five multifamily properties . additionally , as of december 31 , 2016 , we owned land at four of our properties that we classified as held for development and construction in progress . our core markets include san diego , the san francisco bay area , portland , oregon , bellevue , washington and oahu , hawaii . our company , as the sole general partner of our operating partnership , has control of our operating partnership and owned 71.8 % of our operating partnership as of december 31 , 2016 . accordingly , we consolidate the assets , liabilities and results of operations of our operating partnership . taxable reit subsidiary on november 5 , 2010 , we formed american assets services , inc. , a delaware corporation that is wholly owned by our operating partnership and which we refer to as our services company . we have elected , together with our services company , to treat our services company as a taxable reit subsidiary for federal income tax purposes . a taxable reit subsidiary generally may provide non-customary and other services to our tenants and engage in activities that we may not engage in directly without adversely affecting our qualification as a reit , provided a taxable reit subsidiary may not operate or manage a lodging facility or provide rights to any brand name under which any lodging facility is operated . we may form additional taxable reit subsidiaries in the future , and our operating partnership may contribute some or all of its interests in certain wholly owned subsidiaries or their assets to our services company . any income earned by our taxable reit subsidiaries will not be included in our taxable income for purposes of the 75 % or 95 % gross income tests , except to the extent such income is distributed to us as a dividend , in which case such dividend income will qualify under the 95 % , but not the 75 % , gross income test . because a taxable reit subsidiary is subject to federal income tax , and state and local income tax ( where applicable ) as a regular corporation , the income earned by our taxable reit subsidiaries generally will be subject to an additional level of tax as compared to the income earned by our other subsidiaries . outlook we seek growth in earnings , funds from operations , and cash flows primarily through a combination of the following : growth in our same-store portfolio , growth in our portfolio from property development and redevelopments and expansion of our portfolio through property acquisitions . our properties are located in some of the nation 's most dynamic , high-barrier-to-entry markets primarily in southern california , northern california , oregon , washington and hawaii , which we believe allow us to take advantage of redevelopment opportunities that enhance our operating performance through renovation , expansion , reconfiguration , and or retenanting . we evaluate our properties on an ongoing basis to identify these types of opportunities . our new development at torrey point ( previously sorrento pointe ) is close in proximity to torrey reserve campus . groundbreaking on torrey point occurred in july 2015 with development plans including two class a office buildings of approximately 88,000 square feet in the aggregate , with panoramic unobstructed views of the torrey pines state park beach , torrey reserve and the pacific ocean . projected costs of the development at torrey point are approximately $ 56 million , of which approximately $ 32 million has been incurred to date . we expect to incur the remaining costs for development of torrey point in 2017. we expect the torrey point development to be stabilized in 2018 with an estimated stabilized cash yield of approximately 7.0 % to 8.0 % . we intend to opportunistically pursue other projects in our development pipeline including future phases of lloyd district portfolio , solana beach - highway 101 , as well as other redevelopments at solana beach corporate centre and lomas santa fe plaza . the commencement of these developments is based on , among other things , market conditions and our evaluation of 38 whether such opportunities would generate appropriate risk adjusted financial returns . our redevelopment and development opportunities are subject to various factors , including market conditions and may not ultimately come to fruition . we continue to review acquisition opportunities in our primary markets that would complement our portfolio and provide long-term growth opportunities . story_separator_special_tag office leases . our office portfolio included seven properties with a total of approximately 2.7 million rentable square feet available for lease as of december 31 , 2016 . as of december 31 , 2016 , these properties were 90.1 % leased . for the year ended december 31 , 2016 , the office segment contributed 35.0 % of our total revenue . historically , we have leased office properties to tenants primarily on a full service gross or a modified gross basis and to a limited extent on a triple-net lease basis . we expect to continue to do so in the future . a full-service gross or modified gross lease has a base year expense stop , whereby the tenant pays a stated amount of certain expenses as part of the rent payment , while future increases in property operating expenses ( above the base year stop ) are billed to the tenant based on such tenant 's proportionate square footage of the property . the increased property operating expenses billed are reflected as operating expenses and amounts recovered from tenants are reflected as rental income in the statements of operations . during the year ended december 31 , 2016 , we signed 68 office leases for 281,595 square feet with an average rent of $ 40.62 per square foot during the initial year of the lease term . of the leases , 50 represent comparable leases where there was a prior tenant , with an increase of 12.0 % in cash basis rent and an increase of 24.2 % in straight-line rent compared to the prior leases . 40 multifamily leases . our multifamily portfolio included four apartment properties , as well as an rv resort , with a total of 1,579 units ( including 122 rv spaces ) available for lease as of december 31 , 2016 . as of december 31 , 2016 , these properties were 90.3 % leased . for the year ended december 31 , 2016 , the multifamily segment contributed 9.9 % of our total revenue . our multifamily leases , other than at our rv resort , generally have lease terms ranging from 7 to 15 months , with a majority having 12-month lease terms . tenants normally pay a base rental amount , usually quoted in terms of a monthly rate for the respective unit . spaces at the rv resort can be rented at a daily , weekly , or monthly rate . the average monthly base rent per leased unit as of december 31 , 2016 was $ 1,713 , compared to $ 1,605 at december 31 , 2015 . mixed-use property revenue . our mixed-use property consists of approximately 97,000 rentable square feet of retail space and a 369-room all-suite hotel . revenue from the mixed-use property consists of revenue earned from retail leases , and revenue earned from the hotel , which consists of room revenue , food and beverage services , parking and other guest services . as of december 31 , 2016 , the retail portion of the property was 98.7 % leased , and for the year ended december 31 , 2016 , the hotel had an average occupancy of 89.8 % . for the year ended december 31 , 2016 , the mixed-use segment contributed 20.9 % , of our total revenue . we have leased the retail portion of such property to tenants primarily on a triple-net lease basis , and we expect to continue to do so in the future . as such , the base rent payment under such leases does not include any operating expenses , but rather all such expenses , to the extent they are paid by the landlord , are billed to the tenant . rooms at the hotel portion of our mixed-use property are rented on a nightly basis . leasing our same-store growth is primarily driven by increases in rental rates on new leases and lease renewals and changes in portfolio occupancy . over the long-term , we believe that the infill nature and strong demographics of our properties provide us with a strategic advantage , allowing us to maintain relatively high occupancy and increase rental rates . we have continued to see signs of improvement for many of our tenants as well as increased interest from prospective tenants for our spaces . while there can be no assurance that these positive signs will continue , we remain cautiously optimistic regarding the improved trends we have seen over the past few years . we believe the locations of our properties and diverse tenant base mitigate the potentially negative impact of a poor economic environment . however , any reduction in our tenants ' abilities to pay base rent , percentage rent or other charges , may adversely affect our financial condition and results of operations . during the three months ended december 31 , 2016 , we signed 16 retail leases for a total of 31,064 square feet of retail space including 28,604 square feet of comparable space leases ( leases for which there was a prior tenant ) , an increase of 4.3 % on a cash basis and an increase of 17.5 % on a straight-line basis . new retail leases for comparable spaces were signed for 3,246 square feet at an average rental rate increase of 3.8 % on a cash basis and 12.4 % on a straight-line basis . renewals for comparable retail spaces were signed for 25,358 square feet at an average rental rate increase of 4.4 % on a cash basis and an increase of 18.9 % on a straight-line basis . tenant improvements and incentives were $ 15.94 per square foot of retail space for comparable new leases for the three months ended december 31 , 2016 . there were $ 19.86 per square foot of retail space of tenant improvement or incentives for comparable renewal leases for the three months ended december 31 , 2016 .
| results of operations for our discussion of results of operations , we have provided information on a total portfolio and same-store basis . comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the following summarizes our consolidated results of operations for the year ended december 31 , 2016 compared to our consolidated results of operations for the year ended december 31 , 2015 . as of december 31 , 2016 , our operating portfolio was comprised of 24 retail , office , multifamily and mixed-use properties with an aggregate of approximately 5.9 million rentable square feet of retail and office space ( including mixed-use retail space ) , 1,579 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2016 , we owned land at four of our properties that we classified as held for development and construction in progress . as of december 31 , 2015 , our operating portfolio was comprised of 23 retail , office , multifamily and mixed-use properties with an aggregate of approximately 5.8 million rentable square feet of retail and office space ( including mixed-use retail space ) , 1,579 residential units ( including 122 rv spaces ) and a 369-room hotel . additionally , as of december 31 , 2015 , we owned land at five of our properties that we classified as held for development and construction in progress . the following table sets forth selected data from our consolidated statements of income for the years ended december 31 , 2016 and 2015 ( dollars in thousands ) : replace_table_token_14_th 47 revenue total property revenues . total property revenue consists of rental revenue and other property income . total property revenue increased $ 19.5 million , or 7 % , to $ 295.1 million for the year ended december 31 , 2016 , compared to $ 275.6 million for the year ended december 31 , 2015 .
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for this purpose , any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements . without limiting the generality of the foregoing , the words `` projected , '' `` anticipated , '' `` planned , '' `` expected '' and similar expressions are intended to identify forward-looking statements . in particular , statements regarding future trends are forward-looking statements . forward-looking statements are not guarantees of our future financial performance , and undue reliance should not be placed on them . our actual results , performance or achievements may differ significantly from those discussed in or implied by the forward-looking statements . factors that might cause such a difference include , but are not limited to , the following : significant changes in customer acceptance of our product offerings ; the success or failure of our retail store initiative ; our ability to effectively manage our operations and growth in a multi-channel environment ; the success of our product development and merchandising initiatives ; changes in consumer spending , fashion trends and consumer preferences ; the customary risks of purchasing merchandise abroad , including longer lead times , higher initial purchase commitments and foreign currency fluctuations ; timeliness of receipts of inventory from vendors ; changes in competition in the apparel industry ; changes in , or the failure to comply with , federal and state tax and other government regulations ; our ability to attract and retain qualified personnel ; possible future increases in expenses and labor and employee benefit costs ; business abilities and judgment of management ; the existence or absence of brand awareness ; the existence or absence of publicity , advertising and promotional efforts ; the success or failure of operating initiatives ; the mix of our sales between full price and liquidation merchandise ; general political , economic and business conditions ; and other factors . see also item 1a , `` risk factors . '' we disclaim any intent or obligation to update any forward-looking statements . overview we are a multi-channel specialty retailer of women 's apparel , accessories and footwear . we market our products through retail stores , catalogs and our website jjill.com . we currently have two reportable business segments , direct and retail . each segment is separately managed and utilizes distinct distribution , marketing and inventory management strategies . the direct segment markets merchandise through catalogs and our website . the retail segment markets merchandise through retail stores . our fiscal year ends on the last saturday in december . the 12 months ended december 27 , 2003 ( `` fiscal 2003 '' ) , december 28 , 2002 ( `` fiscal 2002 '' ) and december 29 , 2001 ( `` fiscal 2001 '' ) were 52-week fiscal years . during fiscal 2002 , we effected a three-for-two stock split in the form of a stock dividend paid on june 28 , 2002 to shareholders of record on june 14 , 2002. all share and per share data has been adjusted for the stock split . net sales for fiscal 2003 increased by 8.4 % to $ 376.9 million from $ 347.6 million in fiscal 2002. income before interest and taxes for fiscal 2003 was $ 12.9 million , or 3.4 % of net sales , compared to $ 32.8 million , or 9.4 % of net sales , in the prior year . net income for fiscal 2003 was $ 7.2 million , or $ 0.36 per diluted share , compared to $ 18.9 million , or $ 0.94 per diluted share , in fiscal 2002. fiscal 2003 marked the beginning of an important transition for us . in fiscal 2003 , we determined that our business had reached a level of growth and complexity that could no longer be adequately supported by the front-end product development and merchandising infrastructure that had historically worked well in our catalog business . we felt we needed an infrastructure that could support a more complex multi-channel business . consequently , we committed to make significant investments in both personnel and systems to re-engineer and upgrade our operating infrastructure and processes in the areas of design , product management , sourcing , product integrity , technical design and merchandising . we believe that these investments will allow us to fundamentally change the way we source and develop product , how we 19 flow product , how we present product and the product itself . during fiscal 2003 we worked to redefine our strategic objectives in the supply chain area and we began implementing the beginnings of a new front-end product development and merchandising infrastructure . during the latter half of the year we reorganized our entire product area . as a result of our long inventory lead times , we believe that the impact of most of these changes will not be evident in our merchandise assortment until late in 2004. some of the changes we are in the process of making include , among other things , providing a more compelling product assortment to our current core customer and upgrades to fabrications , color , fit and overall quality . we plan to reduce our style counts by roughly 20 % to 30 % for fall 2004 in an effort to provide a more focused collection and point of view for the j. jill brand . we also plan to define and support a core offering of products within our overall assortment that will be the foundation upon which our collections are built . in 2004 , we are planning to spend approximately $ 6.0 million to $ 7.0 million on our front-end product development and merchandising infrastructure . this estimate is for 2004 only and does not include any future investments to be made beyond 2004. additionally , as we execute this strategy this estimate may change . there can be no assurance that our investments will result in an improved infrastructure that will result in improved sales or profitability . story_separator_special_tag in addition , the direct segment experienced lower gross margins in fiscal 2003 as a result of higher markdown charges and an increase in off price sales as compared to fiscal 2002. the direct segment 's fiscal 2002 direct contribution increased by $ 11.4 million , or 19.5 % , compared to fiscal 2001. as a percentage of segment net sales , direct contribution increased to 31.6 % during fiscal 2002 from 27.5 % during fiscal 2001. this increase in direct contribution as a percentage of segment net sales was primarily attributable to higher gross margins associated with increased full price sales volumes , better inventory management , lower markdown charges and higher initial markups as compared to fiscal 2001. this gross margin improvement was partially offset by higher selling expenses as a percentage of segment net sales as a result of lower catalog productivity . 24 retail segment the retail segment 's fiscal 2003 direct contribution decreased by $ 2.9 million , or 28.5 % , compared to fiscal 2002. as a percentage of segment net sales , direct contribution decreased to 4.0 % during fiscal 2003 from 7.8 % during fiscal 2002. this decrease in direct contribution as a percentage of segment net sales was primarily attributable to lower gross margins associated with higher markdown charges , increased off price sales and deeper discounts taken on markdown merchandise in fiscal 2003 as compared to fiscal 2002. the retail segment 's fiscal 2002 direct contribution increased by $ 4.6 million , or 83.9 % , compared to fiscal 2001. as a percentage of segment net sales , direct contribution increased to 7.8 % during fiscal 2002 from 7.1 % during fiscal 2001. this increase in direct contribution as a percentage of segment net sales was primarily attributable to higher gross margins associated with increased full price sales volumes , better inventory management , lower markdown charges and higher initial markups as compared to fiscal 2001. the gross margin improvement was partially offset by the higher occupancy , depreciation and selling costs as a percentage of segment net sales as a result of lower sales productivity , as well as an $ 847,000 asset impairment charge relating to one of our retail stores taken in the fourth quarter of fiscal 2002. seasonality and quarterly fluctuations as our retail segment becomes a greater portion of our overall business , we expect that our business will become more seasonal . our retail store rollout plan is expected to materially impact year-over-year comparisons of our net sales . also , january is included in the first fiscal quarter for us , but is included in the fourth fiscal quarter for many other retailers . because january is a month that traditionally involves significant promotional pricing , this difference needs to be taken into account when making comparisons of our financial performance for interim periods with that of other retailers . liquidity and capital resources our principal working capital needs arise from the need to support costs incurred in advance of revenue generation , primarily inventory acquisition and catalog development , production and mailing costs . we have two selling seasons that correspond to the fashion seasons . the spring season begins in january and ends in july . the fall season begins in july and ends in january . our capital investment needs arise from initiatives intended to support our growth , including the retail store rollout and improvements to our physical and operating infrastructure . during fiscal 2003 , we funded our working capital and capital investment needs with cash generated from operations and our cash on hand . cash and cash equivalents ( `` cash '' ) increased by $ 14.6 million during fiscal 2003. approximately $ 50.7 million in cash was generated from operations , $ 34.3 million was invested in property and equipment , primarily related to our retail store rollout , and $ 1.6 million was used to pay down debt . during fiscal 2003 , net income before depreciation and amortization , additional deferred credits from landlords and decreases in inventory were the primary sources of cash provided by operating activities . the primary use of cash in operating activities was increases in other assets , primarily as a result of prepaid income taxes . cash increased by $ 14.6 million during fiscal 2002. approximately $ 45.7 million in cash was generated from operations and $ 7.8 million from stock transactions . approximately $ 34.7 million was invested in property and equipment , primarily related to our retail store rollout , $ 2.4 million was transferred to a trust associated with our deferred compensation plan and $ 1.8 million was used to pay down debt . during fiscal 2002 , net income before depreciation and amortization , additional deferred credits from landlords and higher accrued expense balances were the primary sources of cash provided by operating activities . the primary use of cash in operating activities was increases in accounts receivable , principally associated with our deferred billing program . 25 accounts receivable balances at december 27 , 2003 were 12.6 % or $ 2.7 million lower than at december 28 , 2002 , primarily as a result of lower deferred billing amounts outstanding due to changes in the year-over-year timing and extent of our holiday deferred billing program . inventory balances at december 27 , 2003 were 17.3 % or $ 5.9 million lower than at december 28 , 2002 , primarily as a result of lower current fall season and upcoming spring season inventory balances on hand at the end of fiscal 2003 as compared to fiscal 2002 year end . however , these decreases were somewhat offset by higher amounts of prior season inventory on hand at december 27 , 2003 than at december 28 , 2002. this increase in the level of older inventory on hand resulted from increased inventory levels intended to decrease missed sales opportunities , coupled with lower than expected sales . we plan to liquidate this incremental inventory through direct segment liquidation vehicles ( e.g.
| results of operations the following table presents our consolidated statements of operations expressed as a percentage of net sales : replace_table_token_4_th the following table summarizes net sales by segment ( in thousands ) : replace_table_token_5_th ( 1 ) other represents certain sales allowances not specifically attributable to the direct or retail business segments . comparison of fiscal 2003 to fiscal 2002 net sales increased by $ 29.3 million , or 8.4 % , to $ 376.9 million in fiscal 2003 from $ 347.6 million in fiscal 2002. during fiscal 2003 , retail segment net sales increased by 38.6 % to $ 177.5 million from $ 128.1 million in fiscal 2002 primarily as a result of increased store count . retail segment sales productivity , as measured by sales per square foot , declined by 5.3 % during fiscal 2003 as compared to fiscal 2002. during fiscal 2003 , we opened 34 retail stores . at december 27 , 2003 , we had 122 retail stores open compared to 88 at december 28 , 2002. direct segment net sales decreased by 9.2 % and square inches circulated increased by 1.2 % during fiscal 2003 compared to fiscal 2002. direct segment sales productivity , as measured by net sales per 1,000 square inches circulated , declined by 10.3 % during fiscal 2003 as compared to fiscal 2002. the decreases in our sales productivity in the retail and direct segments during fiscal 2003 are primarily attributable to merchandising issues described in the `` overview . '' internet net sales represented 34.5 % of total direct segment net sales during fiscal 2003 compared to 30.0 % during fiscal 2002. we expect internet net sales to represent an increasing portion of our total direct business over time . further , we expect our future growth to come from our retail segment . gross margin represents net sales less cost of products and merchandising .
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the lab currently processes our ova1 test , and we expect the lab to process the ca 125-ii test ( which is marketed and sold by a third-party ) in the future in specific markets . we plan to expand the testing provided by aspira labs to other gynecologic conditions with high unmet need . we also plan to develop and perform ldts at aspira labs . aspira labs holds a clia certificate of registration and a state laboratory license in california , florida , maryland , new york , pennsylvania and rhode island . this allows the lab to process ova1 on a national basis . the centers for medicare & medicaid services ( “ cms ” ) issued a provider number to aspira labs in march 2015 . 30 strategy : we are focused on the execution of four core strategic business drivers in ovarian cancer diagnostics to build long-term value for our investors : · maximizing the existing ova1 opportunity in the united states by taking the lead in payer coverage and commercialization of ova1 . this strategy included the launch of a clia certified clinical laboratory , aspira labs , in june 2014 ; · improving ova1 performance by obtaining fda clearance of overa , a next generation biomarker panel while migrating ova1 to a global testing platform , which we believe may allow for better domestic market penetration and international expansion ( fda clearance was received on march 18 , 2016 ) ; · building an expanded patient base by launching a next generation multi-marker ovarian cancer test to monitor patients at risk for ovarian cancer ; and · expanding our product offerings by adding additional gynecologic bio-analytic solutions involving biomarkers , other modalities ( e.g . , imaging ) , clinical risk factors and patient data to aid diagnosis and risk stratification of women presenting with a pelvic mass disease . we believe that these business drivers will contribute significantly to addressing unmet medical needs for women faced with gynecologic disease and other conditions and the continued development of our business . ova1 addresses a clear clinical need , namely the presurgical identification of women who are at high risk of having a malignant ovarian tumor . numerous studies have documented the benefit of referral of these women to gynecologic oncologists for their initial surgery . prior to the clearance of ova1 , no blood test had been cleared by the fda for physicians to use in the presurgical management of ovarian adnexal masses . ova1 is a qualitative serum test that utilizes five well-established biomarkers and proprietary software cleared as part of the ova1 510 ( k ) to determine the likelihood of malignancy in women over age 18 , with a pelvic mass for whom surgery is planned . ova1 should not be used without an independent clinical/radiological evaluation and is not intended to be a screening test or to determine whether a patient should proceed to surgery . incorrect use of ova1 carries the risk of unnecessary testing , surgery and delayed diagnosis . ova1 was developed through large pre-clinical studies in collaboration with numerous academic medical centers encompassing over 2,500 clinical samples . ova1 was fully validated in a prospective multi-center clinical trial encompassing 27 sites reflective of the diverse nature of the clinical centers at which ovarian adnexal masses are evaluated . we terminated our strategic alliance agreement with quest diagnostics ( the “ strategic alliance agreement ” ) in august 2013. prior to the termination of the strategic alliance agreement , quest diagnostics had the right to be the exclusive clinical reference laboratory marketplace provider of ova1 tests in its exclusive territory , which included the united states , mexico , the united kingdom and india . as part of the termination , we agreed that quest diagnostics could continue to make ova1 available to healthcare providers under legacy financial terms following the termination while negotiating in good faith towards an alternative business structure . quest diagnostics disputed the effectiveness of such termination . on march 11 , 2015 , we reached a settlement agreement with quest diagnostics that terminated all disputes related to the strategic alliance agreement and our prior loan agreement with quest diagnostics . we also entered into a new commercial agreement with quest diagnostics . pursuant to this agreement , all ova1 u.s. testing services for quest diagnostics customers were transferred to vermillion 's wholly-owned subsidiary , aspira labs , as of august 10 , 2015 , with the exception of a nominal number of ova1 tests distributed through quest diagnostics after that date . we do not expect quest diagnostics to distribute additional tests in the future . quest diagnostics is continuing to provide blood draw and logistics support by transporting specimens from its clients to aspira labs for testing through at least march 11 , 2017 in exchange for a market value fee . per the terms of the new commercial agreement , we will not offer to existing or future quest diagnostics customers ca 125 - ii or other tests that quest diagnostics offers . on march 27 , 2015 , we announced initial results from a cost-effectiveness analysis study which was presented in a poster at the annual meeting of the american college of medical quality in alexandria , virginia . the study was co-authored by dr. robert e. bristow and dr. gareth k. forde , clinicians at the university of california at irvine , and dr. john hornberger , a leading health economist at stanford university school of medicine . the new study , entitled : “ cost effectiveness analysis of a multivariate index assay compared to modified acog criteria and ca-125 in the triage of women with adnexal masses ” , compared the cost-effectiveness of triaging ovarian masses using ova1 versus two important clinical benchmarks : the ca-125 biomarker and the modified acog ( american college of obstetricians and gynecologists ) guideline for ovarian cancer risk assessment ( “ mod-acog ” ) . story_separator_special_tag we account ed for forgiveness of principal debt balances as license revenues over the term of the exclusive sales period that quest diagnostics receive d upon commercialization of an approved diagnostic test as we d id not have a sufficient history of product sales that provided a reasonable basis for estimating future product sales . through december 31 , 2014 , w e recognize d license revenue on a straight-line basis over the original remaining period of quest diagnostics ' sales exclusivity ending in september 2015 . the disputed exclusivity was formally terminated with quest diagnostic s as part of the march 11 , 2015 agreement , and thus the remaining balance of deferred license revenue totaling $ 315,518 was recognized in the first quarter of 2015 . research and development costs research and development costs are expensed as incurred . research and development costs consist primarily of payroll and related costs , materials and supplies used in the development of new products , and fees paid to third parties that conduct certain research and development activities on behalf of the company . in addition , acquisitions of assets to be consumed in research and development , with no alternative future use , are expensed as incurred as research and development costs . software development costs incurred in the research and development of new products are expensed as incurred until technological feasibility is established . patent costs costs incurred in filing , prosecuting and maintaining patents ( principally legal fees ) are expensed as incurred and recorded within selling , general and administrative expenses on the consolidated statements of operations . stock-based compensation we record the fair value of non-cash stock-based compensation costs for stock options and stock purchase rights related to the 2010 plan . we estimate t he fair value of stock options using a black-scholes option valuation model . this model requires the input of subjective assumptions including expected stock price volatility , expected life and estimated forfeitures of each award . we use the straight-line method to amortize t he fair value over the vesting period of the award . these assumptions consist of estimates of future market conditions , which are inherently uncertain , and therefore are subject to management 's judgment . the expected life of options is based on historical data of our actual experience with the options we have granted and represents the period of time that the options granted are expected to be outstanding . this data includes employees ' expected exercise and post-vesting employment termination behaviors . the expected stock price volatility is estimated using a combination of historical and peer group volatility for a blended volatility in deriving the expected volatility assumption . we made an assessment that blended volatility is more representative of future stock price trends than just using historical or peer group volatility , which corresponds to the expected life of the options . the expected dividend yield is based on the estimated annual dividends that we expect to pay over the expected life of the options as a percentage of the market value of our common stock as of the grant date . the risk-free interest rate for the expected life of the options granted is based on the united states treasury yield curve in effect as of the grant date . contingencies we account for contingencies in accordance with asc 450 contingencies ( `` asc 450 '' ) . asc 450 requires that an estimated loss from a loss contingency shall be accrued when information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and when the amount of the loss can be reasonably estimated . accounting for contingencies such as legal and contract dispute matters requires us to use our 33 judgment . we believe that our accruals for these matters are adequate . nevertheless , the actual loss from a loss contingency might differ from our estimates . income taxes we account for income taxes using the liability method . under this method , deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities using the current tax laws and rates . a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized . accounting standard codification topic 740-10-50 ( “ asc topic 740-10-50 ” ) , “ accounting for uncertainty in income taxes ” clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with asc topic 740 , income taxes . asc topic 740-10-50 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination , including resolutions of any related appeals or litigation processes , based on the technical merits . this interpretation also provides guidance on measurement , derecognition , classification , interest and penalties , accounting in interim periods , and disclosure . we recognize interest and penalties related to unrecognized tax benefits within the interest expense line and other expense line , respectively , in the consolidated statement of operations . accrued interest and penalties are included within the related liability lines in the consolidated balance sheet . liquidity on december 23 , 2014 , the company completed a private placement pursuant to which certain investors purchased 6,944,445 shares of vermillion common stock at a price of $ 1.44 per share . vermillion also issued warrants to purchase shares of vermillion common stock at a price of $ 0.125 per warrant share in the private placement . net proceeds of the private placement were approximately $ 10 , 288 ,000 after deducting offering expenses .
| dition and results of operation s you should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes thereto , included on pages f-1 through f- 19 of this annual report on form 10-k , and “ risk factors ” , which are discussed in item 1a . the statements below contain forward-looking statements within the meaning of the private securities litigation reform act . see `` forward-looking statements '' on page 1 of this annual report on form 10-k. overview our vision is to drive the advancement of women 's health by providing innovative methods to detect , monitor and manage the treatment of both benign and malignant gynecologic disease , with our primary focus being disease s of the female pelvic cavity . we have expanded our corporate strategy with the goal of transforming vermillion from a technology license company to a diagnostic service and bio-analytic solutions provider . our plan is to broaden our commercial focus from ovarian cancer to differential diagnosis of women with a range of gynecological disorders . our strategy is be ing deployed in three phases . the three phases are a rebuild phase , which was completed in the third quarter of 2015 , a transformation phase , which is ongoing , and a market expansion and growth phase , which we expect to begin in 2016. during the first phase , we expanded our leadership team by hiring several new senior leaders including a chief executive officer . in addition , we expanded our commercial strategy , reestablished medical and advisory support , rebuilt our patient advocacy strategy and established a billing system and a payer strategy outside of our relationship with quest diagnostics .
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the combined weighted average interest rates paid on outstanding bank borrowings subject to base rate and libo interest were 4.78 % for the year ended december 31 , 2011 as compared to 6.09 % for the year ended december 31 , 2010. the company 's long-term debt associated with an offshore credit facility with its principal lender was closed , and a final payment of $ 3.5 million was made on july 28 , 2010. the company entered into interest rate hedge agreements to help manage interest rate exposure . these contracts include interest rate swaps . interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts . the company entered into interest swap agreements for a period of two years , which commenced in april 2008 , related to $ 60 million of company bank debt resulting in a fixed rate of 2.375 % plus the company 's current applicable margin . the underlying debt contracts above were re-priced quarterly based upon the three-month libo rates , the company 's floor of 2 % and the applicable margin per the onshore credit facility . these interest swap agreements expired in april 2010 , and they have not been replaced . f-12 indebtedness to related partiesnon-current : during the second quarter 2008 , the company 's offshore subsidiary entered into a subordinated credit facility with a private lender that is controlled by a director of pec with an availability of $ 50 million . the private lender had specific collateral pledged under a separate credit agreement . effective june 30 , 2009 , the private lender agreed to release the pledged collateral under this credit facility in favor of an offshore credit facility with the company 's principal lender in exchange for a second lien position on all of the assets of the offshore subsidiary and a pledge from pec to pay the outstanding balance under the facility in full after pec 's bank debt was paid off . pec further agreed it will not secure debt in excess of $ 112 million under such credit facility without prior consent of the private lender . borrowings under this facility bore interest , payable monthly , at a rate of 10 % per annum and the private lender was entitled to additional consideration of company stock based upon a percentage of the outstanding balance if by the last day of each calendar year commencing with december 30 , 2011 , the loan is outstanding . as of december 31 , 2010 , advances from this facility amounted to $ 20.0 million . effective january 3 , 2011 , this loan was modified and provided for a payment from the company 's offshore subsidiary to the private lender of $ 4.0 million . on january 18 , 2011 , the company 's offshore subsidiary made a $ 4.0 million payment on this loan . further , on june 27 , 2011 , this loan along with all accrued interest was paid in full from the company 's offshore subsidiary , and the note was cancelled . 6. commitments operating leases : the company has several non-cancelable operating leases , primarily for rental of office space , that have a term of more than one year . the future minimum lease payments for the operating leases as of december 31 , 2011 are as follows . replace_table_token_23_th rent expense for office space for the years ended december 31 , 2011 and 2010 was $ 800,000 and $ 787,000 , respectively . asset retirement obligation : a reconciliation of the liability for plugging and abandonment costs for the years ended december 31 , 2011 story_separator_special_tag the following discussion is intended to assist you in understanding our results of operations and our present financial condition . our consolidated financial statements and the accompanying notes to the consolidated financial statements included elsewhere in this report contains additional information that should be referred to when reviewing this material . our subsidiaries are listed in note 1 to the consolidated financial statements . overview : we are an independent oil and natural gas company engaged in acquiring , developing and producing oil and natural gas . we presently own producing and non-producing properties located primarily in texas , oklahoma , west virginia , the gulf of mexico , new mexico , colorado and louisiana . in addition , we own a substantial amount of well servicing equipment . all of our oil and gas properties and interests are located in the united states . assets in our principal focus areas include mature properties with long-lived reserves and significant development opportunities as well as newer properties with development and exploration potential . we believe our balanced portfolio of assets and our ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities . our primary sources of liquidity are cash generated from our operations and our credit facility . we attempt to assume the position of operator in all acquisitions of producing properties and will continue to evaluate prospects for leasehold acquisitions and for exploration and development operations in areas in which we own interests . we continue to actively pursue the acquisition of producing properties . in order to diversify and broaden our asset base , we will consider acquiring the assets or stock in other entities and companies in the oil and gas business . our main objective in making any such acquisitions will be to acquire income producing assets so as to build stockholder value through consistent growth in our oil and gas reserve base on a cost-efficient basis . story_separator_special_tag our cash flows depend on many factors , including the price of oil and gas , the success of our acquisition and drilling activities and the operational performance of our producing properties . we use derivative instruments to manage our commodity price risk . this practice may prevent us from receiving the full advantage of any increases in oil and gas prices above the maximum fixed amount specified in the derivative agreements and subjects us to the credit risk of the counterparties to such agreements . since all of our derivative contracts are accounted for under mark-to-market accounting , we expect continued volatility in gains and losses on mark-to-market derivative contracts in our consolidated income statement as changes occur in the nymex price indices . critical accounting estimates : proved oil and gas reserves proved oil and gas reserves directly impact financial accounting estimates , including depreciation , depletion and amortization . proved reserves represent estimated quantities of natural gas , crude oil , condensate , and natural gas liquids that geological and engineering data demonstrate , with reasonable certainty , to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made . the process of estimating quantities of proved oil and gas reserves is very complex , requiring significant subjective decisions in the evaluation of all available geological , engineering and economic data for each reservoir . the data for a given reservoir may also change substantially over time as a result of numerous factors including , but not limited to , additional development activity , evolving production history and continual reassessment of the viability of production under varying economic conditions . consequently , material revisions ( upward or downward ) to existing reserve estimates may occur from time to time . depreciation , depletion and amortization for oil and gas properties the quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future expense . holding all other factors constant , if reserves were revised upward or downward , earnings would increase or decrease respectively . depreciation , depletion and amortization of the cost of proved oil and gas properties are calculated using the unit-of-production method . the reserve base used to calculate depletion , depreciation or amortization is the sum of proved developed reserves and proved undeveloped reserves for leasehold acquisition costs and the cost to acquire proved properties . the reserve base includes only proved developed reserves for lease and well equipment costs , which include development costs and successful exploration drilling costs . estimated future dismantlement , restoration and abandonment costs , net of salvage values , are taken into account . liquidity and capital resources : net cash provided by operating activities for the year ended december 31 , 2011 was $ 41 million , compared to $ 62 million in the prior year . excluding the effects of significant unforeseen expenses or other income , our cash flow from operations fluctuates 22 primarily because of variations in oil and gas production and prices or changes in working capital accounts . our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control . hurricanes in the gulf of mexico may shut down our production for the duration of the storm 's presence in the gulf or damage production facilities so that we can not produce from a particular property for an extended amount of time . in addition , downstream activities on major pipelines in the gulf of mexico can also cause us to shut-in production for various lengths of time . our realized oil and gas prices vary due to world political events , supply and demand of products , product storage levels , and weather patterns . we sell the vast majority of our production at spot market prices . accordingly , product price volatility will affect our cash flow from operations . to mitigate price volatility we sometimes lock in prices for some portion of our production through the use of financial instruments . if our exploratory drilling results in significant new discoveries , we will have to expend additional capital in order to finance the completion , development , and potential additional opportunities generated by our success . we believe that , because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years , we will be able to access sufficient additional capital through additional bank financing . the company has in place both a stock repurchase program and a limited partnership interest repurchase program . spending under these programs in 2011 was $ 2.4 million . the company expects continued spending under these programs in 2012. as of march 1 , 2012 , the company maintains a credit facility totaling $ 250 million , with a borrowing base of $ 125 million . the bank reviews the borrowing base semi-annually and , at their discretion , may decrease or propose an increase to the borrowing base relative to a redetermined estimate of proved oil and gas reserves . our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement . we are currently in compliance with these covenants . if we do not comply with these covenants on a continuing basis , the lenders have the right to refuse to advance additional funds under the facility and or declare all principal and interest immediately due and payable . it is our goal to increase our oil and gas reserves and production through the acquisition and development of oil and gas properties . we also continue to explore and consider opportunities to further expand our oilfield servicing revenues through additional investment in field service equipment
| results of operations : 2011 and 2010 compared we reported net income for 2011 of $ 4.81 million , or $ 1.75 per share . during 2010 , we reported net income of $ 2.75 million , or $ 0.94 per share . net income increased in 2011 by $ 2.06 million or 75 % , primarily due to increased operating revenues and a decrease in interest expense partially offset by increased lease operating and depreciation and depletion expenses and income tax expenses . operating revenues increased by $ 8.91 million in 2011 as compared to 2010 largely due to an increase in our price per barrel realized on crude oil sales and realized gains on derivative instruments . the significant components of net income are discussed below . oil and gas sales increased $ 6.74 million , or 8 % from $ 81.69 million for the year ended december 31 , 2010 to $ 88.43 million for the year ended december 31 , 2011. crude oil and natural gas sales vary due to changes in volumes of production sold and realized commodity prices . our realized prices at the well head increased an average of $ 14.22 per barrel , or 19 % on crude oil and $ 0.63 per mcf , or 11 % on natural gas during 2011 as compared to 2010. our crude oil production remained relativity flat increasing slightly by 1,000 barrels from 627,000 barrels for the year ended december 31 , 2010 to 628,000 barrels for the year ended december 31 , 2011. our natural gas production decreased by 939 mmcf , or 16 % from 5,939 mmcf for the year ended december 31 , 2010 to 5,000 mmcf for the year ended december 31 , 2011. the net increase in crude oil production volumes are a result of recent drilling success in west texas and the gulf coast regions as we place new wells into production
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diluted eps is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding . business overview we are a leading global provider of information solutions , employment and income verifications and human resources business process outsourcing services . we leverage some of the largest sources of consumer and commercial data , along with advanced analytics and proprietary technology , to create customized insights which enable our business customers to grow faster , more efficiently and more profitably , and to inform and empower consumers . businesses rely on us for consumer and business credit intelligence , credit portfolio management , fraud detection , decisioning technology , marketing tools , and human resources-related services . we also offer a portfolio of products that enable individual consumers to manage their financial affairs and protect their identity . we also provide information , technology and services to support the debt collections and recovery management . our revenue stream is diversified among businesses across a wide range of industries , international geographies and individual consumers . proposed acquisition of veda group limited on november 21 , 2015 , we entered into a scheme implementation deed ( the `` agreement '' ) to acquire veda group limited ( `` veda '' ) for cash consideration of approximately $ 1.7 billion ( 2.4 billion australian dollars ) and debt assumed of approximately $ 188.4 million ( 261.5 million australian dollars ) . we expect the transaction to close in the first quarter of 2016 and to finance the cash portion of the purchase price through a combination of cash on hand and new debt , including term loans , the 364-day revolver and commercial paper . the terms of the new debt instruments are included in note 6 to the consolidated financial statements . the agreement contains customary representations and warranties of the company and veda , as well as customary covenants and agreements , including , among others , covenants providing for veda and each of its subsidiaries to conduct its business from the date of the agreement to the closing of the transaction in the ordinary course . the implementation of this binding agreement is subject to customary closing conditions , as well as shareholder and regulatory approvals in australia and new zealand , which have been completed . refer to item 1a `` risk factors '' and note 16 to the consolidated financial statements for additional information on the proposed acquisition of veda . segment and geographic information segments . the usis segment , the largest of our four segments , consists of three product and service lines : online information solutions ; mortgage solutions ; and financial marketing services . online information solutions and mortgage solutions revenue is principally transaction-based and is derived from our sales of products such as consumer and commercial credit reporting and scoring , identity management , fraud detection and modeling services . usis also markets certain decisioning software services , which facilitate and automate a variety of consumer and commercial credit-oriented decisions . financial marketing services revenue is principally project and subscription based and is derived from our sales of batch credit and consumer wealth information such as those that assist clients in acquiring new customers , cross selling to existing customers and managing portfolio risk . the international segment consists of canada , europe and latin america . canada 's products and services are similar to our usis offerings , while europe and latin america are made up of varying mixes of product lines that are in our usis reportable segment . in europe and latin america , we also provide information and technology services to support lenders and other creditors in the collections and recovery management process . in 2015 , the personal solutions business in the united kingdom was consolidated into the north america personal solutions segment , which was reorganized into the personal solutions segment . additionally in 2015 , the direct to consumer reseller businesses in the u.s. , canada , and the united kingdom were also consolidated into the personal solutions segment . these changes were driven by an enterprise wide strategy to maximize the penetration of our products and services in our 29 targeted markets . we determined that market focus and operating efficiency could be further improved by reorganizing and consolidating the united states , canada and the united kingdom personal solutions and direct to consumer reseller operating activities into one segment , personal solutions . the workforce solutions segment consists of the verification services and employer services business lines . verification services revenue is transaction-based and is derived primarily from employment and income verification . employer services revenues are derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings . these services include unemployment claims management , employment-based tax credit services and other complementary employment-based transaction services , as well as our workforce analytics business including compliance with affordable care act . personal solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products , which we deliver electronically to consumers primarily via the internet in the u.s. , canada , and the u.k. we reach consumers directly and indirectly through partners . geographic information . we currently operate in the following countries : argentina , brazil , canada , chile , costa rica , ecuador , el salvador , honduras , mexico , paraguay , peru , portugal , the republic of ireland , spain , the u.k. , uruguay , and the u.s. our operations in the republic of ireland focus on data handling , software development and customer support activities . we have an investment in the second largest consumer and commercial credit information company in brazil and offer consumer credit services in india and russia through joint ventures . story_separator_special_tag the tdx acquisition amortization is partially offset by certain purchased intangible assets related to the talx acquisition in 2007 that became fully amortized during the second quarter of 2013. operating income and operating margin replace_table_token_8_th total company margin decreased slightly in 2015 due to the costs for the realignment of internal resources of $ 20.7 million and other increases in people costs . the decrease was mostly offset by the margin improvements of 290 basis points and 510 basis points in our usis and workforce solutions segments , respectively . total company margin decreased slightly in 2014 due to a third quarter 2014 settlement of a legal dispute over certain software license agreements and increased cost of services and acquisition-related amortization expense related to the acquisition of tdx . the decrease was partially offset by a reduction in amortization of certain purchased intangible assets related to our talx corporation acquisition in 2007 that became fully amortized during the second quarter of 2013 . 32 interest expense and other income ( expense ) , net replace_table_token_9_th interest expense decreased in 2015 , when compared to 2014 , due to an overall decrease in our consolidated debt outstanding as of december 31 , 2015. our average cost of debt increased slightly in 2015 compared to the prior year , due to the higher ratio of higher interest debt and the low balance of low rate commercial paper outstanding . interest expense decreased slightly in 2014 , when compared to 2013 , due to the pay-off of our 7.34 % notes and 4.45 % senior notes during 2014. our consolidated debt balance increased , as compared to the prior year , as a result of commercial paper issued to fund the majority of the acquisition price of tdx . the decrease in the average cost of debt for 2014 is due to the pay-off of our 7.34 % notes and 4.45 % senior notes and additional low rate commercial paper outstanding on average , which caused the average cost of debt to decrease as compared to the prior year . the increase in other income ( expense ) , net , in 2015 is due to the settlement of escrow amounts related to an acquisition from january 2014 , and the gain on foreign currency options put in place as an economic hedge of veda 's purchase price , partially offset by impairment of our cost method investment in brazil in the second quarter of 2015. the increase in other income ( expense ) , net , in 2014 is due to the impairment of our cost method investment in brazil recorded in 2013 , which did not recur in 2014. other income ( expense ) , net in 2014 also includes $ 7.0 million in foreign exchange losses related to dividends declared by our subsidiary in argentina and losses incurred in repatriating these funds . these losses were partially offset by an increase in our equity in the earnings of our russian joint venture . income taxes replace_table_token_10_th overall , our effective tax rate was 31.7 % for 2015 , down from 34.9 % for the same period in 2014. the 2015 rate benefited by 2 % due to international related items specifically the increased recognition of foreign tax credits and the permanent item associated with the settlement of escrows related to past acquisitions , and 1.4 % due to the state law changes . overall , our effective tax rate was 34.9 % for 2014 , down from 35.6 % for the same period in 2013. the 2014 rate benefited by 1.1 % as compared to the 2013 rate due to the favorable impact of 2014 international , permanent and discrete items . the 2014 effective rate increased by 0.4 % as compared to 2013 due to increases in state income tax rates , which became effective or enacted in 2014 . 33 net income replace_table_token_11_th consolidated net income from continuing operations increased by $ 60.8 million , or 16 % , in 2015 compared to 2014 due to increased operating income in our usis and workforce solutions businesses . this increase was partially offset by declines due to foreign exchange rates that impacted the international operating segment , declines in the personal solutions operating segment , as well as increased corporate expenses due significantly to the realignment of our internal resources , and increases in people costs . consolidated net income from continuing operations increased by $ 32.5 million , or 10 % , in 2014 compared to 2013 due to increased operating income in our usis , workforce solutions and personal solutions operating segments , and a lower effective income tax rate , partially offset by declines in the international operating segment . the increase in net income attributable to equifax for 2014 , as compared to the prior year , was partially offset by the absence of earnings from the discontinued operations , including a gain on the disposition of those operations , which benefited the prior year period . 34 story_separator_special_tag prior year , due to strong growth in non-mortgage verticals , which was partially offset by the expected decline in mortgage-related verification revenue in 2014 driven by the anticipated decline in mortgage market activity in 2014. the revenue growth in non-mortgage verticals was primarily a result of increased revenue mostly related to government , pre-employment and auto segments . employer services . revenue grew 8 % in 2015 , as compared to 2014. revenue growth was due to continued higher employment based tax credit activity due to the delayed approval of the federal work opportunity tax credit program for 2014 , as well as growth in our employer-based compliance solutions and workforce analytics business . revenue grew 1 % in 2014 , as compared to 2013. revenue growth was due to growth in our transaction-based services business and workforce analytics business . the growth in 2014 was partially offset by lower unemployment claims activity and a decline in revenue related to the non-renewal of the federal work opportunity tax credit program in 2014. workforce solutions operating margin .
| segment financial results u.s. information solutions replace_table_token_12_th u.s. information solutions revenue increased 8 % in 2015 as compared to the prior year . usis realized solid growth from our mortgage business , as well as continued revenue growth in the automotive and financial services verticals . u.s. information solutions revenue increased 2 % in 2014 as compared to the prior year . solid growth from strategic product and market penetration as well as pricing initiatives were partially offset by the expected decline in mortgage market activity compared to the first half of 2013 when mortgage refinancing activity was still high . online information solutions . revenue for 2015 increased 8 % when compared to the prior year , due to higher average revenue per unit and increased volumes to mortgage resellers , auto , and other resellers . revenue also benefited from growth in identity and fraud solutions . revenue for 2014 increased 5 % when compared to the prior year , due to increased volumes in the financial services and auto verticals . these increases were partially offset by lower average unit revenue due to a less favorable mix of business , primarily mortgage resellers . the period also benefited from growth in our identity and fraud solutions business . mortgage solutions . revenue increased 17 % in 2015 when compared to prior year , driven by a strong market for refinancing and purchase activity , as well as growth from other mortgage product offerings . revenue decreased 8 % in 2014 when compared to prior year due primarily to the expected lower mortgage refinancing activity . financial marketing services . revenue increased 5 % in 2015 as compared to 2014. the increases were driven by growth in our credit marketing services due to increased demand from financial services customers .
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( 9,655 ) common stockholder 's equity 1,131,876 1,086,515 total capitalization 2,130,882 2,084,447 commitments and contingencies ( note 12 ) total liabilities and capitalization $ story_separator_special_tag the law also required pura to implement decoupling for each of connecticut 's electric and natural gas utilities in their next respective rate cases . finally , the law allows electric distribution companies to recover their costs as well as lost revenues from various state energy policy initiatives , including expanded energy efficiency programs . the second law , public act 13-303 , `` an act concerning connecticut 's clean energy goals , '' allows deep to conduct a process to procure from renewable energy generators , under long-term contracts with the electric distribution companies , additional renewable generation to help connecticut meet its renewable portfolio standard ( rps ) . large scale hydropower facilities located in the new england power pool generation information system ( nepool gis ) geographic eligibility area or an area abutting the northern boundary of the nepool gis geographic eligibility area are eligible to bid into deep 's process . if connecticut experiences a material shortfall in reaching its rps goals , such hydropower , under certain conditions , can be used to alleviate such shortfall , up to five percent of rps requirements in 2020. the law also requires deep to develop a schedule to assign a gradually reducing renewable energy credit value for all class i biomass or landfill generation facilities . such reduced credit values will not apply to biogas or anaerobic digestion facilities , or to facilities that have a long-term contract in place . the commissioner of deep may adjust such changes to the values of renewable energy credits , if such adjustment is appropriate given the availability of other class i renewable energy sources . on september 26 , 2013 , deep issued a final determination that authorized the state 's electric distribution companies to enter into long-term power purchase agreements for a total of 270 mw of class i renewable generation from two projects . on october 23 , 2013 , pura issued a final decision accepting the contracts presented by the electric distribution companies . on october 21 , 2013 , deep 46 issued a request for proposal seeking proposals for energy and recs from private developers for up to 4 percent of the state 's electric distribution companies ' load ( estimated to be between 100 mw to 150 mw ) of class i renewable energy resources for biomass , landfill gas and run off river hydropower projects from new or existing facilities . massachusetts : on july 24 , 2013 , massachusetts enacted a law that changed the income tax rate applicable to utility companies effective january 1 , 2014 , from 6.5 percent to 8 percent . the tax law change required nu to remeasure its accumulated deferred income taxes and resulted in nu increasing its deferred tax liability with an offsetting regulatory asset of approximately $ 61 million at its utility companies . critical accounting policies the preparation of financial statements in conformity with gaap requires management to make estimates , assumptions and , at times , difficult , subjective or complex judgments . changes in these estimates , assumptions and judgments , in and of themselves , could materially impact our financial position , results of operations or cash flows . our management communicates to and discusses with the audit committee of our board of trustees significant matters relating to critical accounting policies . our critical accounting policies are discussed below . see the combined notes to our financial statements for further information concerning the accounting policies , estimates and assumptions used in the preparation of our financial statements . regulatory accounting : the accounting policies of the regulated companies conform to gaap applicable to rate-regulated enterprises and reflect the effects of the rate-making process . the application of accounting guidance for rate-regulated enterprises results in recording regulatory assets and liabilities . regulatory assets represent the deferral of incurred costs that are probable of future recovery in customer rates regulatory assets are amortized as the incurred costs are recovered through customer rates . in some cases , we record regulatory assets before approval for recovery has been received from the applicable regulatory commission . we must use judgment to conclude that costs deferred as regulatory assets are probable of future recovery . we base our conclusion on certain factors , including , but not limited to , regulatory precedent . regulatory liabilities represent revenues received from customers to fund expected costs that have not yet been incurred or probable future refunds to customers . we use our best judgment when recording regulatory assets and liabilities ; however , regulatory commissions can reach different conclusions about the recovery of costs , and those conclusions could have a material impact on our financial statements . we believe it is probable that the regulated companies will recover the regulatory assets that have been recorded . if we determined that we could no longer apply the accounting guidance applicable to rate-regulated enterprises to our operations , or that we could not conclude that it is probable that costs would be recovered from customers in future rates , the costs would be charged to earnings in the period in which the determination is made . for further information , see note 3 , `` regulatory accounting , '' to the financial statements . unbilled revenues : the determination of retail energy sales to residential , commercial and industrial customers is based on the reading of meters , which occurs regularly throughout the month . billed revenues are based on these meter readings and the majority of recorded annual revenues is based on actual billings . because customers are billed throughout the month based on pre-determined cycles rather than on a calendar month basis , an estimate of electricity or natural gas delivered to customers for which the customers have not yet been billed is calculated as of the balance sheet date . story_separator_special_tag as of december 31 , 2013 , investment gains and losses that remain to be reflected in the calculation of plan assets over the next four years were losses of $ 41.8 million and gains of $ 27.6 million for the nusco pension plan and pbop plans , respectively . as investment gains and losses are reflected in the average plan asset fair values , they are subject to amortization with other unrecognized actuarial gains or losses . the plans currently amortize unrecognized actuarial gains or losses as a component of pension and pbop expense over the average future employee service period . as of december 31 , 2013 , the net unrecognized actuarial losses on the nusco pension and pbop plan liabilities were $ 628.8 million and $ 111 million , respectively . for the nstar pension and pbop plans , the entire difference between the actual and expected return on plan assets as of december 31 , 2013 is immediately reflected as a component of unrecognized actuarial gains or losses to be amortized over the estimated average future service period of the employees . as of december 31 , 2013 , the net unrecognized actuarial losses on the nstar pension and pbop plan liabilities were approximately $ 498 million and $ 12.1 million , respectively . forecasted expenses and expected contributions : based upon the assumptions and methodologies discussed above , we estimate that the combined expense for the pension and pbop plans will be $ 132 million and $ 9.1 million , respectively , in 2014. pension and pbop expense for subsequent years will depend on future investment performance , changes in future discount rates and other assumptions , and various other factors related to the populations participating in the plans . pension and pbop expense charged to earnings is net of the amounts capitalized . we expect to continue our policy to contribute to the nusco pbop plans at the amount of pbop expense excluding any curtailments and the nstar pbop plan at an amount that approximates benefit payments . we contributed $ 57.6 million to the pbop plans in 2013 and expect to contribute $ 39.7 million in 2014. nu 's policy is to fund the pension plans annually in an amount at least equal to an amount that will satisfy the federal requirements . nu made contributions to the nusco pension plan totaling $ 202.7 million in 2013 , of which $ 108.3 million was contributed by psnh . nstar electric contributed $ 82 million to the nstar pension plan in 2013. our pension plan funded ratio ( the value of plan assets divided by the funding target in accordance with the requirements and guidelines of the ppa ) was 94.6 percent and 96 percent as of january 1 , 2013 for the nusco pension plan and nstar pension plan , respectively . we currently estimate that aggregate contributions of $ 71.6 million to the pension plans will be made in 2014. fluctuations in the average discount rate used to calculate expected contributions to the pension plans can have a significant impact on the amounts . 48 sensitivity analysis : the following represents the hypothetical increase to the pension plans ' ( excluding serp ) and pbop plans ' reported annual cost as a result of a change in the following assumptions by 50 basis points : replace_table_token_30_th changes in pension and pbop costs would not impact net income for the nstar plans as their expenses are fully recovered in rates , which reconcile each year relative to the change in costs . health care cost : the health care cost trend rate assumption used to calculate the 2013 pbop expense amounts was 7 percent for the nusco pbop plan , subsequently decreasing by 50 basis points per year to an ultimate rate of 5 percent in 2017 , and 7.10 percent for the nstar pbop plan , subsequently decreasing to an ultimate rate of 4.5 percent in 2024. as of december 31 , 2013 , the health care cost trend rate assumption used to determine the nusco and nstar pbop plans ' year end funded status is 7 percent , subsequently decreasing to an ultimate rate of 4.5 percent in 2024. the effect of a hypothetical increase in the health care cost trend rate by one percentage point would be an increase to the service and interest cost components of pbop plan expense by $ 7.1million in 2013 , with a $ 85.8 million impact on the postretirement benefit obligation . see note 10a , `` employee benefits - pension benefits and postretirement benefits other than pensions , '' to the financial statements for more information . goodwill : we have recorded approximately $ 3.5 billion of goodwill associated with the previous mergers and acquisitions . nu has identified its reporting units for purposes of allocating and testing goodwill as electric distribution , electric transmission and natural gas distribution . these reporting units are consistent with our operating segments underlying our reportable segments . electric distribution and electric transmission reporting units include carrying values for the respective components of cl & p , nstar electric , psnh and wmeco . the natural gas reporting unit includes the carrying values of nstar gas and yankee gas . as of december 31 , 2013 , goodwill was allocated to the reporting units as follows : $ 2.5 billion to electric distribution , $ 0.6 billion to electric transmission , and $ 0.4 billion to natural gas distribution . we are required to test goodwill balances for impairment at least annually by considering the fair value of the reporting units , which requires us to use estimates and judgments . we have selected october 1 st of each year as the annual goodwill impairment testing date .
| earnings summary replace_table_token_48_th ( 1 ) the 2012 after-tax merger-related costs consisted of a $ 15 million pre-tax charge for customer bill credits related to the massachusetts merger settlement agreement and a $ 2.8 million pre-tax charge related to compensation costs . excluding the impact of merger-related costs , nstar electric 's earnings increased $ 67.4 million in 2013 , as compared to 2012 , due primarily to lower overall operations and maintenance costs and higher retail electric sales due primarily to colder weather in the first and fourth quarters in 2013. partially offsetting these factors was higher depreciation and property tax expense . capital expenditures a summary of capital expenditures , including amounts incurred but not paid , cost of removal , afudc , and the capitalized portions of pension expense , is as follows : replace_table_token_49_th liquidity nstar electric had cash flows provided by operating activities of $ 466.9 million in 2013 , compared with $ 506.9 million in 2012 ( amounts are net of rrb payments , which are included in financing activities ) . the decrease in operating cash flows was due primarily to a $ 57 million increase in pension plan contributions in 2013 , as compared to 2012 , and a $ 75.3 million increase in net tax payments . partially offsetting the negative cash flow impacts was the absence in 2013 of $ 15 million in bill credits provided to customers in the second quarter of 2012 in connection with the massachusetts merger settlement agreement . in addition , operating cash flows benefitted from an increase in amortization on regulatory deferrals primarily attributable to tracking mechanisms where such revenues exceeded costs resulting in a favorable cash flow impact .
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risk-free interest rate the rate is based on the u.s. treasury yield curve in effect at the time of the grant for the same period of time as the expected life . expected dividend yield the calculation story_separator_special_tag overview h.b . fuller company is a global formulator , manufacturer and marketer of adhesives and other specialty chemical products . we are managed through six operating segments north america adhesives , construction products , eimea ( europe , india , middle east and africa ) , latin america adhesives , latin america paints and asia pacific . north america adhesives , eimea , latin america adhesives and asia pacific operating segments manufacture and supply adhesives products in the assembly , packaging , converting , nonwoven and hygiene , performance wood , flooring , textile , flexible packaging , graphic arts and envelope markets . construction products operating segment provides products , such as ceramic tile installation products and hvac sealants . latin america paints operating segment manufactures and sells liquid paints primarily in central american countries . total company : when reviewing our financial statements , it is important to understand how certain external factors impact us . these factors include : changes in the prices of commodities , such as crude oil and natural gas global supply and demand of raw materials economic growth rates , and currency exchange rates compared to the u.s. dollar we purchase thousands of raw materials , the majority of which are petroleum/natural gas derivatives . with over 75 percent of our cost of sales accounted for by raw materials , our financial results are extremely sensitive to changing costs in this area . in addition to the impact from commodity prices , the supply and demand of raw materials also have a significant impact on our costs . as demand increases in high-growth areas , such as the asia pacific region , the supply of key raw materials may tighten , resulting in certain materials being put on allocation . natural disasters , such as hurricanes , also can have an impact as key raw material producers are shut down for extended periods of time . we continually monitor capacity utilization figures , market supply and demand conditions , feedstock costs and inventory levels , as well as derivative and intermediate prices , which affect our raw materials . in 2011 , we generated 39 percent of our net revenue in the u.s. and 30 percent in eimea . the pace of economic growth in these areas directly impacts certain industries to which we supply products . for example , adhesives-related revenues from durable goods customers in areas such as appliances , furniture and other woodworking applications tend to fluctuate with the overall economic activity . in business components such as construction products and insulating glass , revenues tend to move with more specific economic indicators such as housing starts and other construction-related activity . the movement of foreign currency exchange rates as compared to the u.s. dollar impacts the translation of the foreign entities ' financial statements into u.s. dollars . as foreign currencies strengthen against the dollar , our revenues and costs increase as the foreign currency-denominated financial statements translate into more dollars . the fluctuations of the euro against the u.s. dollar have the largest impact on our financial results as compared to all other currencies . in 2011 , the currency fluctuations had a positive impact on net revenue of $ 36.9 million as compared to 2010. key financial results and transactions for 2011 included the following : net revenue increased 14.9 percent from 2010 primarily driven by 11.4 percent organic sales growth . every five or six years we have a 53 rd week in our fiscal year . 2011 was a 53-week year which contributed approximately 2 percent to our net revenue . gross profit margin decreased to 28.7 percent from 29.3 percent in 2010 and 30.1 percent in 2009 mostly due to the increase in raw material costs . cash flow generated from operating activities was $ 102.5 million in 2011 as compared to $ 74.1 million in 2010 and $ 71.4 million in 2009. we repurchased the 20 percent non-controlling interest that sekisui chemical held in our china entities for $ 8.6 million . we acquired the principal assets and certain liabilities of liquamelt corp. on april 15 , 2011 for $ 6.0 million . 17 the global economic conditions showed little or no improvement in 2011. our total year organic sales growth increased 11.4 percent for 2011 compared to 2010. both our product pricing and sales volume increased in 2011 as compared to 2010 , however the increase in raw material costs contributed to a decrease in gross profit margin compared to 2010. in 2011 our diluted earnings per share increased to $ 1.79 per share from $ 1.43 per share in 2010 and $ 1.70 per share in 2009. the most significant factors affecting 2011 results were the 14.9 percent increase in net revenue and the continuing increase in raw material costs . we incurred special charges in 2011 of $ 7.5 million for costs related to the pending acquisition of the global industrial adhesives business of forbo group , the eimea operating segment transformation project and a foreign exchange option to hedge a portion of the acquisition price . on an after-tax basis , the special charges resulted in a $ 5.8 million negative impact on net income and a negative $ 0.11 effect on diluted earnings per share . in 2010 we had exit costs and impairment charges to exit our polysulfide-based insulating glass product line , which resulted in a pre-tax loss of $ 11.4 million . on an after-tax basis , this was a negative $ 8.4 million impact on net income and a $ 0.17 negative effect on diluted earnings per share . story_separator_special_tag the changes included : benefits under the plan were locked-in using service and salary as of may 31 , 2011 , participants no longer earn benefits for future service and salary as they had in the past , affected participants receive a three percent increase to the locked-in benefit for every year they continue to work for us and we are making a retirement contribution of three percent of eligible compensation to the 401 ( k ) plan for those participants . these changes to the plan represented a plan curtailment as there is no longer a service cost component in the net periodic pension cost as all participants are considered inactive in the plan . in 2009 we elected to contribute $ 75 million to the u.s. pension plan for the purpose of restoring the asset values up to the level of the projected benefit obligations and to reduce 2010 net periodic benefit cost . our investment strategy for the non-u.s. pension plans was also amended in 2009 to be more balanced between equities and fixed income securities . for reasons similar to the u.s. plan , we also contributed $ 50 million to the german plan in 2009. the expected return on assets used in calculating the net periodic benefit cost for the u.s. pension plan was 8.00 percent for 2011 , 7.90 percent for 2010 and 8.75 percent for 2009. for 2012 , the rate will remain 8.00 percent . a change of 0.5 percentage points for the expected return on assets assumption would impact u.s. net pension and other postretirement plan expense by approximately $ 1.7 million ( pre-tax ) . expected return on asset assumptions for non-u.s. plans is determined in a manner consistent with the u.s. plan . the projected salary increase assumption is based on historic trends and comparisons to the external market . higher rates of increase result in higher pension expenses . as this rate is also a long-term expected rate , it is less likely to change on an annual basis . in the u.s. , we have used the rate of 4.17 percent for 2011 , 4.19 percent for 2010 and 4.18 percent for 2009. goodwill : goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination . goodwill is assigned to reporting units at the date the goodwill is initially recorded . once goodwill has been assigned to a reporting unit , it no longer retains its association with a particular acquisition , and all the activities within a reporting unit are available to support the value of goodwill . accounting standards require us to test goodwill for impairment annually or more often if circumstances or events indicate a change in the estimated fair value . the goodwill impairment analysis is a two-step process . the first step used to identify potential impairment involves comparing each reporting unit 's estimated fair value to its carrying value , including goodwill . we use a discounted cash flow approach to estimate the fair value of our reporting units . our judgment is required in developing the assumptions for the discounted cash flow model . these assumptions include revenue growth rates , profit margin percentages , discount rates , perpetuity growth rates , future capital expenditures and working capital requirements . if the estimated fair value of a reporting unit exceeds its carrying value , goodwill is considered to not be impaired . if the carrying value exceeds estimated fair value , there is an indication of potential impairment and the second step is performed to measure the amount of impairment . 19 the second step of the process involves the calculation of an implied fair value of goodwill for each reporting unit for which step one indicated impairment . the implied fair value of goodwill is determined similar to how goodwill is calculated in a business combination , by measuring the excess of the estimated fair value of the reporting unit as calculated in step one , over the estimated fair values of the individual assets , liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination . if the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit , there is no impairment . if the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill , an impairment charge is recorded for the excess . an impairment loss can not exceed the carrying value of goodwill assigned to a reporting unit , and the loss establishes a new basis in the goodwill . subsequent reversal of goodwill impairment losses is not permitted . the change in our operating segments in 2011 did not cause a reassessment of our goodwill impairment analysis as our reporting units remained the same . in the fourth quarter of 2011 , we conducted the required annual test of goodwill for impairment . there were no indications of impairment . of the goodwill balance of $ 114.9 million as of december 3 , 2011 , $ 47.9 million resides in the eimea operating segment and $ 27.5 million resides in the north america adhesives operating segment . in both of these operating segments , the calculated fair value exceeded the carrying value of the net assets by a significant margin . as of december 3 , 2011 the goodwill balance in the asia pacific operating segment is $ 20.7 million , construction products operating segment is $ 13.3 million and latin america adhesives operating segment is $ 5.5 million . in all three of these operating segments the calculated fair value exceeded their carrying value by a reasonable margin . if the economy or business environment falter , our projections used would need to be remeasured , which could impact the carrying value of our goodwill in one or more of our operating segments . see note 6 to the consolidated financial statements .
| summary of cash flows cash flows from operating activities : replace_table_token_39_th net income including non-controlling interest was $ 89.0 million in 2011 , $ 70.4 million in 2010 and $ 83.7 million in 2009. changes in net working capital ( trade receivables , inventory and accounts payable ) accounted for a use of cash of $ 21.5 million in 2011 , a use of cash of $ 31.4 million in 2010 and a source of cash of $ 19.5 million in 2009. following is an assessment of each of the net working capital components : trade receivables , net - changes in trade receivables resulted in a $ 21.9 million use of cash in 2011 as compared to a $ 17.5 million use of cash in 2010 and a $ 15.7 million source of cash in 2009. the higher sales activity was the primary reason for the increase in trade receivables in 2011. the dso was 54 days at december 3 , 2011 , 55 days at november 27 , 2010 and 53 days at november 28 , 2009. inventory changes in inventory resulted in a $ 13.0 million use of cash in 2011 as compared to a use of cash of $ 5.2 million in 2010 and a source of cash of $ 35.7 million in 2009. inventory days on hand were 45 days at the end of 2011 as compared to 44 days and 46 days at the end of 2010 and 2009 , respectively . through the first three quarters of 2011 inventory increases had resulted in a use of cash of $ 46.5 million driven by higher raw material costs and purchasing certain raw materials based on availability rather than on forecasted usage . in the fourth quarter inventories were managed down , providing a strong boost to the fourth quarter cash flow .
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2018-10 , “ codification improvements to topic 842 , leases ” ( “ asu 2018-10 ” ) , which provides narrow amendments to clarify how to apply certain aspects of the new lease standard , and asu no . 2018-11 , “ leases ( topic 842 ) —targeted improvements ” ( asu 2018-11 ) , which addresses implementation issues related to the new lease standard . the guidance became effective for annual reporting periods beginning after december 15 , 2018 and interim periods within those fiscal years . the company adopted the standard on the effective date of december 30 , 2018 by applying the new lease requirements at the effective date . the company also elected the package of practical expedients permitted under the transition guidance within the new standard , which , among other things , allows the company to carry forward the historical lease classification . the impact of the adoption of asc 842-leases ( “ asc 842 ” ) on the consolidated balance sheet on the date of adoption was an increase of $ 6,411 in assets and an increase of $ 7,037 of liabilities for the recognition of right-of-use assets and lease liabilities . the adoption of asc 842 was immaterial to the consolidated results of operations and cash flows . f- 12 in june 2016 , the fasb story_separator_special_tag the following discussion is intended to assist in the assessment of significant changes and trends related to our results of operations and financial condition . the information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this report . readers should also review and consider our disclosures under the heading “ special note regarding forward-looking statements ” describing various factors that could affect our business and the disclosures under the heading “ risk factors ” in this report . note that all dollar amounts in this item 7 are in thousands of u.s. dollars , except share and per share data . overview we are an infant and juvenile products company doing business under the name sumr brands . we are a recognized authority in the juvenile product industry , providing parents and caregivers a full range of innovative , high-quality , and high-value products to care for babies and toddlers . we seek to improve the quality of life of parents , caregivers , and babies through our product offerings , while at the same time maximizing shareholder value over the long term . we operate in one principal industry segment across geographically diverse marketplaces , selling our products globally to large , national retailers as well as independent retailers , on our partner 's websites , and our own direct to consumer website . in north america , our customers include amazon.com , wal-mart , target , buy buy baby , home depot , and lowe 's . our largest european-based customers are smyths toys and amazon . we also sell through international distributors , representatives , and to select international retail customers in geographic locations where we do not have a direct sales presence . in march 2020 , we successfully completed a 1-for-9 reverse stock split of our company 's issued and outstanding shares of common stock in order to regain compliance with nasdaq 's minimum bid price requirement . accordingly , information in the financial statements and accompanying notes included in this annual report on form 10-k related to fiscal 2019 give effect to the reverse stock split as if it occurred at the first period presented . 15 net sales in the fourth quarter of 2020 decreased 15.6 % from the previous year quarter , and net sales for the full year decreased 10.3 % from the prior year . net sales for the fourth quarter and the full year in 2020 declined primarily as a result of the following : ( a ) a sales decline at mid-tier customers resulting from brick and mortar store closures and significant close-out sales that occurred in the fourth quarter of 2019 that were not repeated in the fourth quarter of 2020 , ( b ) a reduction in international business resulting from covid-19 retail store closures and as a consequence of the restructuring of the international business whereby certain customers that were serviced out of our warehouse were no longer able to be distributed to in the transition to a third party service provider , and ( c ) the transition of more of our business to direct import whereby certain logistical costs were eliminated but there was also a consequent reduction in sales . in the fourth quarter , net loss increased to $ 3,389 in 2020 from a net loss of $ 882 in 2019 primarily as a result of a $ 1,800 loss on the early extinguishment of debt and a $ 676 write-off of intangible assets related to the company 's decision to dissolve its born free holdings entity . for the full year 2020 , net loss was $ 1,102 compared to a net loss of $ 4,164 in 2019. general and administrative expenses declined by $ 5,463 as a result of restructuring initiatives implemented in 2020 which streamlined our operations and improved our financial performance . additionally , although there was a $ 1,800 loss from the extinguishment of debt and a $ 676 write-off of intangible assets , we ended fiscal 2020 with net loss of $ 0.52 per share as compared to a net loss of $ 1.98 per share in fiscal 2019. in the fourth quarter , we announced the completion of a debt refinancing with bank of america , which we expect to reduce prospective interest expense and allows us to continue to focus on achieving sustainable growth for the company . story_separator_special_tag purchase or sales orders , master service agreements , and reseller allowance agreements which are specific and unique to each customer , may include product price discounts , markdown allowances , return allowances , and or volume rebates which reduce the consideration due from customers . variable consideration is estimated using the most likely amount method , which is based on our historical experience as well as current information such as sales forecasts . contracts may also include cooperative advertising arrangements where the company allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the company 's products . these allowances are generally based upon product purchases or specific advertising campaigns . such allowances are accrued when the related revenue is recognized . these cooperative advertising arrangements provide a distinct benefit and fair value and are accounted for as direct selling expenses . trade receivables trade receivables are carried at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts . the allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed uncollectible . the allowance for doubtful accounts reduces gross trade receivables to their estimated net realizable value . the company estimates doubtful accounts based on historical bad debts , factors related to specific customers ' ability to pay and current economic trends . the company writes off accounts receivable against the allowance when a balance is determined to be uncollectible . amounts are considered to be uncollectable based upon historical experience and management 's evaluation of outstanding accounts receivable . inventory valuation inventory is comprised of finished goods and is stated at the lower of cost , inclusive of freight and duty , or market ( net realizable value ) using the first-in , first-out ( fifo ) method or net realizable value . our warehousing costs are charged to expense as incurred . we regularly review slow-moving and excess inventory and write-down inventories as appropriate . management uses estimates to record write-downs based on its review of inventory by product category including length of time on hand and estimates of future orders for each product . changes in consumer preferences , as well as demand for products , customer buying patterns and inventory management could impact the inventory valuation . 17 long-lived assets with finite lives we review long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable . an asset is considered to be impaired when its carrying amount exceeds both the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition and the asset 's fair value . long-lived assets include property and equipment and finite-lived intangible assets . the amount of impairment loss , if any , is charged by us to current operations . indefinite-lived intangible assets we account for indefinite-lived intangible assets in accordance with accounting guidance that requires indefinite-lived intangible assets be tested annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired . our annual impairment testing is conducted in the fourth quarter of every year . we test indefinite-lived intangible assets for impairment by comparing the asset 's fair value to its carrying amount . if the fair value is less than the carrying amount , the excess of the carrying amount over fair value is recognized as an impairment charge and the adjusted carrying amount becomes the asset 's new accounting basis . management also evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life . if an intangible asset that is not being amortized is subsequently determined to have a finite useful life , it is amortized prospectively over its estimated remaining useful life . income taxes income taxes are computed using the asset and liability method of accounting . under the asset and liability method , a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry forwards . the measurement of deferred income tax assets is adjusted by a valuation allowance , if necessary , to recognize future tax benefits only to the extent , based on available evidence , it is more likely than not that such benefit will be realized . we recognize interest and penalties , if any , related to uncertain tax positions in interest expense . on a global basis , the open tax years subject to examination by major taxing jurisdictions in which we operate is between 2014 and 2020. story_separator_special_tag tax asset that were instituted until such time as we were able to demonstrate it is more likely than not that those assets would be used in the near future . liquidity and capital resources cash flows we fund our operations and working capital needs through cash generated from operations and borrowings under our credit facility . in our typical operational cash flow cycle , inventory is purchased in u.s. dollars to meet expected demand plus a safety stock . the majority of our suppliers are based in asia and such inventory typically takes from three to four weeks to arrive at the various distribution points we maintain in the united states and canada . payment terms for these vendors are approximately 60-75 days from the date the product ships from asia and therefore we are generally paying for the product a short time after it is physically received in the united states . in turn , sales to customers generally have payment terms of 60 days , resulting in an accounts receivable and increasing the amount of cash required to fund working capital . to bridge the gap between paying our suppliers and receiving payment from our customers for goods sold , we rely on our credit facility .
| results of operations the following table presents selected consolidated financial information for our company for the fiscal years ended january 2 , 2021 ( “ fiscal 2020 ” ) and december 28 , 2019 ( “ fiscal 2019 ” ) . replace_table_token_0_th 18 fiscal 2020 compared with fiscal 2019 net sales decreased 10.3 % to $ 155,299 for fiscal 2020 from $ 173,181 for fiscal 2019 due primarily to the decline in sales to international and mid-tier customers . for fiscal 2020 , sales to our top three customers increased by approximately 5.3 % over the prior fiscal year and sales increased across several of our product categories including specialty blankets , entertainers and playards . however , these increases were offset by ( a ) the negative impact of increased tariffs imposed on goods imported into the united states from china that led to higher retail price points , ( b ) a planned decline due to the restructuring of our international business , ( c ) a decline in our mid-tier and international sales that were affected by fewer distribution channels as many of these customers were closed for as much as three months as a result of the covid-19 pandemic , and ( d ) a continued shift to direct import business . cost of goods sold includes the cost of the finished product from suppliers , duties and tariffs on certain imported items , freight-in from suppliers , and miscellaneous charges . the components of cost of goods sold remained substantially the same for fiscal 2020 as compared to fiscal 2019. gross profit decreased 7.3 % to $ 50,851 for fiscal 2020 from $ 54,885 for fiscal 2019 , but gross margin increased in fiscal 2020 to 32.7 % from fiscal 2019 at 31.7 % . gross profit dollars decreased primarily due to lower sales .
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in this discussion and analysis , we discuss and explain the consolidated financial condition and results of operations for the years ended december 31 , 2014 , 2013 and 2012 , including the following topics : an overview of our business , including the acquisition of sealy corporation and its historical subsidiaries ( “ sealy ” ) that closed on march 18 , 2013 ( `` sealy acquisition '' ) ; the effect of the foregoing on our overall financial performance and condition ; our net sales and costs in the periods presented as well as changes between periods ; and expected sources of liquidity for future operations . business overview general we are the world 's largest bedding provider . we develop , manufacture , market , and distribute bedding products , which we sell globally . our brand portfolio includes many of the most highly recognized brands in the industry , including tempur® , tempur-pedic® , sealy® , sealy posturepedic® , optimum , and stearns & foster® . our comprehensive suite of bedding products offers a variety of products to consumers across a broad range of channels . we sell our products through three distribution channels in each operating business segment : retail ( furniture and bedding retailers , department stores , specialty retailers and warehouse clubs ) ; direct ( e-commerce platforms , company-owned stores , and call centers ) ; and other ( third party distributors , hospitality and healthcare customers ) . business segments we have three reportable business segments : tempur north america , tempur international , and sealy . these reportable segments are strategic business units that are managed separately . our tempur north america segment consists of two u.s. manufacturing facilities and our tempur north america distribution subsidiaries . our tempur international segment consists of our manufacturing facility in denmark , whose customers include all of our distribution subsidiaries and third party distributors outside our tempur north america and sealy segments . additionally , in 2014 our tempur international segment acquired the sealy brand rights for continental europe and japan from sealy licensees . net sales from the sealy products we have introduced to these markets are included in our tempur international segment results . our sealy segment consists of company-owned and operated bedding and manufacturing facilities located around the world , along with distribution subsidiaries , joint ventures , and licensees . we evaluate segment performance based on net sales and operating income . strategy we are the world 's largest bedding provider and the only provider with global scale . for a complete overview of our business , including a description of our segments , see `` business '' under part i , item i of this report . we believe our future growth potential is significant in our existing markets and through expansion into new markets . our goal is to improve the sleep of more people , every night , all around the world . it is our goal to become the share leader in every country we compete in . in order to achieve our long-term growth potential while managing the current economic and competitive environment , we will focus on investing in our brands , developing consumer-preferred products , expanding distribution and striving for highest dealer advocacy and , where appropriate , making strategic acquisitions . in addition , we will focus on improving our cost competitiveness to fund our investments , expand margins and grow stockholder value . our strategy will focus on the key strategic growth initiatives described below : 31 brands we will increase our investment in advertising and marketing for each of our key brands to increase consumer awareness , preference and loyalty . we will also invest in in-store marketing and direct sales to maximize our sales opportunity driven from national brand and retailer advertising . products we will continue to invest in research and development to leverage the combined technologies of our comprehensive portfolio of products to deliver a stream of innovative , consumer-preferred products in each element of our portfolio . our goal is to provide consumers the best bed and best sleep of their life and to provide our retailers a complete and optimal offering across brands , products , and prices to drive growth . we will also pursue opportunities to enter or develop new product categories . distribution we will expand distribution globally , in existing and new markets , and strive for highest dealer advocacy by investing in and supporting our brands and products , and providing superior service . acquisitions we may pursue strategic acquisitions of complementary companies from time to time , including existing licensees , joint ventures and third party distributors , as well as other strategic international brands in existing markets . factors that could impact results of operations the factors outlined below could impact our future results of operations . for more extensive discussion of these and other risk factors , please refer to `` risk factors '' , under part i , item 1a in this report . general business and economic conditions our business has been affected by general business and economic conditions , and these conditions could have an impact on future demand for our products . the global economic environment continues to be challenging , and we expect the uncertainty to continue . we continued to make strategic investments , including : introducing new products ; investing in increasing our global brand awareness ; extending our presence and improving our retail account productivity and distribution ; investing in our operating infrastructure to meet the requirements of our business ; and taking other actions to further strengthen our business . exchange rates as a multinational company , we conduct our business in a wide variety of currencies and are therefore subject to market risk for changes in foreign exchange rates . foreign currency exchange rate movements also create a degree of risk by affecting the u.s. dollar value of sales made and costs incurred in foreign currencies . story_separator_special_tag for more information on this non-gaap measure , please refer to the section set forth below “ non-gaap financial measures ” . 33 sealy integration our sealy acquisition is significant , and we may not be able to successfully complete the integration and combination of the operations , personnel and technology of sealy with our operations . because of the size and complexity of sealy 's business , if we do not successfully manage integration , we may experience interruptions in our business activities , a deterioration in our employee and customer relationships , increased costs of integration and harm to our reputation , all of which could have a material adverse effect on our business , financial condition and results of operations . we may also experience difficulties in combining corporate cultures , maintaining employee morale and retaining key employees . the integration may also impose substantial demands on our management . there is no assurance that improved operating results will be achieved as a result of the sealy acquisition or that the businesses will be successfully integrated in a timely manner . sealy acquisition on march 18 , 2013 , we completed the sealy acquisition . refer to note 3 , “ acquisitions and divestitures ” , in our consolidated financial statements included in part ii , item 8 of this report for a discussion of the sealy acquisition . pursuant to the merger agreement , each share of common stock of sealy issued and outstanding immediately prior to the effective date of the sealy acquisition was canceled and ( other than shares held by sealy or tempur-pedic or their subsidiaries or sealy stockholders who properly exercised their appraisal rights ) converted into the right to receive $ 2.20 in cash . the total purchase price was $ 1,172.9 million , which was funded using available cash and financing consisting of our 2012 credit agreement and senior notes . refer to note 6 , “ debt ” , in our consolidated financial statements included in part ii , item 8 of this report for the definition of these terms and further discussion . the purchase price of sealy , including debt assumed , consisted of the following items : replace_table_token_4_th ( 1 ) the cash consideration for outstanding shares of sealy common stock is the product of the agreed-upon cash per share price of $ 2.20 and total sealy shares of 105.1 million . ( 2 ) the cash consideration for share-based awards is the product of the agreed-upon cash per share price of $ 2.20 and the total number of restricted stock units ( “ rsus ” ) and deferred stock units ( “ dsus ” ) outstanding and the “ in the money ” stock options net of the weighted average exercise price . ( 3 ) the cash consideration for 8.0 % sealy notes is the result of applying the adjusted equity conversion rate to the 8.0 % sealy notes tendered for conversion and multiplying the result by the agreed-upon cash per share price of $ 2.20. the 8.0 % sealy notes that were converted represented the right to receive the same merger consideration that would have been payable to a holder of 201.0 million shares of sealy common stock , subject to adjustment in accordance with the terms of the supplemental indenture governing the 8.0 % sealy notes . ( 4 ) the cash consideration for sealy 's 10.875 % senior notes due 2016 ( “ sealy senior notes ” ) reflects the repayment of the outstanding obligation . ( 5 ) the cash consideration for sealy 's 8.25 % senior subordinated notes due 2014 ( “ sealy 2014 notes ” ) reflects the repayment of the outstanding obligation . ( 6 ) represents the sealy cash balance acquired at acquisition . 34 results of operations a summary of our results for the year ended december 31 , 2014 include : earnings per diluted common share ( “ eps ” ) for the full year 2014 were $ 1.75 compared to eps of $ 1.28 per diluted share for the full year 2013 . the 2014 results reflect a loss on the disposal of the sealy innerspring component facilities , integration costs associated with the continued alignment of the business , and certain non-recurring items , including financing costs and income from a partial settlement of a legal dispute . the 2013 results include results for sealy from march 18 , 2013 , the acquisition date , and also reflect transaction and integration costs related to the acquisition of sealy , financing costs related to the refinancing of our term a and term b loans under our 2012 credit agreement , as well as tax provision adjustments related to the repatriation of foreign earnings utilized in connection with the sealy acquisition . adjusted eps were $ 2.65 for the full year 2014 as compared to adjusted eps $ 2.38 for the full year 2013 . unfavorable foreign exchange impacted adjusted eps by $ 0.15 for the full year 2014 as compared to the full year 2013. in 2015 , we expect foreign exchange will continue to negatively impact adjusted eps , and the impact will be more significant in 2015 than it was in 2014. for a discussion and reconciliation of eps to adjusted eps , which is a non-gaap measure , refer to the non-gaap financial information set forth below under the heading “ non-gaap financial information ” . net income for the full year 2014 was $ 108.9 million as compared to net income of $ 78.6 million for the full year 2013 . adjusted net income was $ 164.6 million for the full year 2014 as compared to adjusted net income of $ 146.4 million for the full year 2013 . for a discussion and reconciliation of net income to adjusted net income , which is a non-gaap measure , refer to the non-gaap financial information set forth below under the heading “ non-gaap financial information ” .
| tempur north america segment summary replace_table_token_13_th year ended december 31 , 2014 compared to year ended december 31 , 2013 tempur north america net sales increased $ 83.2 million , or 9.1 % . the increase was primarily due to a $ 100.1 million increase in net sales of bedding products , driven primarily by new product introductions and the increased sales of our adjustable base products . this increase was offset by a $ 16.9 million decrease in net sales of other products resulting primarily from the decline in our pillow business . retail channel net sales increased $ 93.9 million , or 11.1 % driven by the continued success of our new product introductions . additionally , in the fourth quarter of 2014 , certain customers elected to increase their purchases to qualify for higher rebate tiers for the full year 2014. direct channel net sales decreased $ 8.2 million , or 16.7 % . operating income increased $ 17.3 million , or 25.6 % , and was primarily impacted by the following factors : gross profit increased $ 21.2 million , or 5.4 % . gross margin declined 150 basis points . the decline in gross margin was due to unfavorable product mix of 290 basis points , related to the increased sale of our adjustable base products and unfavorable channel mix of 150 basis points , which includes the impact of higher floor model discounts and rebates . these factors were partially offset by manufacturing and sourcing improvements of 320 basis points . operating expenses increased $ 3.9 million to $ 329.0 million in 2014 , as compared to $ 325.1 million in the same period of 2013 . the increase is driven by a $ 13.5 million increase in salaries and benefits to support the expanded business and variable sales compensation , and a $ 3.4 million increase in advertising expenses to support our increased net sales .
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we regularly perform reviews to determine if the carrying values of our goodwill and other intangible assets are impaired . we review goodwill for impairment at least annually on november 1 , or more frequently if an event occurs indicating the potential for impairment . we review goodwill for impairment utilizing either a qualitative assessment or a two-step process . if we decide that it is appropriate to perform a qualitative assessment and conclude that the fair value of a reporting unit more likely than not exceeds its carrying value , no further evaluation is necessary . for reporting units where we perform the two-step process , the first step requires us to estimate the fair value of each reporting unit and compare that fair value to the respective carrying value , which includes goodwill . if the fair value of the reporting unit exceeds its carrying value , the goodwill is not considered impaired and no further evaluation is story_separator_special_tag the following management 's discussion and analysis of our financial condition and results of operations should be read in conjunction with business under item 1 , selected financial data under item 6 , and our consolidated financial statements and the related notes thereto included in item 15 of this report . this discussion contains a number of forward-looking statements , all of which are based on our current expectations and all of which could be affected by uncertainties and risks . our actual results may differ materially from the results contemplated in these forward-looking statements as a result of many factors including , but not limited to , those described in risk factors under item 1a . business overview verint® is a global leader in actionable intelligence® solutions and value-added services . our solutions enable organizations of all sizes to make more timely and effective decisions to improve enterprise performance and make the world a safer place . more than 10,000 organizations in over 150 countries including over 85 percent of the fortune 100 use verint solutions to capture , distill , and analyze complex and underused information sources , such as voice , video , and unstructured text . in the enterprise intelligence market , our workforce optimization and voice of the customer solutions help organizations enhance the customer service experience , increase customer loyalty , enhance products and services , reduce operating costs , and drive revenue . in the security intelligence market , our communications and cyber intelligence , video and situation intelligence , and public safety solutions help government and commercial organizations in their efforts to protect people and property and neutralize terrorism and crime . verint was founded in 1994 and is headquartered in melville , new york . our business we serve two markets through three operating segments . our enterprise intelligence segment serves the enterprise intelligence market , while our video intelligence segment and communications intelligence segment serve the security intelligence market . in our enterprise intelligence segment , we are a leading provider of enterprise intelligence software and services . our solutions enable organizations to extract and analyze valuable information from customer interactions and related operational data in order to make more effective , proactive decisions for optimizing the performance of their customer service operations , improving the customer experience , and facilitating compliance , and enhancing products and services . for the years ended january 31 , 2012 , 2011 , and 2010 , this segment represented approximately 56 % , 57 % , and 53 % of our total revenue , respectively . in our video intelligence segment , we are a leading provider of networked ip video solutions and a provider of situation intelligence solutions designed to optimize security and enhance operations . our video intelligence solutions portfolio includes ip video 48 management software and services , edge devices for capturing , digitizing , and transmitting video over different types of wired and wireless networks , video analytics , networked video recorders , and physical security information management . for the years ended january 31 , 2012 , 2011 , and 2010 , this segment represented approximately 18 % , 18 % , and 21 % of our total revenue , respectively . in our communications intelligence segment , we are a leading provider of communications intelligence solutions and a developer of cyber intelligence solutions that help law enforcement , national security , intelligence , and civilian government agencies effectively detect , investigate , and neutralize criminal and terrorist threats and detect and thwart cyber-attacks . our solutions are designed to handle massive amounts of unstructured and structured information from different sources , quickly make sense of complex scenarios , and generate evidence and intelligence . for the years ended january 31 , 2012 , 2011 , and 2010 , this segment represented approximately 26 % , 25 % , and 26 % of our total revenue , respectively . generally , we make business decisions by evaluating the risks and rewards of the opportunities available to us in the markets served by each of our segments . we view each operating segment differently and allocate capital , personnel , resources , and management attention accordingly . in reviewing each operating segment , we also review the performance of that segment by geography . our marketing and sales strategies , expansion opportunities , and product offerings may differ materially within a particular segment geographically , as may our allocation of resources between segments . when making decisions regarding investment in our business , increasing capital expenditures or making other decisions that may reduce our profitability , we also consider the leverage ratio in our credit facility . see liquidity and capital resources for more information . key trends and developments in our business we believe that there are many factors that affect our ability to sustain and increase both revenue and profitability , including : · market acceptance of actionable intelligence for unstructured data , particularly analytics . story_separator_special_tag also in october 2009 , the fasb amended the accounting standards for many multiple-deliverable revenue arrangements to : ( i ) provide updated guidance on when and how the deliverables in a multiple-deliverable arrangement should be separated , and how the consideration should be allocated ; ( ii ) require an entity to allocate revenue in an arrangement that has separate units of accounting , using estimated selling prices ( esp ) of deliverables if a vendor does not have vendor-specific objective evidence ( vsoe ) of selling price , or third-party evidence of selling price ( tpe ) ; and ( iii ) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method to the separate units of accounting . we elected to prospectively adopt the provisions of this new guidance as of february 1 , 2011 , for new and materially modified transactions entered into on or after that date . since we have been able to establish vsoe for a significant amount of our service and support offerings included in multiple-element arrangements , we do not consider the impact of implementing the guidance to be significant for the year ended january 31 , 2012. for the year ended january 31 , 2012 , we recognized $ 12.4 million and $ 6.3 million of additional revenue and additional income before provision for income taxes , respectively , as a result of adopting the new guidance . our multiple-element arrangements consist of a combination of our product and service offerings that may be delivered at various points in time . for arrangements within the scope of the new revenue accounting guidance , a deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements . for multiple-element arrangements comprised only of hardware products and related services , we allocate revenue to each element in an arrangement based on a selling price hierarchy . the selling price for a deliverable is based on its vsoe , if available , tpe , if vsoe is not available , or esp , if neither vsoe nor tpe is available . the total transaction revenue is allocated to the multiple elements based on each element 's relative selling price compared to the total selling price . 51 the manner in which we account for multiple-element arrangements that contain only software and software-related elements remains unchanged by the new guidance . we allocate a portion of the total purchase price to the undelivered elements , primarily installation services , pcs , and training , using vsoe of fair value of the undelivered elements . the remaining portion of the total transaction value is allocated to the delivered software , referred to as the residual method . if we are unable to establish vsoe for the undelivered elements of the arrangement , revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered . however , if the only undelivered element is pcs , we recognize the arrangement fee ratably over the pcs period . for new or materially modified multiple-element arrangements entered into on or after february 1 , 2011 that are comprised of a combination of hardware and software elements , the total transaction value is bifurcated between the hardware elements and the software elements that are not essential to the functionality of the hardware , based on the relative selling prices of the hardware elements and the software elements as a group . revenue is then recognized for the hardware and hardware-related services following the hardware revenue recognition methodology outlined above and revenue for the software and software-related services is recognized following the residual method or ratably over the pcs period if vsoe for pcs does not exist . our policy for establishing vsoe for installation , consulting , and training is based upon an analysis of separate sales of services . we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe for our pcs offerings , depending upon the business segment , geographical region , or product line . the timing of revenue recognition on software licenses and other revenue could be significantly impacted if we are unable to maintain vsoe on one or more undelivered elements during any quarterly period . loss of vsoe could result in ( i ) the complete deferral of all revenue or ( ii ) ratable recognition of all revenue under a customer arrangement until such time as vsoe is re-established . if we are unable to re-establish vsoe on one or more undelivered elements for an extended period of time it would impact our ability to accurately forecast the timing of quarterly revenue , which could have a material adverse effect on our business , financial position , results of operations or cash flows . we typically are not able to determine tpe for our products or our service and support offerings . tpe of selling price is established by evaluating largely similar and interchangeable competitor products or services in stand-alone sales to similarly situated customers . if we are unable to determine the selling price because vsoe or tpe does not exist , we determine esp for the purposes of allocating the arrangement by considering several external and internal factors including , but not limited to , pricing practices , similar product offerings , margin objectives , geographies in which we offer our products and services , internal costs , competition , and product lifecycle . the determination of esp is made through consultation with and approval by our management , taking into consideration our go-to-market strategies . esp for each element is updated , when appropriate , to ensure that it reflects recent pricing experience . pcs revenue is derived from providing technical software support services and software updates and upgrades to customers on a when-and-if-available basis .
| results of operations financial overview the following table sets forth a summary of certain key financial information for the years ended january 31 , 2012 , 2011 , and 2010 : replace_table_token_6_th year ended january 31 , 2012 compared to year ended january 31 , 2011. our revenue increased approximately 8 % , or $ 55.8 million , to $ 782.6 million in the year ended january 31 , 2012 from $ 726.8 million in the year ended january 31 , 2011. in our enterprise intelligence segment , revenue increased $ 27.5 million , or 7 % . the increase was primarily due to a $ 30.1 million increase in service revenue due primarily to an increase in our customer install base and the related support revenue generated from this customer base during the year ended january 31 , 2012 and , to a lesser extent , acquisitions in our enterprise intelligence segment during the year ended january 31 , 2012 ( primarily vovici ) . we continue to see expansion of our implementation services revenue due to the growth of our professional services organization to meet the demands of our customer base . the increase in service revenue was partially offset by a $ 2.6 million decrease in product revenue , which relates to a large transaction whereby product delivery occurred in the year ended january 31 , 2012 but a significant portion of the product revenue was not able to be recognized in the year ended january 31 , 2012 due to certain contractual terms which required the remaining product revenue to be recognized in future periods . there were no comparable transactions in the prior year . in our communications intelligence segment , revenue increased $ 24.4 million , or 13 % , primarily due to a $ 15.0 million increase in service revenue . approximately $ 6.7 million of the increase is attributable to an increase in our customer install base and the related support revenue generated from this customer install base .
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strategic goals pnmr is focused on achieving the following strategic goals : earning authorized returns on regulated businesses delivering above industry-average earnings and dividend growth maintaining solid investment grade credit ratings in conjunction with these goals , pnm and tnmp are dedicated to : maintaining strong plant performance , system reliability , and employee safety delivering a superior customer experience environmental leadership in their business operations supporting the communities in their service territories 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 . pnm filed a general rate case with the nmprc in december 2014. pnm 's application proposed a revenue increase of $ 107.4 million , effective january 1 , 2016 , based on a calendar 2016 future test year ( “ fty ” ) . on april 17 , 2015 , the hearing examiner in the case issued an initial recommended decision to the nmprc recommending that the nmprc find pnm 's application incomplete , primarily due to procedural defects , and reject it . pnm disagreed with the hearing examiner 's initial recommended decision and filed exceptions . on may 13 , 2015 , the nmprc voted to accept the initial recommended decision and dismissed pnm 's application . on august 27 , 2015 , pnm filed a new application with the nmprc for a general increase in retail electric rates . the application proposes a revenue increase of $ 123.5 million , including base fuel revenues . the application is based on a fty beginning october 1 , 2015 , which met the nmprc 's may 2015 interpretation of the fty statute discussed below , and a roe of 10.5 % . the primary drivers of pnm 's identified revenue deficiency are infrastructure investments and declines in forecasted energy sales as a result of pnm 's successful energy efficiency programs and other economic factors . the application includes several proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation . specific rate design proposals include increased customer and demand charges , a revenue decoupling pilot program applicable to residential and small power customers , a re-allocation of revenue among pnm 's customer classes , a new economic development rate , and continuation of pnm 's renewable energy rider . new rates are expected to become effective in the third quarter of 2016. on may 27 , 2015 , the nmprc approved an order that defines a fty as a period that begins no later than 45 days following the filing of an application to increase rates . pnm believes that the correct interpretation of the new mexico fty statute allows a- 30 a fty to begin up to 13 months after the filing of an application . on june 25 , 2015 , pnm filed a notice of appeal to the nmsc , challenging the nmprc 's order . the nmsc remanded this matter back to the nmprc . on november 30 , 2015 , the nmprc modified its previous order to provide for a fty to begin up to 13 months after the filing of a rate case application and the nmprc filed its revised order with the nmsc on december 9 , 2015. on january 20 , 2016 , pnm and the nmprc filed an unopposed stipulation of voluntary dismissal of the appeal and the nmsc dismissed the appeal on february 15 , 2016. 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 allow for more timely recovery of investments and improve pnm 's ability to earn its authorized return . in early 2013 , pnm completed rate proceedings for all of its ferc regulated transmission customers and for nec , its largest generation services customer , which improved pnm 's returns for providing those services . pnm has allocated a portion of its generation assets to serve ferc wholesale generation services customers for a number of years . recently , the low natural gas price environment has caused market prices for power to be substantially lower than what pnm is able to offer customers under the cost of service model that ferc requires pnm to use . as a result of this change in market conditions , pnm has not been earning an adequate return on the assets required to serve wholesale contracts and has decided to stop pursuing wholesale contracts that are served with the same generation assets that serve retail customers . pnm had a psa to supply power to nec through 2035 , which was approved by ferc in april 2013. on april 8 , 2015 , nec filed a petition for a declaratory order requesting that ferc find that nec can purchase an unlimited amount of power and energy from third party supplier ( s ) under the psa . pnm intervened , requesting that ferc deny nec 's petition . on july 16 , 2015 , ferc set the matter for a public hearing concerning the parties ' intent with regard to certain provisions of the psa and held the hearing in abeyance to provide time for settlement judge procedures . on october 29 , 2015 , pnm and nec entered into , and filed with ferc , a settlement agreement that includes amendments to the psa and related contracts , subject to ferc approval . story_separator_special_tag when considering expanding or relocating to other communities , businesses consider energy affordability and reliability to be important factors . pnm and tnmp strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a superior customer experience . the utilities also work to ensure that rates reflect actual costs of providing service . investing in pnm 's and tnmp 's infrastructure is critical to ensuring reliability and meeting future energy needs . both utilities have long-established records of providing customers with reliable electric service . through 2014 , both pnm and tnmp ranked in the top quartile nationally for reliability for three out of the previous five years . in 2014 , pnm delivered its best reliability performance in the past seven years and tnmp 's reliability was its best in a decade . pnm anticipates again being in the top quartile for 2015 despite 2015 being one of the wettest years on record in new mexico , whereas tnmp 's reliability was more negatively impacted by violent weather events accompanied with record amounts of rain in certain areas of texas . in september 2011 , tnmp began its deployment of advanced meters for homes and businesses across its texas service area . through the end of 2015 , tnmp had completed installation of more than 218,000 advanced meters , which is approximately 91 % of the anticipated total . tnmp 's deployment is expected to be completed in 2016. as part of the state of texas ' long-term initiative to create an advanced electric grid , installation of advanced meters will ultimately give consumers more data about their energy consumption and help them make more informed decisions . in addition , a- 32 tnmp recently completed installation of a new outage management system that will leverage capabilities of the advanced metering infrastructure to enhance tnmp 's responsiveness to outages . during the 2013 to 2015 period , pnm and tnmp together invested $ 1,302.4 million in utility plant , including substations , power plants , nuclear fuel , and transmission and distribution systems . in 2012 , pnm announced plans for the 40 mw natural gas-fired la luz peaking generating station to be located near belen , new mexico . construction began in april 2015 and the facility went into service in december 2015. in addition , in january 15 , 2016 , pnm completed the $ 163.3 million acquisition of 64 mw of capacity in pvngs unit 2 that had previously been leased to pnm . nmprc rules require that investor owned utilities file an irp every three years . the irp is required to cover a 20-year planning period and contain an action plan covering the first four years of that period . pnm filed its 2014 irp on july 1 , 2014. the four-year action plan was consistent with the replacement resources identified in pnm 's application to retire sjgs units 2 and 3. pnm indicated that it planned to meet its anticipated energy demand with a combination of additional renewable energy resources , energy efficiency , and natural gas-fired facilities . environmentally responsible power pnmr has a long-standing record of environmental stewardship . pnm 's environmental focus has been in three key areas : developing strategies to meet regional haze rules at the coal-fired sjgs as cost-effectively as possible while providing broad environmental benefits that also demonstrate progress in addressing new federal regulations for co 2 emissions from existing power plants preparing to meet new mexico 's increasing renewable energy requirements as cost-effectively as possible increasing energy efficiency participation pnm continues its efforts to reduce the amount of fresh water used to make electricity ( about 25 % more efficient than in 2002 ) . continued growth in pnm 's fleet of solar , wind , and geothermal energy sources , energy efficiency programs , and innovative uses of gray water and air-cooling technology have contributed to this reduction . water usage will continue to decline as pnm substitutes less fresh-water-intensive generation resources for sjgs units 2 and 3 starting in 2018 ( reducing water consumption at that plant by around 50 % ) . focusing on responsible stewardship of new mexico 's scarce water resources improves pnm 's water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of new mexico 's economy . in addition to the above areas of focus , the company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste . the company has performed well in this area in the past and expects to continue to do so in the future . renewable energy pnm 's renewable procurement strategy includes utility-owned solar capacity , as well as wind and geothermal energy purchased under ppas . as of december 31 , 2015 , pnm had 107 mw of utility-owned solar capacity , including 40 mw completed in 2015. the application for a general rate increase discussed above includes recovery of the costs associated with the new 40 mw solar facilities . in addition , pnm purchases power from a customer-owned distributed solar generation program that had an installed capacity of 49.5 mw at december 31 , 2015. pnm also owns the 500 kw pnm prosperity energy storage project , which uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited . the project features one of the largest combinations of battery storage and pv energy in the nation and involves extensive research and development of advanced grid concepts . the facility was the nation 's first solar storage facility fully integrated into a utility 's power grid . since 2003 , pnm has purchased the output from a 204 mw wind facility and began purchasing the output of another existing 102 mw wind energy center on january 1 , 2015. pnm has a 20-year agreement to purchase energy from a geothermal facility built near lordsburg , new mexico .
| results of operations ability to obtain required regulatory approvals conditions in the financial markets credit ratings on march 9 , 2015 , pnmr entered into the $ 150.0 million pnmr 2015 term loan agreement . the pnmr 2015 term loan agreement bears interest at a variable rate , which was 1.22 % at december 31 , 2015 , and must be repaid on or before march 9 , 2018. the pnmr 2015 term loan agreement includes customary covenants and conditions . pnmr utilized a portion of the proceeds from the pnmr 2015 term loan agreement and borrowings under the pnmr revolving credit facility to retire the $ 118.8 million of 9.25 % senior unsecured notes , series a when they matured on may 15 , 2015. in september 2015 , pnmr entered into a hedging agreement whereby it effectively established a fixed interest rate of 1.927 % for borrowings under the pnmr 2015 term loan agreement for the period from january 11 , 2016 through march 9 , 2018. on august 11 , 2015 , pnm issued $ 250.0 million aggregate principal amount of its 3.850 % senior unsecured notes due 2025. the notes will mature on august 1 , 2025. portions of the proceeds from the offering were used to repay the existing $ 175.0 million pnm 2014 term loan agreement and to repay outstanding borrowings under the pnm revolving credit facility , the pnm new mexico credit facility , and pnm 's intercompany loan from pnmr . on december 17 , 2015 tnmp entered into an agreement , which provided that tnmp would issue $ 60.0 million aggregate principal amount of 3.53 % first mortgage bonds , due 2026 , on or about february 10 , 2016. tnmp issued the series 2016a bonds on february 10 , 2016 and used the proceeds to reduce short-term debt and intercompany debt .
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our business model is difficult for others to replicate and we see significant opportunity for future growth by leveraging the unique elements of our business , including our brand , our product know-how , our freshpet kitchens , our refrigerated distribution , our freshpet fridge and our culture . recent developments freshpet kitchens expansion due to the continued growth of the company 's fresh pet food sales , the company has plans to continue expanding its manufacturing capacity . during the second half of 2018 the company converted one of its four manufacturing lines from five-day production to seven-day production , with plans to convert two more lines to seven day production during q1 of 2019. additionally the company is in the process of building a 90,000 square-foot addition to our manufacturing facility . the $ 100 million strategic capital investment is expected to support freshpet 's growth in the united states , canada and europe by creating total capacity for approximately $ 540 million in net sales from the facility . the facility “ freshpet kitchens 2.0 ” will make greater use of automation to improve quality , safety and reduce costs . production start-up is slated for the second half of 2020. updates to non-gaap metrics management continues to focus on the potential increased profitability percentage that could be gained through increased scale . in addition to our gaap metrics , the company uses adjusted ebitda and adjusted ebitda % ( adjusted ebitda as a percent of net sales ) , both non-gaap measures to assess profitability . as the company grows , management wants to ensure continued simplicity and transparency when assessing its profitability by way of its non-gaap measures . historically there were certain adjusted ebitda add-backs that were not included in adjusted gross profit or adjusted sg & a . for example non-cash share-based compensation within gross profit was not added back to adjusted gross profit , although it is added back to adjusted ebitda . management believes that including consistent addbacks within its non-gaap measures will ensure that both management and investors can more easily assess the company 's profitability percentage by way of adjusted ebitda % , and then be able to easily assess if the percentage gains/losses came by way of adjusted gross profit and or adjusted sg & a . as such the company has aligned all of its non-gaap measure add-backs within adjusted gross profit , adjusted sg & a , and adjusted ebitda . in addition the company will add adjusted ebitda % to its non-gaap measure . the company has made these changes retrospectively . see `` —retrospective changes to our non-gaap measures '' for additional information . components of our results of operations net sales our net sales are derived from the sale of pet food to our customers , who purchase either directly from us or through third-party distributors . our products are sold to consumers through a fast-growing network of company-owned branded refrigerators , known as freshpet fridges , located in our customers ' stores . we continue to roll out freshpet fridges across leading retailers across north america and have installed freshpet fridges in approximately 19,500 retail stores as of december 31 , 2018. our products are sold under the freshpet brand name , with ingredients , packaging and labeling customized by class of retail . sales are recorded net of discounts , slotting , returns and promotional allowances . 28 our net sales growth is driven by the following key factors : increasing sales velocity from the average freshpet fridge due to increasing awareness , trial and adoption of freshpet products and innovation . our investments in marketing and advertising help to drive awareness and trial at each point of sale . increased penetration of freshpet fridge locations in major classes of retail , including grocery ( including online ) , mass , club , pet specialty and natural . the impact of new freshpet fridge installations on our net sales varies by retail class and depends on numerous factors including store traffic , refrigerator size , placement within the store and proximity to other stores that carry our products . consumer trends including growing pet ownership , pet humanization and a focus on health and wellness . we believe that as a result of the above key factors , we will continue to penetrate the pet food marketplace and increase our share of the pet food category . gross profit our gross profit is net of costs of goods sold , which include the costs of product manufacturing , product ingredients , packaging materials , and inbound freight . our gross profit margins are impacted by the cost of ingredients , packaging materials , and labor and overhead . we expect to mitigate any adverse movement in input costs through a combination of cost management and price increases . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) costs as a percentage of net sales decreased from 81.3 % in the year ended 2012 to 62.7 % in 2013 , 55.7 % in 2014 , 50.2 % in 2015 and 47.0 % in 2016. due to our feed the growth initiative , which has increased our investment level in media , our sg & a as a percentage of net sales increased in 2017 and remained stable in 2018. sg & a as a percentage of net sales was 49.3 % in 2017 and 49.1 % in 2018. we believe that as we begin to realize the benefits of our feed the growth initiative , sg & a expenses will once again decrease as a percentage of net sales . our selling , general and administrative expenses consist of the following : outbound freight . we utilize a third-party logistics provider for outbound freight that ships directly to retailers as well as third-party distributors . marketing & advertising . our marketing and advertising expenses primarily consist of national television media , digital marketing , social media and grass roots marketing to drive brand awareness . story_separator_special_tag * includes net sales from freshpet baked of $ 1.6 million , or 1.1 % of total net sales , for the twelve months ended december 31 , 2017 and $ 4.4 million , or 3.3 % of total net sales , for the twelve months ended december 31 , 2016. net sales increased $ 22.6 million , or 17.5 % , to $ 152.3 million for the twelve months ended december 31 , 2017 as compared to the same period in the prior year . the $ 22.6 million increase in net sales was driven by growth in the grocery ( including online ) , mass , and club refrigerated channel of $ 21.3 million , and pet specialty and natural of $ 1.3 million . the net sales increase was driven by overall velocity gains and an increase of freshpet fridges store locations , which grew by 8.4 % from 16,609 as of december 31 , 2016 to 18,004 as of december 31 , 2017. gross profit gross profit increased $ 12.0 million , or 20 % , to $ 72.4 million for the twelve months ended december 31 , 2017 as compared to the same period in the prior year . the increase in gross profit was primarily driven by higher net sales , and production efficiencies , partially offset by increased depreciation due to our freshpet kitchens . our gross profit margin of 47.5 % for the twelve months ended december 31 , 2017 , was an increase of 100 basis points compared to the same period in the prior year , primarily related to cost savings and margin improvement through scale 32 and plant startup costs in the prior year , partially offset by a decrease due to additional depreciation of our freshpet kitchens expansion . adjusted gross profit was $ 78.5 million and $ 66.2 million in the years ended december 31 , 2017 and 2016 , respectively . adjusted gross profit margin as a percentage of net sales was 51.5 % and 51.1 % in the years ended december 31 , 2017 and 2016 , respectively . adjusted gross profit excludes $ 5.8 million and $ 4.0 million of depreciation expense in 2017 and 2016 , respectively , $ 0.2 million and $ 0.2 million in non-cash share-based compensation expense in 2017 and 2016 , respectively , and $ 1.6 million of non-capitalizable plant start-up costs in 2016. see “ —non-gaap financial measures ” for how we define adjusted gross profit and a reconciliation of adjusted gross profit to gross profit , the closest comparable u.s. gaap measure . selling , general and administrative expenses sg & a expenses increased $ 12.6 million , or 20.1 % , to $ 75.2 million for the twelve months ended december 31 , 2017 as compared to the same period in the prior year . key components of the dollar increase include higher media spend of $ 5.5 million , higher depreciation expense of $ 1.0 million , increased variable cost due to volume of $ 2.1 million , which includes freight cost and brokerage , and higher incremental operating expenses of $ 5.2 million , offset by prior year non-recurring costs related to leadership transition expenses of $ 1.2 million . the increased operating expenses were primarily due to new hires and increased employee benefit costs , which include variable incentive compensation . as a percentage of net sales , selling , general and administrative expenses increased to 49.3 % for the twelve months ended december 31 , 2017 from 48.3 % for the twelve months ended december 31 , 2016. adjusted sg & a increased as a percentage of net sales to 39.9 % in the in the year ended december 31 , 2017 as compared to 37.5 % of net sales in the year ended december 31 , 2016. the decrease of 240 basis points in adjusted sg & a is a result of an increase of 310 basis points related to media ad spend increase , offset by a 70 basis point gain in sg & a leverage . the media spend increase is due to the company 's feed the growth initiative . adjusted sg & a excludes $ 6.9 million and $ 5.9 million in depreciation and amortization expense for 2017 and 2016 , respectively , $ 4.2 million and $ 4.0 million for non-cash items related to share-based compensation in 2017 and 2016 , respectively , $ 3.1 million and $ 2.8 million launch expense , $ 0.1 million of litigation expense in 2017 and $ 1.3 million of leadership transition costs in 2016. adjusted sg & a is a non-gaap measure . see “ —non-gaap financial measures ” for how we define adjusted sg & a , a reconciliation of adjusted sg & a to sg & a , the closest comparable u.s. gaap measure , certain limitations of non-gaap measures and why management has included such non-gaap measures . loss from operations loss from operations increased $ 0.5 million from a loss of $ 2.2 million for the twelve months ended december 31 , 2016 to a loss of $ 2.7 million for the twelve months ended december 31 , 2017 as a result of the factors discussed above . interest expense interest expense was $ 0.9 million and $ 0.7 million for the twelve months ended december 31 , 2017 and 2016 , respectively , relating primarily to our credit facilities ( as defined below ) . interest expense in the twelve months ended december 31 , 2017 includes $ 0.3 million of accelerated amortization of debt issuance costs related to the amendment of our credit facilities ( as defined below ) . see “ —liquidity and capital resources.
| results of operations replace_table_token_5_th twelve months ended december 31 , 2018 compared to twelve months ended december 31 , 2017 net sales the following table sets forth net sales by class of retail : replace_table_token_6_th ( 1 ) stores at december 31 , 2018 and december 31 , 2017 consisted of 10,129 and 9,056 grocery ( including online ) and 4,164 and 3,930 mass and club , respectively . ( 2 ) stores at december 31 , 2018 and december 31 , 2017 consisted of 4,783 and 4,630 pet specialty and 423 and 388 natural , respectively . * includes net sales from freshpet baked of $ 1.6 million , or 1.1 % of total net sales , for the twelve months ended december 31 , 2017. net sales increased $ 40.9 million , or 26.8 % , to $ 193.2 million for the twelve months ended december 31 , 2018 as compared to the same period in the prior year . the $ 40.9 million increase in net sales was driven by growth in the grocery ( including online ) , mass , and club refrigerated channel of $ 36.7 million , and pet specialty and natural of $ 5.8 million , offset by freshpet baked sales of $ 1.6 million during 2017. the net sales increase was driven by overall velocity gains and an increase of freshpet fridges store locations , which grew by 8.3 % from 18,004 as of december 31 , 2017 to 19,499 as of december 31 , 2018 . 30 gross profit gross profit increased $ 17.6 million , or 24.3 % , to $ 90.0 million for the twelve months ended december 31 , 2018 as compared to the same period in the prior year . the increase in gross profit was primarily driven by higher net sales offset by decreased gross margin .
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the lease commenced on july 1 , 2014 and is for a three year term . the lease also requires a standby letter of credit of $ 13,728 payable in favor of the landlord ( see note 3 ) . pursuant to the terms of the company 's non-cancelable lease agreements in effect at december 31 , 2014 , the future minimum rent commitments are as follows : replace_table_token_12_th total rent expense for the year ended december 31 , 2014 , including month-to-month leases , was $ 35,550 . there was no rent expense incurred for the year ended december 31 , 2013 . 6. notes payable the company entered into notes payable agreements with vendors in lieu of making payments due on accounts payable to these vendors . interest accrued on these interest bearing notes payables at an annual rate of 7 % with accrued interest and principal due at maturity . in august 2014 , the company entered into a settlement agreement with a vendor for the repayment of $ 631,000 which included $ 531,000 in notes payable , $ 93,000 of accrued interest and $ 7,000 of accounts payable . under the terms of the settlement agreement , the company paid the vendor $ 90,000 and issued 541,948 shares of common stock and a warrant to purchase 162,539 shares of common cost exercisable at $ 1.00 per share with a five year term . the company valued the common stock at $ 341,000 and estimated the fair value of the warrant to be f-13 corbus pharmaceuticals holdings , inc. notes to consolidated financial statements fiscal years ended december 31 , 2014 and 2013 $ 55,000 based on a black-sholes valuation . the company estimated the fair value of the common stock to be $ .63 per share based upon the 2014 private placement in which the company sold one share of common stock and one warrant for $ 1.00 . the company estimated the fair value of each warrant to be $ 0.37 based on a black scholes valuation model . for the year ended december 31 , 2014 , the company recorded a gain on the settlement of $ 145,000 which was recorded as other income on the statement of operations . the company also has a note payable outstanding to another vendor with a balance due of $ 75,244 at september 30 , 2014 which has no stated interest rate . the company had been accruing interest on this note but reached an agreement with the vendor to pay off this note payable with no interest in four equal monthly principal installments of $ 25,081 and the note was paid off as of december 31 , 2014. in october 2014 , the company entered into a loan agreement with a financing company for $ 192,000 . the terms of the loan stipulate equal monthly payments of principal and interest payments of $ 24,293 over an eight month period . interest accrues on this loan at annual rate of 3.25 % . interest expense for notes payable for the years ended december 31 , 2014 and 2013 totaled $ 24,020 and $ 31,502 , respectively . notes payable consisted of the following : replace_table_token_13_th 7. income taxes no provision or benefit for federal or state income taxes has been recorded , as the company has incurred a net loss for all of the periods presented , and the company has provided a full valuation allowance against its deferred tax assets . at december 31 , 2014 and 2013 , the company had federal and massachusetts net operating loss carryforwards of approximately $ 1,409,000 and $ 512,000 , respectively , of which federal carryforwards will expire in varying amounts beginning in 2029. massachusetts net operating losses began to expire in 2014. utilization of net operating losses may be subject to substantial annual limitations due to the change in ownership provisions of the internal revenue code , and similar state provisions . the annual limitations may result in the expiration of net operating losses before utilization . the company also had research and development tax credit carryforwards at december 31 , 2014 of approximately $ 167,000 . significant components of the company 's net deferred tax asset are as follows : replace_table_token_14_th f-14 corbus pharmaceuticals holdings , inc. notes to consolidated financial statements fiscal years ended december 31 , 2014 and 2013 the company has maintained a full valuation allowance against its deferred tax assets in all periods presented . a valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized . since the company can not determine that it is more likely than not that it will generate taxable income , and thereby realize the net deferred tax assets , a full valuation allowance has been provided . the company has no uncertain tax positions at december 31 , 2014 and 2013 that would affect its effective tax rate . the company does not anticipate a significant change in the amount of uncertain tax positions over the next twelve months . since the company is in a loss carryforward position , the company is generally subject to u.s. federal and state income tax examinations by tax authorities for story_separator_special_tag 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 and the other financial information included elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . story_separator_special_tag critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an ongoing basis , we evaluate our estimates and judgments for all assets and liabilities , including those related to stock-based compensation expense and the fair value determined for stock purchase warrants classified as derivative liabilities . we base our estimates and judgments on historical experience , current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances . this forms 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 that full consideration has been given to all relevant circumstances that we may be subject to , and the consolidated financial statements accurately reflect our best estimate of the results of operations , financial position and cash flows for the periods presented . revenue to date , we have not generated any revenues from the sales of products . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for the marketing of resunab , which we expect will take a number of years and is subject to significant uncertainty . 49 research and development research and development expenses are incurred for the development of resunab and consist primarily of payroll , and payments to contract research and development companies . to date , these costs are related to generating pre-clinical data and the costs of acquiring , developing and manufacturing resunab for clinical trials . these costs are expected to increase significantly in the future as resunab is evaluated in clinical trials . derivative gain ( loss ) we issued warrants in 2013 for the purchase of 301,778 shares of common stock which had provided for anti-dilution protection and cashless exercise and , under certain conditions , granted holders the right to request that we repurchase the warrants . accordingly , these warrants were considered derivative instruments and changes in the fair value of derivative instruments and changes in the fair value of derivative warrant liability were recorded on the income statement as a derivative gain or loss . on june 30 , 2014 , these warrant agreements were modified to eliminate the anti-dilution protection and accordingly these warrants were no longer considered a derivative liability and the fair value of $ 48,380 was reclassified and charged as an addition to additional-paid in capital . total other income ( expense ) total other income ( expense ) consists primarily of interest income we earn on interest-bearing accounts , interest expense incurred on our outstanding debt and changes in the fair value of our derivative liabilities . accrued research and development expenses as part of the process of preparing financial statements , we are required to estimate and accrue expenses , the largest of which are research and development expenses . this process involves : communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost ; estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances known to us at the time ; and periodically confirming the accuracy of our estimates with selected service providers and making adjustments , if necessary . examples of estimated research and development expenses that we accrue include : fees paid to cros in connection with nonclinical studies ; fees paid to contract manufacturer in connection with the production of clinical trial materials ; fees paid to cmos in connection with the production of clinical study materials ; and professional service fees for consulting and related services . we base our expense accruals related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical studies on our behalf . the financial terms of these agreements vary from contract to contract and may result in uneven payment flows . payments under some of these contracts depend on factors , such as the successful enrollment of patients and the completion of clinical study milestones . our service providers invoice us monthly in arrears for services performed . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not experienced significant changes in our estimates of accrued research and development expenses following each applicable reporting period . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information regarding the status or conduct of our clinical studies and other research activities .
| results of operations comparison of year ended 2014 to 2013 research and development . research and development expenses for the year ended december 31 , 2014 totaled $ 1,256,000 , an increase of $ 1,045,000 over the $ 211,000 recorded for the year ended december 31 , 2013. the increase was primarily attributable to increases of $ 414,000 for the manufacturing of resunab for clinical trials , $ 89,000 for consulting , $ 320,000 for compensation costs , $ 76,000 for recruiting costs , and a $ 156,000 decrease in small business innovation research grants recorded as a reduction in research and development expense . general and administrative . general and administrative expense for the year ended december 31 , 2014 totaled $ 1,392,000 , an increase of $ 1,045,000 over the $ 347,000 recorded for year ended december 31 , 2013. the increase was primarily attributable to increases of $ 398,000 for compensation costs related to new employees , $ 152,000 for investor relations costs , $ 114,000 for legal costs , $ 119,000 for stock compensation costs , $ 85,000 for board of director costs and $ 40,000 for insurance costs . 52 other income ( expense ) . other income for the year ended december 31 , 2014 totaled $ 107,000 , an increase of $ 152,000 over the $ ( 45,000 ) of other expense for the year ended december 31 , 2013. the increase was primarily attributable to a $ 145,000 gain on the settlement of debt recorded in the year ended december 31 , 2014. liquidity and capital resources since inception , we have experienced negative cash flows from operations . we have financed our operations primarily through sales of equity-related securities .
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education , inc. ( “ sei , ” “ we ” , “ us ” or “ our ” ) is an education services company that seeks to provide the most direct path between learning and employment through campus-based and online post-secondary education offerings and through programs to develop job-ready skills for high-demand markets . we operate primarily through our wholly-owned subsidiaries strayer university and capella university , both accredited post-secondary institutions of higher education located in the united states , as well as torrens university , an accredited post-secondary institution of higher education located in australia . our operations also include certain non-degree programs , mainly focused on software and application development , and other vocational and training programs in a variety of fields . company response to covid-19 the ongoing covid-19 pandemic has caused significant volatility and disruption to the global economy . sei took early action to protect the health and well-being of our students and employees in accordance with government mandates and informed by guidance from the centers for disease control and prevention . specifically , we instituted a work-from-home policy for the vast majority of our workforce , closed physical campus locations , moved our on-ground courses at strayer university online , postponed large events such as graduation ceremonies , and prohibited non-essential employee travel . we are taking measures to provide financial relief to our students and employer partners negatively affected by the covid-19 crisis . measures include payment flexibility , scholarship opportunities , and other pricing relief . we expect that these measures will enable more students to continue pursuing their education during and after the covid-19 crisis . in addition , we paused planned 2020 new campus expansion for campus projects that had not yet started , although we completed or executed leases on roughly half of the originally planned eight to twelve new campuses for 2020. in the third quarter of 2020 , we began implementing a restructuring plan that includes both voluntary and involuntary employee terminations in an effort to reduce ongoing operating costs to align with changes in enrollment . the headcount reductions are expected to result in a 5 % decrease to sei 's total workforce . this restructuring also includes the closure of underutilized campus and corporate office space . of the planned campus closures , the majority have an alternative location within relative proximity to support students as campus interactions are needed . as the pandemic has continued , we have seen deterioration in overall demand , which has impacted our total enrollment results for the third and fourth quarters . the weakness has been most pronounced at strayer university , where total enrollments for the third and fourth quarters declined 1 % and 9 % , respectively . while it is not possible to predict the magnitude or persistence of this deterioration , enrollment weakness that started in 2010 , following the recession in 2008 , impacted strayer university 's student enrollment for several quarters . enrollment at capella university and torrens university also has been impacted by the pandemic , though not as severely as at strayer university . as a result of the near-term enrollment trends we have enhanced our cost management efforts to offset lower than expected revenue , and these efforts may continue in 2021. we believe our current financial position and expected operating results , and ability to further control costs are sufficient to support the ongoing operation of sei in a manner that protects the health and well-being of our employees , students , and partners . acquisition of torrens university and related assets in australia and new zealand on november 3 , 2020 , we completed the acquisition of torrens university and related assets in australia and new zealand ( `` anz '' ) , pursuant to the sale and purchase agreement dated july 29 , 2020 ( the `` purchase agreement '' ) . anz includes torrens university australia , think education , and media design school , which together provide diversified student curricula to over 19,000 students across five industry verticals , including business , hospitality , health , education , creative technology and design . we believe anz represents an attractive portfolio of institutions with a similar focus on innovation , academic outcomes , improved affordability and career advancement as us . we also believe that anz provides an attractive platform for future growth , driven by australia 's status as an attractive destination for international students , as well as the potential to use anz as a platform for expansion across the asean region . 54 table of contents pursuant to the purchase agreement , the aggregate consideration paid was approximately $ 658.4 million in cash , which reflected the original agreed upon purchase price of $ 642.7 million , plus a $ 15.7 million adjustment reflecting an estimated $ 11.0 million of net cash at close , and an estimated $ 4.7 million related to higher net working capital . these estimated adjustments are subject to a final true-up of net cash and net working capital , based on the actual closing accounts to be finalized by both parties . the aggregate consideration paid in the transaction was funded using cash on hand and borrowings under our revolving credit facility . our financial results for any periods ended prior to november 3 , 2020 do not include the financial results of anz and are therefore not directly comparable . in 2019 , anz 's revenues were $ 191.1 million , and its income from continuing operations was $ 3.8 million . during the year ended december 31 , 2020 , we incurred $ 7.7 million in expenses related to this acquisition , primarily related to legal , financial , and accounting support services . story_separator_special_tag torrens university is registered with the tertiary education quality and standards agency ( `` teqsa '' ) , the regulator for higher education providers and universities throughout australia , as an australian university that is authorized to self-accredit its courses . think education is a vocational registered training organization and accredited higher education provider in australia . think education delivers education at several campuses in sydney , melbourne , brisbane , and adelaide as well as through online study . think education and its colleges are accredited in australia by the teqsa and the australian skills quality authority , the regulator for vocational education and training organizations that operate in australia . media design school is a private tertiary institution for creative and technology qualifications in new zealand . media design school offers industry-endorsed courses in 3d animation and visual effects , game art , game programming , graphic and motion design , digital media artificial intelligence , and creative advertising . media design school is accredited in new zealand by the new zealand qualifications authority , responsible for the quality assurance of non-university tertiary training providers . we believe we have the right operating strategies in place to provide the most direct path between learning and employment for our students . we focus on innovation continually to differentiate ourselves in our markets and drive growth by supporting student success , producing affordable degrees , optimizing our comprehensive marketing strategy , serving a broader set of our students ' professional needs , and establishing new growth platforms . technology and the talent of our faculty and employees enable these strategies . we believe these strategies and enablers will allow us to continue to deliver high quality , affordable education , resulting in continued growth over the long-term . we will continue to invest in these enablers to strengthen the foundation and future of our business . we also believe our enhanced scale and capabilities allow us to continue to focus on innovative cost and revenue synergies , while improving the value provided to our students . critical accounting policies and estimates “ management 's discussion and analysis of financial condition and results of operations ” discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and the related disclosures of contingent 56 table of contents assets and liabilities . on an ongoing basis , management evaluates its estimates and judgments related to its allowance for credit losses ; income tax provisions ; the useful lives of property and equipment and intangible assets ; redemption rates for scholarship programs and valuation of contract liabilities ; fair value of right-of-use lease assets for facilities that have been vacated ; incremental borrowing rates ; valuation of deferred tax assets , goodwill , and intangible assets ; forfeiture rates and achievability of performance targets for stock-based compensation plans ; and accrued expenses . management bases its estimates and judgments on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . management regularly reviews its estimates and judgments for reasonableness and may modify them in the future . actual results may differ from these estimates under different assumptions or conditions . management believes that the following critical accounting policies are its more significant judgments and estimates used in the preparation of its consolidated financial statements . revenue recognition — like many traditional institutions in the united states , strayer university and capella university offer educational programs primarily on a quarter system having four academic terms , which generally coincide with our quarterly financial reporting periods . torrens university offers the majority of its education programs on a trimester system having three primary academic terms , which all occur within one calendar year . approximately 96 % of our revenues during the year ended december 31 , 2020 consisted of tuition revenue . capella university offers monthly start options for new students , who then transition to a quarterly schedule . capella university also offers its flexpath program , which allows students to determine their 12-week billing session schedule after they complete their first course . tuition revenue for all students is recognized ratably over the course of instruction as the universities and the schools offering non-degree programs provide academic services , whether delivered in person at a physical campus or online . tuition revenue is shown net of any refunds , withdrawals , corporate discounts , scholarships , and employee tuition discounts . the universities also derive revenue from other sources such as textbook-related income , certificate revenue , certain academic fees , licensing revenue , accommodation revenue , food and beverage fees , and other income , which are all recognized when earned . in accordance with asc 606 , materials provided to students in connection with their enrollment in a course are recognized as revenue when control of those materials transfers to the student . at the start of each academic term or program , a contract liability is recorded for academic services to be provided , and a tuition receivable is recorded for the portion of the tuition not paid in advance . any cash received prior to the start of an academic term or program is recorded as a contract liability . students at strayer university and capella university finance their education in a variety of ways , and historically about three quarters of our students have participated in one or more financial aid program provided through title iv of the higher education act . in addition , many of our working adult students finance their own education or receive full or partial tuition reimbursement from their employers .
| results of operations as discussed above , we completed our merger with cec on august 1 , 2018 and our acquisition of anz on november 3 , 2020. our results of operations include the results of cec and the results of anz from their respective acquisition dates . periods prior to august 1 , 2018 do not include the financial results of cec , and periods prior to november 3 , 2020 do not include the financial results of anz . accordingly , the financial results of each period presented are not directly comparable . in 2020 , we generated $ 1,027.7 million in revenue compared to $ 997.1 million in 2019. our income from operations decreased to $ 109.4 million in 2020 compared to $ 110.5 million in 2019 , principally due to the inclusion of anz , which generated a $ 13.3 million loss from operations following the acquisition as well as restructuring costs incurred in 2020 , partially offset by a decrease in merger and integration related costs and an increase in strayer university and capella university revenue due to enrollment growth . our net income in 2020 was $ 86.3 million compared to $ 81.1 million in 2019. diluted earnings per share was $ 3.77 in 2020 compared to $ 3.67 in 2019. in the accompanying analysis of financial information for 2020 and 2019 , we use certain financial measures including adjusted revenue , adjusted total costs and expenses , adjusted income from operations , adjusted operating margin , adjusted income before income taxes , adjusted net income , and adjusted diluted earnings per share that are not required by or prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) .
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api cryptek was the successful bidder of the cryptek assets at the sale , by bidding the total story_separator_special_tag business overview of api technologies corp. we design , develop and manufacture highly engineered solutions , systems , robotics , secure communications and electronic components for military and aerospace applications , including mission critical information systems and technologies . we own and operate several state-of-the-art manufacturing facilities in north america and the united kingdom . our customers , which include military prime contractors , and the contract manufacturers who work for them , in the united states , canada , the united kingdom and various other countries in the world , outsource many of their defense electronic components and systems to us as a result of the combination of our design , development and manufacturing expertise . operating through two segments , engineered systems and components , and secure communications , we are positioned as a total engineered solution provider to various world governments , as well as military , defense , aerospace and homeland security contractors . we provide a wide range of electronic manufacturing services from prototyping to high volume production , with specialization in high speed surface mount circuit card assembly for military and commercial organizations . our manufacturing and design products have recently been expanded to include secure communication products , including ruggedized computers and peripherals , network security appliances , and tempest emanation prevention products . prior to the acquisition of cryptek , our operations were conducted in two reportable segments which were distinguished by geographic location in canada and united states . both geographical segments designed and manufactured electronic components . the july 2009 cryptek acquisition expanded our manufacturing and design of products to include secured communication products , including ruggedized computer products , network security appliances , and tempest emanation prevention products . these newly acquired product lines contributed approximately $ 22,222,972 , to net sales in the year ended may 31 , 2010. the newly acquired product lines from the kgc companies contributed approximately $ 23,237,000 , to net sales from january 20 , 2010 to may 31 , 2010. following the acquisitions of the assets of cryptek and the assets of the kgc companies in july 2009 and january 2010 , respectively , api had operating facilities in ronkonkoma and hauppauge , new york , somerset , new jersey , and ottawa , ontario , as well as windber , pennsylvania , sterling , virginia , south plainfield , new jersey , and gloucester , united kingdom . commencing in may 2010 , we began a cost cutting initiative to rationalize the number of facilities and personnel which will result in us consolidating our manufacturing operations from eight facilities into three facilities . as at july 31 , 2010 , we had closed and sold our hauppauge , new york manufacturing facility and completed the consolidation of our two canadian facilities into one manufacturing location . we expect the rest of this process to be completed by december 2010 and should result in the reduction of approximately $ 4 million in annual costs . on february 22 , 2010 , we announced that we were closing our nanotechnology research and development subsidiary based in somerset , new jersey . this business had historically been unprofitable and the closure is expected to improve our operating results and allow us to deploy our capital and management resources on our expanding defense business . the assets of the business were sold in june 2010. operating revenues we derive operating revenues from the sales in two principal business segments : engineered systems and components and secure communications . the asset acquisition of cryptek on july 7 , 2009 resulted in the creation of our new secure communications product line , and the asset acquisition of the kgc companies on january 20 , 2010 significantly expanded our engineered systems and components revenues . our customers are located primarily in the united states , canada and the united kingdom , but we also sell products to customers located throughout the world , including nato and european union countries . 32 engineered systems and components revenue includes high speed surface mount circuit card assembly for military prime contractors and advanced weapon systems including missiles , unmanned air , ground and robotic systems , other products include naval aircraft landing and launching systems , radar systems alteration , aircraft ground support equipment , aircraft radar indication systems using liquid crystal display ( lcd ) technology and other mission critical systems and components . the main demand today for our engineered systems and components products come from various world governments , including militaries , defense organizations , aerospace , homeland security and prime defense contractors . secure communications revenue includes revenues derived from the manufacturing of tempest and emanation products and services , ruggedized computers and peripherals , network security appliances and software . the principal market for these products are the defense industries of the united states , canada and the united kingdom and other nato and european union countries . these products and systems include : tempest and emanation products and services , ruggedized computers and peripherals , network security appliances and software . cost of revenue we conduct all of our design and manufacturing efforts in the united states , canada and united kingdom . cost of goods sold primarily consists of costs that were incurred to design , manufacturer , test and ship the products . these costs include raw materials , including freight , direct labor , tooling required to design and build the parts , and the cost of testing ( labor & equipment ) the products throughout the manufacturing process and final testing before the parts are shipped to the customer . other material costs include provision for obsolete and slow moving inventory , and restructuring charges related to the consolidation of operations . operating expenses operating expenses consist of selling , general , administrative expenses , research and development , business acquisition and related charges and other income or expenses . story_separator_special_tag 35 story_separator_special_tag consisted mainly of the asset acquisitions of cryptek and the kgc companies for net cash of approximately $ 2,935,000 and $ 14,000,000 , respectively , the sale of a parcel of land the company owned in new york for proceeds of approximately $ 956,000 and from the sale of a building the company owned in canada for proceeds of approximately $ 1,871,000 , net of capital purchases of approximately $ 1,624,000. cash flow from financing activities for fiscal 2010 totaled $ 23,294,572 , which are primarily from net proceeds of $ 3,650,000 ( 2009- $ 0 ) from the issuance of convertible debt and $ 20,000,000 in promissory notes issued in connection with the acquisition of the assets of cryptek and the kgc companies , respectively , and approximately $ 698,000 borrowings from a secured line of credit , net against repayment of long-term debt of approximately $ 483,000 and approximately $ 570,000 of repurchases of common stock . in 2009 , cash flow from financing activities was approximately $ 999,000 , primarily as a result from the issuance of common shares . we believe that cash flows from operations , cash and cash equivalents of $ 4,496,000 and funds available under our credit facilities will be sufficient to meet our anticipated cash requirements for the next twelve months . summary of critical accounting policies and estimates our significant accounting policies are fully described in the notes to our consolidated financial statements . some of our accounting policies involved estimates that required management 's judgment in the use of assumptions about matters that were uncertain at the time the estimate was made . different estimates , with respect to key variables used for the calculations , or changes to estimates , could potentially have had a material impact on our financial position or results of operations . the development and selection of the critical accounting estimates are described below . principles of consolidation the consolidated financial statements include the accounts of api technologies corp. , together with its wholly-owned subsidiaries . all significant inter-company transactions and balances have been eliminated upon consolidation . accounting estimates the preparation of financial statements in conformity with generally accepted accounting principle in the united states requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements , and the disclosures made in the accompanying notes . examples of estimates include the provisions made for bad debts and obsolete inventory , estimates associated with annual goodwill impairment tests , and estimates of deferred income tax and liabilities . the company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of machinery and equipment , other long-lived assets , fixed assets held for sale and discontinued operations and in determining their remaining economic lives . in addition , the company uses assumptions when employing the black-scholes valuation model to estimate the fair value of stock options . despite the company 's intention to establish accurate estimates and use reasonable assumptions , actual results may differ from these estimates . cash and cash equivalents cash and cash equivalents consist of cash on hand , bank balances and investments in money market instruments with original maturities of three months or less . marketable securities the company 's investments in marketable equity securities are classified as available for sale . securities available for sale are carried at fair value using a market participant approach , with any unrealized holding gains 38 and losses , net of income taxes , reported as a component of accumulated other comprehensive income ( loss ) . marketable equity and debt securities available for sale are classified in the consolidated balance sheets as current assets . the cost of each specific security sold is used to compute realized gains or losses on the sale of securities available for sale . inventory inventories , which include materials , labor , and manufacturing overhead , are stated at the lower of cost ( first-in , first-out basis ) or net realizable value . the company records a provision for both excess and obsolete inventory when write-downs or write-offs are identified . the inventory valuation is based upon assumptions about future demand , product mix and possible alternative uses . fixed assets fixed assets are recorded at cost less accumulated depreciation and are depreciated using the following methods over the following periods : straight line basis buildings and buildings and leasehold improvements 5-40 years computer equipment 3 years furniture and fixtures 5 years machinery and equipment 5 to 10 years vehicles 3 years betterments are capitalized and amortized by the company , using the same amortization basis as the underlying assets over the remaining useful life of the original asset . betterments include renovations , major repairs and upgrades that increase the service of a fixed asset and extend the useful life . gains and losses on depreciable assets retired or sold are recognized in the consolidated statements of operations in the year of disposal . repairs and maintenance expenditures are expensed as incurred . fixed assets held for sale fixed assets held for sale have been classified as held for sale in the consolidated balance sheets . the company estimated the fair value of the net assets to be sold in fiscal 2010 at approximately $ 930,000 compared to $ 2,500,000 at may 31 , 2009. the decrease is primarily attributed to the sale of land it owned adjacent to one of the company 's manufacturing sites in the united states and the sale of land and a building of a manufacturing site in canada . discontinued operations components of the company that have been or will be disposed of are reported as discontinued operations .
| general and administrative expenses general and administrative expenses from continuing operations increased to $ 11,980,230 for the year ended may 31 , 2010 from $ 5,260,490 for the year ended may 31 , 2009. the increase is a result of the addition of cryptek and the kgc companies , which increased general and administrative expenses by approximately $ 6,185,000 for the year ended may 31 , 2010. the major components of general and administrative expenses are as follows : replace_table_token_10_th research and development expenses research and development costs from continuing operations increased to $ 2,199,855 for the year ended may 31 , 2010 from $ 840,788 for the year ended may 31 , 2009. the increase is due primarily to an increase of research and development expenses in the amounts of approximately $ 1,113,000 and $ 135,000 due to the asset acquisitions of cryptek and the kgc companies , respectively . business acquisition and related charges business acquisition charges primarily represent costs of engaging outside legal , accounting , due diligence and business valuation consultants related to business combinations . for the year ended may 31 , 2010 , business acquisition and related charges totaled approximately $ 2,454,000 compared to $ 0 for the year ended may 31 , 2009. the asset acquisitions of cryptek and the kgc companies account for $ 938,000 and $ 1,442,000 , respectively . selling expenses selling expenses from continuing operations increased to $ 3,352,373 for the year ended may 31 , 2010 from $ 2,020,367 for the year ended may 31 , 2009. the increase was largely due to the inclusion of selling expenses related to the asset acquisitions of cryptek and the kgc companies on july 7 , 2009 and january 20 , 2010 , respectively .
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the cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report . factors that could cause or contribute to these differences include those discussed in `` item 1a . risk factors , '' as well as those discussed elsewhere . you should read `` item 1a . risk factors '' and `` special note regarding forward-looking statements . '' our actual results could differ materially from those discussed here . factors that could cause or contribute to these differences include , but are not limited to : the covid-19 pandemic and accompanying government policies worldwide ; future economic instability in the global economy , which could affect spending on internet services ; the impact of changing foreign exchange rates ( in particular the euro to us dollar and canadian dollar to us dollar exchange rates ) on the translation of our non-us dollar denominated revenues , expenses , assets and liabilities into us dollars ; legal and operational difficulties in new markets ; the imposition of a requirement that we contribute to the us universal service fund on the basis of our internet revenue ; changes in government policy and or regulation , including rules regarding data protection , cyber security and net neutrality ; increasing competition leading to lower prices for our services ; our ability to attract new customers and to increase and maintain the volume of traffic on our network ; the ability to maintain our internet peering arrangements on favorable terms ; our ability to renew our long-term leases of optical fiber that comprise our network ; our reliance on an equipment vendor , cisco systems inc. , and the potential for hardware or software problems associated with such equipment ; the dependence of our network on the quality and dependability of third-party fiber providers ; our ability to retain certain customers that comprise a significant portion of our revenue base ; the management of network failures and or disruptions ; our ability to make payments on our indebtedness as they become due and outcomes in litigation as well as other risks discussed from time to time in our filings with the securities and exchange commission , including , without limitation , this annual report on form 10-k and our quarterly reports on form 10-q . story_separator_special_tag price per megabit will continue to decline at similar rates . the impact of foreign exchange rates has a more significant impact on our net-centric revenues . our on-net revenues increased by 5.7 % from 2019 to 2020. our on-net revenues increased as we increased the number of our on-net customer connections by 3.7 % at december 31 , 2020 from december 31 , 2019. on-net revenues increased at a greater rate than on-net customer connections primarily due to an increase in our usage based revenues , a relatively stable on-net arpu from 2019 to 24 2020 and the positive impact of foreign exchange . arpu is determined by dividing revenue for the period by the average customer connections for that period . our off-net revenues decreased by 0.5 % from 2019 to 2020. our off-net revenues decreased as the 4.7 % decrease in our off-net arpu more than offset the 2.7 % increase in the number of our off-net customer connections from december 31 , 2019 to december 31 , 2020. network operations expenses . network operations expenses include the costs of personnel associated with service delivery , network management , and customer support , network facilities costs , fiber and equipment maintenance fees , leased circuit costs , access and facilities fees paid to building owners and excise taxes billed to our customers and recorded on a gross basis . non-cash equity-based compensation expense is included in network operations expenses consistent with the classification of the employee 's salary and other compensation . our network operations expenses , including non-cash equity-based compensation expense , decreased by 0.3 % from 2019 to 2020. the decrease in network operations expense is primarily attributable to an increase in costs related to our network and facilities expansion activities , offset by price reductions obtained in certain of our leased circuit costs , fewer operating leases for dark fiber and the impact of a renewal of an iru fiber lease agreement in the second quarter of 2020. we adopted leases ( “ asu 2016-02 ” ) on january 1 , 2019. when we adopted asu 2016-02 we elected to apply certain practical expedients under asu 2016-02 including not separating lease and nonlease components on our finance and operating leases . as a result of accounting for this iru renewal under asu 2016-02 , the present value of $ 1.8 million of quarterly maintenance and co-location fees ( non-lease components ) that were previously accounted for as network operations expenses prior to the second quarter of 2020 , were capitalized as a finance lease liability and right-of-use leased asset totaling $ 34.0 million . amortization of the right-of-use asset is recorded as depreciation and amortization expense and the payments that are made toward the finance lease liability are recorded as a reduction of the finance lease liability and interest expense . selling , general , and administrative expenses ( “ sg & a ” ) . our sg & a expenses , including non-cash equity-based compensation expense , increased by 7.9 % from 2019 to 2020. non-cash equity-based compensation expense is included in sg & a expenses consistent with the classification of the employee 's salary and other compensation and was $ 22.3 million for 2020 and $ 17.5 million for 2019. sg & a expenses increased primarily from an increase in salaries and related costs required to support our expansion and increases in our sales efforts and an increase in our headcount . story_separator_special_tag insufficient funds may require us to delay or scale back the number of buildings and markets that we add to our network , reduce our planned increase in our sales and marketing efforts , or require us to otherwise alter our business plan or take other actions that could have a material adverse effect on our business , results of operations and financial condition . if issuing equity securities raises additional funds , substantial dilution to existing stockholders may result . we may need to or elect to refinance all or a portion of our indebtedness at or before maturity and we can not provide assurances that we will be able to refinance any such indebtedness on commercially reasonable terms or at all . in addition , we may elect to secure additional capital in the future , at acceptable terms , to improve our liquidity or fund acquisitions or for general corporate purposes . in addition , in an effort to reduce future cash interest payments as well as future amounts due at maturity or to extend debt maturities , we may , from time to time , issue new debt , enter into debt for debt , or cash transactions to purchase our outstanding debt securities in the open market or through privately negotiated transactions . we will evaluate any such transactions in light of the existing market conditions . the amounts involved in any such transaction , individually or in the aggregate , may be material . we or our affiliates may , at any time and from time to time , seek to retire or purchase our outstanding debt through cash purchases and or exchanges for equity or debt , in open-market purchases , privately negotiated transactions or otherwise . such repurchases or exchanges , if any , will be upon such terms and at such prices as we may determine , and will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved may be material . in light of the economic uncertainties associated with the covid-19 pandemic , our executive officers and board have continued to carefully monitor our liquidity and cash requirements . based on current circumstances , we plan to continue our current dividend policy . given uncertainties regarding the duration of the pandemic and timing for economic recovery , we will continue to monitor our capital spending . as we do each year , we will continue to monitor our future sources and uses of cash , and anticipate that we will make adjustments to our capital allocation strategies when , as and if determined by our board of directors . impact of covid-19 on our liquidity and operating performance in late march 2020 , we adopted a mandatory work-from-home policy through which we required all employees to work from home and follow shelter in place guidelines issued by state and local authorities . we believe we have been able to continue to operate effectively with the use of laptops , remote connectivity and the continued support of our critical support employees . further , we severely curtailed all business travel and adopted new safety procedures for our on-site technical personnel and customers accessing our data centers . while we are contemplating a voluntary return to in-office presence for a small number of our offices , we expect to continue to have the vast majority of our workforce to work remotely for the foreseeable future . we believe the policies followed by our workforce and the support provided by our it and other groups has enabled our employees to continue to perform tasks and activities that are essential for the operation of our network , our sales and marketing efforts and other support functions . we experienced some delays with respect to the installation of new services in march and april of 2020 when certain multi-tenant office buildings were closed to our personnel . we worked with local authorities and building owners to categorize our employees as essential workers who need priority access to buildings . we believe that our disruption in access to buildings was effectively mitigated throughout our second and third quarters . in april and may 2020 , we waived late fees for customers who were unable to pay their bills due to the pandemic . we have not encountered any material change in the payment profile of our customers or seen any significant increase in customer turnover since the beginning of the pandemic . there can be no assurance that we will continue to experience normal operations as economic 26 dislocations may adversely affect our customers and may lead to higher customer turnover , bad debt expense and lower revenue and profitability . we continue to operate with a high level of liquidity and as of december 31 , 2020 we had cash and cash equivalents of approximately $ 371.3 million . we have recently experienced certain corporate customers taking a more cautious approach to new configurations and upgrades as well as a reduction in demand for connecting smaller satellite offices as a result of the challenges and uncertainties of the covid-19 pandemic . we also have witnessed a deteriorating real estate market in and around the buildings we service with rising vacancy levels and falling lease initiations or renewals . rising vacancy levels and falling lease initiations or renewals meant fewer sales opportunities for our salesforce . as a result , we experienced a slowdown in new sales to our corporate customers which negatively impacted our corporate revenue growth in 2020. while we believe that demand for office space in the buildings in which we operate will remain among the strongest in our markets , we may experience increased customer turnover , fewer upgrades of existing customer configurations and fewer new tenant opportunities . these trends may negatively impact our revenue growth , cash flows and profitability . shortly after covid-19 began its rapid spread around the world , domestic and worldwide capital markets ceased operating for a short period .
| results of operations year ended december 31 , 2020 compared to the year ended december 31 , 2019 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. our management reviews and analyzes several key financial measures in order to manage our business and assess the quality and variability of our service revenue , operating results and cash flows . the following summary tables present a comparison of our results of operations with respect to certain key financial measures . the comparisons illustrated in the tables are discussed in greater detail below . replace_table_token_3_th ( 1 ) includes non-cash equity-based compensation expense of $ 1,219 and $ 994 for 2020 and 2019 , respectively . ( 2 ) includes non-cash equity-based compensation expense of $ 22,306 and $ 17,466 for 2020 and 2019 , respectively . 23 nm - not meaningful replace_table_token_4_th service revenue . we continually work to grow our total service revenue by increasing the number of potential customers that we can reach on our network . we do this by investing capital to expand the geographic footprint of our network and by increasing the number of buildings that we are connected to , including carrier neutral data centers and multi-tenant office buildings . these efforts broaden the global reach of our network and increase the size of our potential addressable market . we also seek to grow our service revenue by investing in our sales and marketing team .
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the company had worked to reduce ggs 's seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings throughout the year . in june 1999 , ggs was awarded a four-year contract to supply deicing equipment to the united states air force ( “ usaf ” ) , and subsequently was awarded two three-year extensions on the contract , which expired in june 2009. in july 2009 , ggs was awarded a one-year contract with the usaf with four additional one-year extension options which have been exercised . on may 15 , 2014 , ggs was awarded a new two-year contract with four additional one-year extension options to continue to supply deicing trucks to the usaf . although ggs has retained the usaf deicer contract , orders under the expiring contract have decreased to the point where usaf revenues were less than 4 % of ggs revenues in the year ended march 31 , 2014. as a result , ggs revenues and operating income are once again seasonal in nature , particularly with regard to commercial deicers which typically are delivered prior to the winter season , with revenues and operating income for the segment typically being lower in the first and fourth fiscal quarters . the overnight air cargo and ground support services segments are not susceptible to seasonal trends . critical accounting policies and estimates the company 's significant accounting policies are more fully described in note 1 of notes to the consolidated financial statements in item 8. the preparation of the company 's consolidated financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most significant accounting policies : allowance for doubtful accounts . an allowance for doubtful accounts receivable is established based on management 's estimates of the collectability of accounts receivable . the required allowance is determined using information such as customer credit history , industry information , credit reports , customer financial condition and the collectability of outstanding accounts receivables . the estimates can be affected by changes in the financial strength of the aviation industry , customer credit issues or general economic conditions . 15 inventories . the company 's parts inventories are valued at the lower of cost or market . provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories . historical parts usage , current period sales , estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates . estimates are subject to volatility and can be affected by reduced equipment utilization , existing supplies of used inventory available for sale , the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry . warranty reserves . the company warranties its ground equipment products for up to a three-year period from date of sale . product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known . income taxes . income taxes have been provided using the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . revenue recognition . cargo revenue is recognized upon completion of contract terms . maintenance and ground support services revenue is recognized when the service has been performed . revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer . recent accounting pronouncements we do not believe there are any recently issued accounting standards that have not yet been adopted that will have a material impact on the company 's financial statements . forward looking statements certain statements in this report , including those contained in “ overview , ” are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 with respect to the company 's financial condition , results of operations , plans , objectives , future performance and business . forward-looking statements include those preceded by , followed by or that include the words “ believes ” , “ pending ” , “ future ” , “ expects , ” “ anticipates , ” “ estimates , ” “ depends ” or similar expressions . these forward-looking statements involve risks and uncertainties . actual results may differ materially from those contemplated by such forward-looking statements , because of , among other things , potential risks and uncertainties , such as : · economic conditions in the company 's markets ; · the risk that contracts with fedex could be terminated or adversely modified in connection with any renewal ; · the risk that the number of aircraft operated for fedex will be further reduced ; · the risk that the united states air force will continue to defer significant orders for deicing equipment under its contracts with ggs ; · the impact of any terrorist activities on united states soil or abroad ; · the story_separator_special_tag the company had worked to reduce ggs 's seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings throughout the year . in june 1999 , ggs was awarded a four-year contract to supply deicing equipment to the united states air force ( “ usaf ” ) , and subsequently was awarded two three-year extensions on the contract , which expired in june 2009. in july 2009 , ggs was awarded a one-year contract with the usaf with four additional one-year extension options which have been exercised . on may 15 , 2014 , ggs was awarded a new two-year contract with four additional one-year extension options to continue to supply deicing trucks to the usaf . although ggs has retained the usaf deicer contract , orders under the expiring contract have decreased to the point where usaf revenues were less than 4 % of ggs revenues in the year ended march 31 , 2014. as a result , ggs revenues and operating income are once again seasonal in nature , particularly with regard to commercial deicers which typically are delivered prior to the winter season , with revenues and operating income for the segment typically being lower in the first and fourth fiscal quarters . the overnight air cargo and ground support services segments are not susceptible to seasonal trends . critical accounting policies and estimates the company 's significant accounting policies are more fully described in note 1 of notes to the consolidated financial statements in item 8. the preparation of the company 's consolidated financial statements in conformity with accounting principles generally accepted in the united states requires the use of estimates and assumptions to determine certain assets , liabilities , revenues and expenses . management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions . the company 's estimates and assumptions could change materially as conditions within and beyond our control change . accordingly , actual results could differ materially from estimates . the company believes that the following are its most significant accounting policies : allowance for doubtful accounts . an allowance for doubtful accounts receivable is established based on management 's estimates of the collectability of accounts receivable . the required allowance is determined using information such as customer credit history , industry information , credit reports , customer financial condition and the collectability of outstanding accounts receivables . the estimates can be affected by changes in the financial strength of the aviation industry , customer credit issues or general economic conditions . 15 inventories . the company 's parts inventories are valued at the lower of cost or market . provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories . historical parts usage , current period sales , estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates . estimates are subject to volatility and can be affected by reduced equipment utilization , existing supplies of used inventory available for sale , the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry . warranty reserves . the company warranties its ground equipment products for up to a three-year period from date of sale . product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known . income taxes . income taxes have been provided using the asset and liability method . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . revenue recognition . cargo revenue is recognized upon completion of contract terms . maintenance and ground support services revenue is recognized when the service has been performed . revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer . recent accounting pronouncements we do not believe there are any recently issued accounting standards that have not yet been adopted that will have a material impact on the company 's financial statements . forward looking statements certain statements in this report , including those contained in “ overview , ” are “ forward-looking ” statements within the meaning of the private securities litigation reform act of 1995 with respect to the company 's financial condition , results of operations , plans , objectives , future performance and business . forward-looking statements include those preceded by , followed by or that include the words “ believes ” , “ pending ” , “ future ” , “ expects , ” “ anticipates , ” “ estimates , ” “ depends ” or similar expressions . these forward-looking statements involve risks and uncertainties . actual results may differ materially from those contemplated by such forward-looking statements , because of , among other things , potential risks and uncertainties , such as : · economic conditions in the company 's markets ; · the risk that contracts with fedex could be terminated or adversely modified in connection with any renewal ; · the risk that the number of aircraft operated for fedex will be further reduced ; · the risk that the united states air force will continue to defer significant orders for deicing equipment under its contracts with ggs ; · the impact of any terrorist activities on united states soil or abroad ; · the
| fiscal 2014 summary revenues for our overnight air cargo segment totaled $ 52,342,000 for the year ended march 31 , 2014 , representing a $ 2,491,000 ( 5 % ) increase over the prior year . the segment saw its operating income decrease by $ 949,000 or 31 % in fiscal 2014. while revenues were up primarily as a result of an increase in maintenance costs passed through to our customer at cost , operating income decreased as a result of a number of factors including fedex transferring two atr aircraft to other operators to meet scheduling needs during the past year , increased maintenance labor costs as well as increased rent and repair costs at its heavy maintenance facility . revenues for ggs totaled $ 31,510,000 for the year ended march 31 , 2014 , a decrease of $ 8,784,000 ( 22 % ) from the prior year , while operating income increased by $ 1,509,000 or 170 % . the decrease in ggs revenues is attributable to a $ 6.9 million decrease in sales of flight-line tow tractors and a $ 7.3 million decrease in sales of deicers under the contracts with the usaf , offset partially by a $ 5.3 million increase in sales of commercial deicers . gross margins improved approximately eight percentage points in the segment compared to the prior year as a result of continuing efforts to improve production efficiencies and a change in the product and customer mix , specifically a substantial reduction in the sale of very low margin flight-line tow tractors to the usaf . during the year ended march 31 , 2014 , revenues from our gas subsidiary totaled $ 16,920,000 , representing a $ 4,001,000 ( 31 % ) increase from the prior year .
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the applicable interest rate for the $ 60 million loan will be 3.22 % per annum through september 15 , 2021 at which time the interest rate will reset in accordance with the foregoing formula . in return , the company agreed to issue to treasury warrants to purchase shares of the company 's common stock based on a debt coverage ratio and amounts drawn under the facility . the company issued warrants to purchase 211,416 shares of the company 's common stock to treasury in conjunction with the story_separator_special_tag the following discussion and analysis presents factors that had a material effect on our results of operations during the years ended december 31 , 2020 , 2019 and 2018. also discussed is our financial position as of december 31 , 2020 and 2019. you should read this discussion in conjunction with our consolidated financial statements , including the notes thereto , appearing elsewhere in this report or incorporated herein by reference . this discussion and analysis contains forward-looking statements . please refer to the sections of this report entitled “ cautionary statement concerning forward-looking statements ” and “ item 1a . risk factors ” for discussion of some of the uncertainties , risks and assumptions associated with these statements . this section of this annual report on form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this annual report on form 10-k can be found in the section entitled “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the year ended december 31 , 2019 . overview we have the largest regional airline operation in the united states . as of december 31 , 2020 , we offered scheduled passenger and air freight service with approximately 1,770 total daily departures to destinations in the united states , canada , mexico and the caribbean . the number of flights we operated during 2020 was negatively impacted by the covid-19 pandemic . see competition and economic conditions section for additional information regarding the covid-19 impact on our operations on page 5. as of december 31 , 2020 , we had 601 total aircraft in our fleet , including 452 aircraft in scheduled service under our code-share agreements , summarized as follows : replace_table_token_6_th * as of december 31 , 2020 , these aircraft have been removed from service and are in the process of being placed under a leasing arrangement with a third party , are aircraft transitioning between code-share agreements with our major airline partners and being used as supplemental spare aircraft , are available for future code-share agreements or are in the process of being parted out . our business model is based on providing scheduled regional airline service under code-share agreements ( commercial agreements between airlines that , among other things , allow one airline to use another airline 's flight designator codes on its flights ) with our major airline partners . our success is principally centered on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics . the covid-19 pandemic had a significant impact to our operations including a reduction in the number of flights we were scheduled to operate during 2020 and changes we made to enhance the safety of our passengers and employees , including aircraft cleaning procedures and use of personal protective equipment . during the 2020 calendar year , we made several changes to our fleet count under our flying agreements , including the addition of 37 new e175 aircraft , and the removal of four crj900 aircraft , four crj700 aircraft and 60 crj200 aircraft . additionally , during the 2020 calendar year , we increased the number of crj700 aircraft we leased to third parties from 10 aircraft to 34 aircraft . leases on two crj200 aircraft with third parties terminated during 2020 . 32 we anticipate our fleet will continue to evolve , as we are scheduled to add 20 new e175 aircraft with american , 25 used crj700 aircraft with american and one new crj900 aircraft with delta by the end of 2022. timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to the covid-19 pandemic 's impact on demand . our primary objective in the fleet changes is to improve our profitability by adding new e175 aircraft to capacity purchase agreements , and potentially removing older aircraft from service that typically require more maintenance cost . for the year ended december 31 , 2020 , approximately 47.1 % of our aircraft in scheduled service were operated for united , approximately 31.4 % were operated for delta , approximately 14.4 % were operated for american and approximately 7.1 % were operated for alaska . historically , multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of capacity purchase arrangements and our prorate flying arrangements . for the year ended december 31 , 2020 , contract flying revenue and prorate revenue represented approximately 87.0 % and 13.0 % , respectively , of our total flying agreements revenue . on contract routes , the major airline partner controls scheduling , ticketing , pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours ( measured from takeoff to landing , including taxi time ) , flight departures , the number of aircraft under contract and other operating measures . story_separator_special_tag the $ 106.9 million , or 29.0 % , increase in depreciation and amortization expense was primarily due to a shortened estimated useful life of our owned crj200 fleet that resulted in approximately $ 74.5 million of incremental depreciation expense during 2020. during 2020 , we removed 55 crj200 aircraft from a capacity purchase agreement with delta , of which we returned 19 leased aircraft to the lessor and we own 36 aircraft . we also removed seven crj200 aircraft that we own from a prorate agreement with american . prior to the covid-19 pandemic , we were anticipating the agreement terms for these aircraft would have been extended beyond 2020. as we were unable to extend the flying contracts on these crj200s with our major airline partners and given the age of these aircraft , we shortened the estimated useful life on these aircraft to coincide with the agreement termination dates . our depreciation also increased due to the acquisition of six new e175 aircraft and spare engines since december 31 , 2019 . 36 airport-related expenses . airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services , airport security fees , passenger interruption costs , deicing , landing fees and station rents . for clarity , our employee airport customer service labor costs are reflected in salaries , wages and benefits and customer service labor costs we outsource to third parties are included in airport-related expenses . the $ 25.0 million , or 21.0 % , decrease in airport-related expenses was primarily due to a decrease in airport service activities as a result of covid-19 related flight schedule reductions . aircraft rentals . the $ 6.7 million , or 9.3 % , decrease in aircraft rentals was primarily related to a reduction of our fleet size that was financed through leases from third parties as a result of scheduled lease expirations subsequent to december 31 , 2019 . aircraft fuel . the $ 57.4 million , or 48.2 % , decrease in fuel cost was primarily due to a decrease in the number of flights we operated under our prorate agreements and corresponding decrease in gallons of fuel we purchased and a decrease in our average fuel cost per gallon from $ 2.51 in 2019 to $ 1.89 in 2020. we purchase and incur expense for all fuel on flights operated under our prorate agreements . all fuel costs incurred under our capacity purchase contracts are either purchased directly by our major airline partner , or if purchased by us , we record the direct reimbursement as a reduction to our fuel expense . the following table summarizes the gallons of fuel we purchased under our prorate agreements , for the periods indicated : replace_table_token_12_th cares act payroll support grant . in april 2020 , we entered into an agreement with treasury and received $ 450.7 million in emergency relief through the cares act payroll support program through 2020 , of which $ 345.5 million was in the form of payroll support grants that are being recognized as a reduction in labor expense over the periods the grants are intended to compensate . we recognized $ 345.5 million in payroll support grant proceeds we received as a reduction to our operating expenses in 2020. we did not have a comparable payroll support grant in 2019 . special items . the $ 21.9 million special items expense for 2019 related to a non-cash write-off of $ 18.5 million in aircraft manufacturer part credits that we forfeited to settle future lease return obligations with the aircraft manufacturer . the $ 18.5 million of expense was included in the skywest airlines segment . the special items expense also included $ 3.4 million of expense associated with a cash payout of certain expressjet employees ' stock equity grants as part of the sale of expressjet , which was reflected in the expressjet segment . we did not incur comparable special items expense in 2020 . other operating expenses . other operating expenses primarily consist of property taxes , hull and liability insurance , simulator costs , crew per diem , crew hotel costs and credit loss reserves . the $ 20.9 million , or 8.6 % , decrease in other operating expenses was primarily related to a reduction in other operating costs that correspond to the significantly lower number of flights we operated during 2020 compared to 2019 , such as crew per diem , crew hotel costs and simulator costs . these reductions were partially offset by an increase to our credit loss reserves of $ 30.8 million we recorded in 2020 following our adoption of the financial accounting standards board ( “ fasb ” ) “ financial instruments – credit losses ( topic 326 ) , measurement of credit losses on financial instruments ” ( “ topic 326 ” ) on january 1 , 2020. the increase to our credit loss reserves in 2020 was primarily due to a reserve we recorded on a note receivable that originated from our sale of expressjet in 2019 that became uncertain during 2020 due to expressjet ceasing operations in 2020. our credit loss reserves also increased due to reductions in credit ratings during 2020 on certain entities for which we have outstanding accounts receivable or notes receivable . interest expense . the $ 4.6 million , or 3.6 % , decrease in interest expense related to an overall lower effective interest rate on our outstanding debt from 2019 to 2020. our average debt balance , for the 2019 calendar year and the 2020 calendar year was $ 3.1 billion for both periods ( using the average of the beginning and ending balances of each year ) . 37 total airline expenses .
| financial highlights we had total operating revenues of $ 2.1 billion for the year ended december 31 , 2020 , a 28.4 % decrease compared to total operating revenues of $ 3.0 billion for the year ended december 31 , 2019. we had a net loss of $ 8.5 million , or $ 0.17 loss per share , for the year ended december 31 , 2020 , compared to net income of $ 340.1 million , or $ 6.62 per diluted share , for the year ended december 31 , 2019. the significant items affecting our revenue and operating expenses during the year ended december 31 , 2020 are outlined below : revenue the number of aircraft we have in scheduled service and the number of block hours we generate on our flights are primary drivers to our flying agreements revenue under our capacity purchase arrangements . the number of flights we operate and the corresponding number of passengers we carry are the primary drivers to our revenue under our prorate flying agreements . as a result of lower passenger demand from the covid-19 pandemic , the number of aircraft we operated decreased from 483 as of december 31 , 2019 to 452 as of december 31 , 2020 ; the number of block hours decreased from 1.5 million in 2019 to 1.0 in 2020 , or by 33.5 % ; and the number of passengers we carried decreased from 43.7 million in 2019 to 21.3 in 2020 , or by 51.3 % .
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the local television station 's news programming that attracts the largest audience in a market generally will provide a larger audience for its network programming ; and the quality of the other non-network programming carried by the television station . a local television station 's syndicated programming that attracts the largest audience in a market generally will provide larger audience lead-ins to its network programming . a local television station can be the top-rated station in a market , regardless of the national ranking of its affiliated network , depending on the factors or attributes listed above . abc , cbs , fox and nbc , each have affiliations with local television stations that have the largest primetime audience in the local market in which the station operates regardless of the network 's primetime rating . some broadcasting companies believe that network affiliations are the most important component of the value of a station . these companies generally believe that television stations with network affiliations have the most successful local news programming and the network affiliation relationship enhances the audience for local syndicated programming . as a result , these broadcasting companies allocate a significant portion of the purchase price for any station that they may acquire to the network affiliation relationship . we generally have acquired broadcast licenses in markets with a number of commercial television stations equal to or less than the number of television networks seeking affiliates . the methodology we used in connection with the valuation of the stations acquired is based on our evaluation of the broadcast licenses and the characteristics of the markets in which they operated . we believed that in substantially all our markets we would be able to replace a network affiliation agreement with little or no economic loss to our television station . as a result of this assumption , we ascribed no incremental value to the incumbent network affiliation in substantially all our markets in which we operate beyond the cost of negotiating a new agreement with another network and the value of any terms that were more favorable or unfavorable than those generally prevailing in the market . other broadcasting companies have valued network affiliations on the basis that it is the affiliation and not the other attributes of the station , including its broadcast license , which contributes to the operating performance of that station . as a result , we believe that these broadcasting companies include in their network affiliation valuation amounts related to attributes that we believe are more appropriately reflected in the value of the broadcast license or goodwill . 38 in future acquisitions , the valuation of the broadcast licenses and network affiliations may differ from those attributable to our existing stations due to different facts and circumstances for each station and market being evaluated . valuation allowance for deferred tax assets we record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized . while we have considered future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance , in the event that we were to determine that we would not be able to realize all or part of our deferred tax assets in the future , an adjustment to the deferred tax asset would be charged to income in the period in which such a determination was made . revenue recognition we recognize advertising and other program-related revenue during the period in which advertising or programs are aired on our television stations or carried by our web sites or the web sites of our advertiser network . we recognize retransmission consent fees in the period in which our service is delivered . stock-based compensation we estimate the fair value of stock option awards using a black-scholes valuation model . the black-scholes model requires us to make assumptions and judgments about the variables to be assumed in the calculation , including the option 's expected life , the price volatility of the underlying stock and the number of stock option awards that are expected to be forfeited . the expected life represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and our historical exercise patterns . expected volatility is based on historical trends for our class a common stock over the expected term , and prior to 2010 , we used the historical trends of our class a common stock over the expected term , as well as a comparison to peer companies . expected forfeitures are estimated using our historical experience . if future changes in estimates differ significantly from our current estimates , our future stock-based compensation expense and results of operations could be materially impacted . retirement plan we have historically provided a defined benefit retirement plan to our employees who did not receive matching contributions from our company to their 401 ( k ) plan accounts . our pension benefit obligations and related costs are calculated using actuarial concepts . our defined benefit plan is a non-contributory plan under which we made contributions either to : a ) traditional plan participants based on periodic actuarial valuations , which are expensed over the expected average remaining service lives of current employees ; or b ) cash balance plan participants based on 5 % of each participant 's eligible compensation . effective april 1 , 2009 , this plan was frozen and we do not expect to make additional benefit accruals to this plan , however we will continue to fund our existing vested obligations . we contributed $ 5.4 million , $ 0.6 million and $ 3.0 million to our pension plan during the years ended december 31 , 2010 , 2009 and 2008 , respectively . story_separator_special_tag we anticipate contributing approximately $ 5.4 million to our pension plan in 2011 . 39 pension plan assumptions : weighted-average assumptions used to estimate our pension benefit obligations and to determine our net periodic pension benefit cost are as follows : replace_table_token_8_th we used the citigroup pension discount curve to aid in the selection of our discount rate , which we believe reflects the weighted rate of a theoretical high quality bond portfolio consistent with the duration of the cash flows related to our pension liability . we considered the current levels of expected returns on a risk-free investment , the historical levels of risk premium associated with each of our pension asset classes , the expected future returns for each of our pension asset classes and then weighted each asset class based on our pension plan asset allocation to derive an expected long-term return on pension plan assets . during the year ended december 31 , 2010 , our actual rate of return on plan assets was 12.3 % . as a result of the plan freeze during 2009 , we have no further service cost or amortization of prior service cost related to the plan . in addition , because the plan is now frozen and participants became inactive during 2009 , the net losses related to the plan included in accumulated other comprehensive income will now be amortized over the average remaining life expectancy of the inactive participants instead of the average remaining service period . for these reasons , we expect to record a pension benefit of approximately $ 32 thousand in 2011. for every 2.5 % change in the actual return compared to the expected long-term return on pension plan assets and for every 0.25 % change in the actual discount rate compared to the discount rate assumption for 2011 , our 2011 pension expense would change by less than $ 0.1 million . our investment objective is to achieve a consistent total rate-of-return that will equal or exceed our actuarial assumptions and to equal or exceed the benchmarks that we use for each of our pension plan asset class . the following asset allocation is designed to create a diversified portfolio of pension plan assets that is consistent with our target asset allocation and risk policy : replace_table_token_9_th recently issued accounting pronouncements in december 2010 , there were amendments to the goodwill impairment test for reporting units with zero or negative carrying amounts . these amendments modify step one of the goodwill impairment test , requiring units with zero or negative carrying amounts to perform step two of the goodwill impairment test if it is more likely than not that a goodwill impairment exists . the amendments are effective for fiscal years , and interim periods within those years , beginning after december 15 , 2010. we adopted this 40 guidance effective january 1 , 2011 , and do not expect the adoption to have an impact on our interim or annual impairment tests of goodwill . in october 2009 , there were revisions to the accounting standard for revenue arrangements with multiple deliverables . the revisions address how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting . the revisions are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after june 15 , 2010. we adopted this guidance effective january 1 , 2011 , and the adoption did not have a material impact on our financial position or results of operations . results of operations set forth below are the key operating areas that contributed to our results for the years ended december 31 , 2010 , 2009 and 2008. our consolidated financial statements reflect the operations of the banks broadcasting joint venture station as discontinued for all periods presented . as a result , reported financial results may not be comparable to certain historical financial information . prior year performance may not be indicative of future financial performance . our results of operations are as follows ( in thousands ) : replace_table_token_10_th ( a ) refer to note 1 '' basis of presentation and summary of significant accounting policies '' to our consolidated financial statements for a description of the revision to the consolidated statement of operations for the year ended december 31 , 2008. three-year comparison net revenues consist primarily of national , local and political advertising revenues , net of sales adjustments and agency commissions . additional , but less significant amounts , are generated from internet 41 revenues , retransmission consent fees , barter revenues , network compensation , production revenues , tower rental income and station copyright royalties . net revenues during the year ended december 31 , 2010 increased by $ 80.6 million when compared with the prior year . the increase was primarily due to : i ) an increase in political advertising sales of $ 36.2 million ; ii ) an increase in national advertising sales of $ 18.4 million ; iii ) an increase in digital revenues of $ 18.0 million ; iv ) an increase in local advertising sales of $ 17.0 million ; and v ) an increase in other revenues of $ 1.5 million . these increases were partially offset by an increase in agency commissions of $ 10.5 million . the increase in local and national advertising sales during 2010 is primarily due to economic recovery compared to the prior year , which resulted in increased advertising spending in our markets . the automotive category , which represented 23 % of our local and national advertising sales for 2010 , increased by 34 % compared to 2009 , when the automotive category represented 19 % of our local and national advertising sales . the increase in political revenues during the year ended december 31 , 2010 , compared to the prior year , is primarily the result of congressional , state and local
| summary of cash flows the following table presents summarized cash flow information ( in thousands ) : replace_table_token_14_th net cash provided by operating activities increased $ 63.0 million to $ 90.2 million for the year ended december 31 , 2010 , compared to cash provided by operating activities of $ 27.2 million for the prior year . the increase was primarily due to an increase in net revenues of $ 80.6 million , offset by increases of $ 14.9 million in direct operating and $ 5.8 million in selling , general and administrative expenses in 2010 compared to 2009. net cash provided by operating activities decreased $ 56.6 million to $ 27.2 million for the year ended december 31 , 2009 , compared to cash provided by operating activities of $ 83.8 million for the prior year . the decrease was primarily due to a decrease in net revenues of $ 60.3 million , in addition to amounts paid during the year ended december 31 , 2009 of $ 9.5 million related to a restructuring initiated in 2008. net cash used in investing activities increased $ 9.3 million to $ 23.6 million for year ended december 31 , 2010 , compared to cash used in investing activities of $ 14.4 million for the prior year .
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nonemployee director awards may be granted in the form of nsos , stock appreciation rights , restricted stock story_separator_special_tag the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ substantially from those anticipated in these forward-looking statements as a result of many factors , including those set forth under `` risk factors '' and elsewhere in this report . the following discussion should be read together with our consolidated financial statements and the related notes included elsewhere in this report . overview we are a fabless semiconductor company that designs , develops and markets very fast static random access memories , or srams , and low latency dynamic random access memories , or lldrams , primarily for the networking and telecommunications markets . we are subject to the highly cyclical nature of the semiconductor industry , which has experienced significant fluctuations , often in connection with fluctuations in demand for the products in which semiconductor devices are used . our revenues have been substantially impacted by significant fluctuations in sales to cisco systems , our largest customer , and we expect that future direct and indirect sales to cisco systems will continue to fluctuate significantly on a quarterly basis . the worldwide financial crisis and the resulting economic impact on the end markets we serve have adversely impacted our financial results since the second half of fiscal 2009 , and we expect that the unsettled global economic environment will continue to affect our operating results in future periods . however , with no debt , substantial liquidity and a history of positive cash flows from operations , we believe we are in a better financial position than many other companies of our size . 32 revenues . our revenues are derived primarily from sales of our very fast sram products . sales to networking and telecommunications oems accounted for 75 % to 80 % of our net revenues during our last three fiscal years . we also sell our products to oems that manufacture products for defense applications such as radar and guidance systems , for professional audio applications such as sound mixing systems , for test and measurement applications such as high-speed testers , for automotive applications such as smart cruise control and voice recognition systems , and for medical applications such as ultrasound and cat scan equipment . as is typical in the semiconductor industry , the selling prices of our products generally decline over the life of the product . our ability to increase net revenues , therefore , is dependent upon our ability to increase unit sales volumes of existing products and to introduce and sell new products with higher average selling prices in quantities sufficient to compensate for the anticipated declines in selling prices of our more mature products . although we expect the average selling prices of individual products to decline over time , we believe that , over the next several quarters , our overall average selling prices will increase due to a continuing shift in product mix to a higher percentage of higher price , higher density products . our ability to increase unit sales volumes is dependent primarily upon increases in customer demand but , particularly in periods of increasing demand , can also be affected by our ability to increase production through the availability of increased wafer fabrication capacity from tsmc and powerchip , our wafer suppliers , and our ability to increase the number of good integrated circuit die produced from each wafer through die size reductions and yield enhancement activities . we may experience fluctuations in quarterly net revenues for a number of reasons . historically , orders on hand at the beginning of each quarter are insufficient to meet our revenue objectives for that quarter and are generally cancelable up to 30 days prior to scheduled delivery . accordingly , we depend on obtaining and shipping orders in the same quarter to achieve our revenue objectives . in addition , the timing of product releases , purchase orders and product availability could result in significant product shipments at the end of a quarter . failure to ship these products by the end of the quarter may adversely affect our operating results . furthermore , our customers may delay scheduled delivery dates and or cancel orders within specified timeframes without significant penalty . we sell our products through our direct sales force , international and domestic sales representatives and distributors . revenues from product sales , except for sales to distributors , are generally recognized upon shipment , net of sales returns and allowances . sales to consignment warehouses , who purchase products from us for use by contract manufacturers , are recorded upon delivery to the contract manufacturer . sales to distributors are recorded as deferred revenues for financial reporting purposes and recognized as revenues when the products are resold by the distributors to the oem . sales to distributors are made under agreements allowing for returns or credits under certain circumstances . we therefore defer recognition of revenue on sales to distributors until products are resold by the distributor . historically , a small number of oem customers have accounted for a substantial portion of our net revenues , and we expect that significant customer concentration will continue for the foreseeable future . many of our oems use contract manufacturers to manufacture their equipment . accordingly , a significant percentage of our net revenues is derived from sales to these contract manufacturers and to consignment warehouses . in addition , a significant portion of our sales are made to foreign and domestic distributors who resell our products to oems , as well as their contract manufacturers . direct sales to contract manufacturers and consignment warehouses accounted for 42.0. % , 45.1 % and 39.5 % of our net revenues for fiscal 2013 , 2012 and 2011 , respectively . story_separator_special_tag 34 story_separator_special_tag block ; margin-left : 0pt ; margin-right : 0pt '' > fiscal year ended march 31 , 2012 compared to fiscal year ended march 31 , 2011 net revenues . net revenues decreased by 15.6 % from $ 97.8 million in fiscal 2011 to $ 82.5 million in fiscal 2012 largely as a result of excess inventories accumulated by our customers in fiscal 2011 and drawn down in fiscal 2012. direct and indirect sales to cisco systems , our largest customer , decreased by $ 2.8 million from $ 36.2 million in fiscal 2011 to $ 33.4 million in fiscal 2012. net revenues in fiscal 2012 included $ 20.7 million from the sale to cisco of products acquired in our august 28 , 2009 acquisition of the sony sram memory device product line , compared to $ 14.6 million in fiscal 2011. shipments of our sigmaquad product line accounted for 34.5 % of total shipments in fiscal 2012 compared to 31.7 % of total shipments in fiscal 2011. we believe net revenues in the third and fourth quarters of fiscal 2012 were negatively impacted by uncertainty regarding the outcome of our pending patent litigation with cypress . cost of revenues . cost of revenues decreased by 13.4 % from $ 53.0 million in fiscal 2011 to $ 45.9 million in fiscal 2012. this decrease was primarily due to the decrease in net revenues , partially offset by increases in manufacturing overhead expenses as we prepared to support expected increases in the production levels of new and existing products , including our low latency drams . fiscal 2011 cost of revenues included approximately $ 252,000 related to masks valued at approximately $ 604,000 that were acquired in the sony acquisition and that were amortized over four quarters . cost of revenues included stock-based compensation expense of $ 321,000 and $ 300,000 , respectively , in fiscal 2012 and fiscal 2011. gross profit . gross profit decreased by 18.1 % from $ 44.8 million in fiscal 2011 to $ 36.6 in fiscal 2012. gross margin decreased from 45.8 % in fiscal 2011 to 44.4 % in fiscal 2012. the decrease in gross profit was primarily related to the decreased net revenues . the decrease in gross margin was primarily related to the increases in manufacturing overhead expenses described above . research and development expenses . research and development expenses were unchanged at $ 10.6 million in fiscal 2011 and in fiscal 2012. a decrease of $ 727,000 in research and development mask expense was primarily offset by increases in payroll related expenses and stock-based compensation . research and development expenses included stock-based compensation expense of $ 1,061,000 and $ 834,000 , respectively , in fiscal 2012 and fiscal 2011. selling , general and administrative expenses . selling , general and administrative expenses increased 80.5 % from $ 10.7 million in fiscal 2011 to $ 19.4 million in fiscal 2012. this increase was due to an increase of $ 9.3 million in legal fees related to the pending patent infringement and antitrust litigation involving cypress semiconductor corporation , partially offset by a decrease in independent sales representative commissions of $ 475,000 and a lesser decrease in non-legal professional fees . stock-based compensation expense of $ 714,000 and $ 578,000 were included in selling , general and administrative expenses in fiscal 2012 and fiscal 2011 , respectively . 36 interest and other income ( expense ) , net . interest and other income ( expense ) , net increased 13.9 % from $ 461,000 in fiscal 2011 to $ 525,000 in fiscal 2012. interest income decreased by $ 131,000 due to lower interest rates received on our cash and short-term and long-term investments . in addition , we recorded a foreign currency exchange loss of $ 212,000 in fiscal 2011 compared to $ 17,000 in fiscal 2012. the exchange loss in each period was related to our taiwan branch operations . provision for income taxes . the provision for income taxes decreased from $ 5.0 million in fiscal 2011 to $ 425,000 in fiscal 2012. this decrease was due to the decreased pre-tax income and changes in the relative mix of income within operating jurisdictions in fiscal 2012. net income . net income decreased 64.2 % from $ 18.9 million in fiscal 2011 to $ 6.8 million in fiscal 2012. this decrease was primarily due to the decreased net revenues and changes in operating expenses and gross profit discussed above . liquidity and capital resources as of march 31 , 2013 , our principal sources of liquidity were cash , cash equivalents and short-term investments of $ 67.3 million compared to $ 58.7 million as of march 31 , 2012. net cash provided by operating activities was $ 14.7 million for fiscal 2013 compared to $ 17.0 million for fiscal 2012 and $ 13.3 million for fiscal 2011. the primary sources of cash in fiscal 2013 were net income of $ 3.8 million , a reduction in inventory of $ 2.1 million and a reduction in prepaid expenses of $ 2.5 million , offset by a decrease in accounts payable of $ 1.6 million . we have allowed inventory to decrease in response to the slowdown in our business in the past fiscal year . the decrease in accounts payable was primarily due to decreased legal expenses related to the pending patent infringement and antitrust litigation involving cypress semiconductor corporation in fiscal 2013 compared to fiscal 2012. the primary sources of cash in fiscal 2012 were net income of $ 6.8 million and decreases in accounts receivable of $ 4.5 million and inventory of $ 4.0 million , partially offset by an increase in prepaid expenses and other assets of $ 2.6 million and a decrease in deferred revenue of $ 2.6 million .
| results of operations the following table sets forth statement of operations data as a percentage of net revenues for the periods indicated : replace_table_token_5_th fiscal year ended march 31 , 2013 compared to fiscal year ended march 31 , 2012 net revenues . net revenues decreased by 20.0 % from $ 82.5 million in fiscal 2012 to $ 66.0 million in fiscal 2013. the reduction in net revenues was due primarily to softness in orders from our top three customers , each of which does significant business in europe , where ongoing economic turmoil has adversely affected capital spending for network equipment manufactured by our customers . additionally , excess inventories accumulated by our customers in fiscal 2011 and in early fiscal 2012 were drawn down in late fiscal 2012 and during the first half of fiscal 2013 , adversely affecting our revenues . direct and indirect sales to cisco systems , our largest customer , decreased by $ 14.1 million from $ 33.4 million in fiscal 2012 to $ 19.3 million in fiscal 2013.we believe the decline in sales to cisco systems was due to inventory corrections and softness in demand for their products and did not reflect a decline in our market share . we also believe that our net revenues in the third and fourth quarters of fiscal 2012 and throughout fiscal 2013 were negatively impacted by uncertainty regarding the outcome of our pending patent litigation with cypress semiconductor .
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you should read the following discussion and analysis of our financial condition and results of operations together with “ selected financial data ” and our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including , but not limited to , those set forth under “ risk factors ” and elsewhere in this annual report on form 10-k. overview majesco entertainment company is an innovative developer , marketer , publisher and distributor of interactive entertainment for consumers around the world . building on more than 25 years of operating history , majesco develops and publishes a wide range of video games on digital networks through its midnight city label , including nintendo 's ds , 3ds , wii and wiiu , sony 's playstation 3 and 4 , or ps3 and ps4 , microsoft 's xbox 360 and xbox one and the personal computer , or pc . although , historically , we have sold packaged software to large retail chains , specialty retail stores , video game rental outlets and distributors and through digital distribution for platforms such as xbox live arcade , playstation network , or psn , and steam , and for mobile devices and online platforms , we are now purposed to operate , almost exclusively , in our digital software business unit . video game products net revenues . our revenues are principally derived from sales of our video games . we provide video games primarily for the mass market and casual-game player . our revenues are recognized net of estimated provisions for price protection and other allowances . when we act as an agent in the distribution of games developed by others , we recognize revenue net of the share of revenue due to the developer in the form of wholesale price , royalties and or distribution fees . cost of sales . cost of sales consists of product costs and amortization and impairment of software development costs and license fees . a significant component of our cost of sales of packaged games is product costs . product costs are comprised primarily of manufacturing and packaging costs of the disc or cartridge media , royalties to the platform manufacturer and manufacturing and packaging costs of peripherals . commencing upon the related product 's release , capitalized software development and intellectual property license costs are amortized to cost of sales . gross profit . gross profit is the excess of net revenues over product costs and amortization and impairment of software development and license fees . development and license fees incurred to produce video games are generally incurred up front and amortized to cost of sales . the recovery of these costs and total gross profit is dependent upon achieving a certain sales volume , which varies by title . product research and development expenses . product research and development expenses have historically related principally to our cost of supervision of third party video game developers , testing new products , development of social games and conducting quality assurance evaluations during the development cycle that are not allocated to games for which technological feasibility has been established . costs incurred have been primarily employee-related , may include equipment , and are not allocated to cost of sales . ongoing research and development activities have been substantially reduced since fiscal 2014. selling and marketing expenses . our selling and marketing expenses previously consisted of advertising and promotion expenses , including television advertising , the cost of shipping products to customers , and related employee costs . credits to retailers for trade advertising were components of these expenses . following the transfer of retail distribution activities in july 2015 , such expenses are now limited to selected activities online and in social media . general and administrative expenses . general and administrative expenses primarily represent employee related costs , including stock compensation , for corporate executive and support staff , general office expenses , professional fees and various other overhead charges . professional fees , including legal and accounting expenses , typically represent one of the largest components of our general and administrative expenses . these fees are partially attributable to our required activities as a publicly traded company , such as sec filings , and corporate- and business-development initiatives . interest and financing costs . interest and financing costs are directly attributable to our factoring and our purchase-order financing arrangements . such costs include commitment fees and fees based upon the value of customer invoices factored . income taxes . income taxes consist of our provisions for income taxes , as affected by our net operating loss carryforwards . future utilization of our net operating loss , or nol , carryforwards may be subject to a substantial annual limitation due to the “ change in ownership ” provisions of the internal revenue code . the annual limitation may result in the expiration of nol carryforwards before utilization . due to our history of losses , a valuation allowance sufficient to fully offset our nol and other deferred tax assets has been established under current accounting pronouncements , and this valuation allowance will be maintained unless sufficient positive evidence develops to support its reversal . 10 seasonality and variations in interim quarterly results our quarterly net revenues , gross profit , and operating income from sales of products are impacted significantly by the seasonality of the retail selling season and the timing of the release of new titles . sales of our catalog and other products are generally higher in the first and fourth quarters of our fiscal year ( ending january 31 and october 31 , respectively ) due to increased retail sales during the holiday season . story_separator_special_tag for receivables that are not sold without recourse , we analyze our aged accounts receivables , payment history and other factors to make a determination if collection of receivables is likely , or a provision for uncollectible accounts is necessary . capitalized software development costs and license fees . software development costs include development fees , primarily in the form of milestone payments made to independent software developers . software development costs are capitalized once technological feasibility of a product is established and management expects such costs to be recoverable against future revenues . for products where proven game engine technology exists , this may occur early in the development cycle . technological feasibility is evaluated on a product-by-product basis . amounts related to software development that are not capitalized are charged immediately to product research and development costs . commencing upon a related product 's release capitalized software development costs are amortized to cost of sales based upon the higher of ( i ) the ratio of current revenue to total projected revenue or ( ii ) straight-line charges over the expected marketable life of the product . prepaid license fees represent license fees to holders for the use of their intellectual property rights in the development of our products . minimum guaranteed royalty payments for intellectual property licenses are initially recorded as an asset ( capitalized license fees ) and a current liability ( accrued royalties payable ) at the contractual amount upon execution of the contract or when specified milestones or events occur and when no significant performance commitment remains with the licensor . licenses are expensed to cost of sales at the higher of ( i ) the contractual royalty rate based on actual sales or ( ii ) an effective rate based upon total projected revenue related to such license . capitalized software development costs are classified as non-current if they relate to titles for which we estimate the release date to be more than one year from the balance sheet date . the amortization period for capitalized software development costs and license fees is usually no longer than one year from the initial release of the product . if actual revenues or revised forecasted revenues fall below the initial forecasted revenue for a particular license , the charge to cost of sales may be larger than anticipated in any given quarter . the recoverability of capitalized software development costs and license fees is evaluated quarterly based on the expected performance of the specific products to which the costs relate . when , in management 's estimate , future cash flows will not be sufficient to recover previously capitalized costs , we expense these capitalized costs to cost of sales — loss on impairment of capitalized software development costs and license fees – future releases , in the period such a determination is made . these expenses may be incurred prior to a game 's release . if a game is cancelled and never released to market , the amount is expensed to operating costs and expenses – loss on impairment of capitalized software development costs and license fees – cancelled games . if we were required to write off licenses or capitalized software development costs , due to changes in market conditions or product acceptance , our results of operations could be materially adversely affected . license fees and milestone payments made to our third party developers are typically considered non-refundable advances against the total compensation they can earn based upon the sales performance of the products . any additional royalty or other compensation earned beyond the milestone payments is expensed to cost of sales as incurred . we expense as research and development costs associated with the development of mobile and social games when we can not reliably project that future net cash flows from developed games will exceed related development costs . these games have not earned significant revenues to date and we are continuing to evaluate alternatives for future development and monetization . inventory . inventory is stated at the lower of cost or market . cost is determined by the first-in , first-out method . we estimate the net realizable value of slow-moving inventory on a title-by-title basis and charge the excess of cost over net realizable value to cost of sales . some of our inventory items are packaged with accessories . the purchase of these accessories involves longer lead times and minimum purchase amounts , which may require us to maintain higher levels of inventory than for other games . therefore , these items have a higher risk of obsolescence , which we review periodically based on inventory and sales levels . accounting for stock-based compensation . stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period . determining the fair value of stock-based awards at the grant date requires judgment , including , in the case of stock option awards , estimating expected stock volatility . in addition , judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited . if actual results differ significantly from these estimates , stock-based compensation expense and our results of operations could be materially impacted . accounting for preferred stock and warrant transactions . the company issued units consisting of preferred shares and warrants and subsequently remeasured certain of those warrants . determining the fair value of of the securities in these transactions requires significant judgment , including adjustments to quoted share prices and expected stock volatility . such estimates may significantly impact our results of operations and losses applicable to common stockholders . 12 commitments and contingencies . we record a liability for commitments and contingencies when the amount is both probable and reasonably estimable . we record associated legal fees as incurred . the company has accrued contingent liabilities for certain potential licensor and customer liabilities and claims that were transferred to zift but may not be extinguished by such transaction .
| results of operations year ended october 31 , 2015 versus the year ended october 31 , 2014 net revenues . net revenues for the year ended october 31 , 2015 decreased approximately 81 % to $ 6.7 million from $ 34.4 million in the year ended october 31 , 2014. the decrease was due to lower sales to retailers , particularly of zumba titles , including a decrease in zumba revenue from europe . in the prior-year period , we released zumba world party and zumba kids . we did not release a new zumba title in the current-year period . overall zumba sales accounted for 28 % and 54 % of revenues for the years ended october 31 , 2015 and 2014 , respectively . in addition , since july 31 , 2014 , we have substantially reduced development and distribution activities for packaged software generally and released fewer titles in the current period . revenues from games distributed digitally amounted to approximately $ 2.1 million , in fiscal 2015 , a decrease of $ 0.8 million compared to $ 2.9 million of revenue in the prior year , which included the releases of costume quest 2 and slender : the arrival , on various digital platforms including steam , sony playstation network and microsoft xbla . gross profit . gross profit for the year ended october 31 , 2015 was approximately $ 3.3 million compared to a gross profit of approximately $ 5.7 million in the year ended october 31 , 2014. the decrease in gross profit reflects lower retailer , zumba and other sales as discussed above .
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in march 2013 , the fasb issued amendments to address the accounting for the cumulative translation adjustment when a parent either sells a story_separator_special_tag business overview ncr corporation is a leading global technology company that provides innovative products and services that enable businesses to connect , interact and transact with their customers and enhance their customer relationships by addressing consumer demand for convenience , value and individual service . our portfolio of self-service and assisted-service solutions serve a wide range of customers in the financial services , retail , hospitality , travel , and telecommunications and technology industries and include automated teller machines ( atms ) and atm and financial services software , point of sale ( pos ) devices and pos software , self-service kiosks and software applications that can be used by consumers to enable them to interact with businesses from their computer or mobile device . we also complement these product solutions by offering a complete portfolio of services that support both ncr and third party solutions . we also resell third-party networking products and provide related service offerings in the telecommunications and technology sectors . we have four operating segments : financial services , retail solutions , hospitality and emerging industries . each of our operating segments derives its revenues by selling products and services in each of the sales theaters in which ncr operates . our solutions are based on a foundation of long-established industry knowledge and consulting expertise , value-added software , hardware technology , global customer support services , and a complete line of business consumables and specialty media products . ncr 's reputation is founded upon over 130 years of providing quality products , services and solutions to our customers . at the heart of our customer and other business relationships is a commitment to acting responsibly , ethically and with the highest level of integrity . this commitment is reflected in ncr 's code of conduct , which is available on the corporate governance page of our website . 2014 overview as more fully discussed in later sections of this md & a , the following were significant themes and events for 2014 : results were negatively impacted by redirected information technology spending and delayed customer rollouts in the retail solutions segment , difficult global macroeconomic conditions and unfavorable foreign currency impacts revenue growth of approximately 8 % compared to full year 2013 continued to experience growth in software-related revenue ( which we measure by combining software license and maintenance revenue , cloud ( or software as a service ) revenue and professional services revenue associated with software delivery ) completed the acquisition of digital insight corporation commenced a restructuring plan in july 2014 to strategically allocate resources and position the company to focus on higher-growth , higher-margin opportunities 21 overview of strategic initiatives and trends we have established a focused and consistent business strategy targeted at revenue growth , gross margin expansion , improved customer loyalty and employee engagement . this strategy guided our efforts in 2014 , and will continue to guide us in 2015 . to execute this strategy , we are focusing in 2015 on three key imperatives or initiatives that align with our financial objectives : deliver disruptive innovation ; migrate our revenue to higher margin software and recurring services revenue ; and develop a high performing sales force backed by leading services delivery that better leverages the innovation we are bringing to the market . our strategy and these initiatives are summarized in more detail below : gain profitable share - we have been working to shift our business model to focus on growth of higher margin software and services revenue , including by focusing our research and development efforts , changing and educating our sales force and executing transformative acquisitions in each of our core divisions . at the same time , we are continuing our effort to optimize our investments in demand creation to increase ncr 's market share in areas with the greatest potential for profitable growth , which include opportunities in self-service technologies with our core financial services , retail , and hospitality customers . we focus on expanding our presence in our core industries , while seeking additional growth by : ◦ penetrating market adjacencies in single and multi-channel self-service segments ; ◦ expanding and strengthening our geographic presence and sales coverage across customer tiers through use of the indirect channel ; and ◦ leveraging ncr services and consumables solutions to grow our share of customer revenue , improve customer retention , and deliver increased value to our customers . enhancing the customer experience - we are committed to providing a customer experience to drive loyalty , focusing on product and software solutions based on the needs of our customers , a sales force enabled with the consultative selling model to better leverage the innovative solutions we are bringing to market , and sales and support service teams focused on delivery and customer interactions . we continue to rely on the customer loyalty survey , among other metrics , to measure our current state and set a course for our future state where we aim to continuously improve with solution innovations as well as through the execution of our service delivery programs . enhance our global service capability - we continue to identify and execute various initiatives to enhance our global service capability . we also focus on improving our service positioning , increasing customer service attach rates for our products and improving profitability in our services business . our service capability can provide us with a competitive advantage in winning customers and it provides ncr with an attractive and stable revenue source . build the lowest cost structure in our industry - we strive to increase the efficiency and effectiveness of our core functions and the productivity of our employees through our continuous improvement initiatives . story_separator_special_tag services gross margin decreased to 26.8 % in 2014 compared to 30.5 % in 2013 . services gross margin in 2014 was negatively impacted by a $ 126 million increase in pension expense , $ 24 million in higher acquisition-related amortization of intangibles and a $ 47 million charge for the write-down of inventory related to the restructuring plan . excluding these items , services gross margin increased due to a favorable mix of revenues , including an increase in cloud revenues . 2013 compared to 2012 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > , selling , general , and administrative expenses included $ 66 million of pension benefit , $ 23 million of acquisition-related costs , $ 19 million of amortization of acquisition-related intangible assets and $ 4 million of ofac and fcpa related legal costs . after considering these items , selling , general and administrative expenses remained consistent as a percentage of revenue at 13.3 % , primarily due to a $ 7 million gain on the sale of an office property in 2013 offset by investment in sales resources during 2013 . 25 research and development expenses research and development expenses increased $ 60 million to $ 263 million in 2014 from $ 203 million in 2013 . as a percentage of revenue , these costs were 4.0 % in 2014 and 3.3 % in 2013. research and development expenses included pension expense of $ 19 million in 2014 as compared to pension benefit of $ 10 million in 2013 . after considering this item , research and development expenses slightly increased to 3.7 % in 2014 from 3.5 % in 2013 as a percentage of revenue and are in line with management expectations as we continue to invest in broadening our self-service solutions . research and development expenses increased $ 48 million to $ 203 million in 2013 from $ 155 million in 2012 . as a percentage of revenue , these costs were 3.3 % in 2013 and 2.7 % in 2012 . research and development expenses included pension benefit of $ 10 million in 2013 as compared to pension benefit of $ 30 million in 2012 . after considering this item , research and development expenses slightly increased to 3.5 % in 2013 from 3.2 % in 2012 as a percentage of revenue and are in line with management expectations as we continue to invest in broadening our self-service solutions . restructuring-related charges in 2014 , the company recorded restructuring-related charges of $ 104 million related to the restructuring program announced in july 2014. the charges consist of severance and other employee related costs of $ 86 million , other exit costs of $ 5 million and asset-related charges of $ 13 million . interest expense interest expense was $ 181 million in 2014 compared to $ 103 million in 2013 and $ 42 million in 2012 . interest expense in 2014 and 2013 was primarily related to the company 's senior unsecured notes and borrowings under the company 's senior secured credit facility . the increase in 2014 compared to 2013 is primarily related to a full year of interest expense related to the company 's 5.875 % and 6.375 % senior unsecured notes in 2014 compared to a partial year of interest expense in 2013. the increase in 2013 compared to 2012 is primarily related to a full year of interest expense related to the company 's 5.00 % and 4.625 % senior unsecured notes in 2013 compared to a partial year of interest expense in 2012. other expense other ( expense ) , net was $ 35 million in 2014 compared to $ 9 million in 2013 and $ 8 million in 2012 . interest income was $ 6 million in 2014 , 2013 , and 2012 . in 2014 , other ( expense ) , net included $ 32 million related to foreign currency fluctuations and foreign exchange contracts , $ 7 million in bank related fees , and $ 3 million related to the impairment of an investment partially offset by a $ 4 million gain on the sale of available for sale securities . in 2013 , other ( expense ) , net included $ 13 million related to losses from foreign currency contracts not designated as hedging instruments as well as from foreign currency fluctuations and $ 7 million in bank related fees partially offset by income from the sale of certain patents and a $ 3 million gain on the sale of an investment . in 2012 , other ( expense ) , net included $ 7 million related to the impairment of an investment , $ 5 million in bank related fees and $ 2 million related to losses from foreign currency fluctuations . income taxes the effective tax rate was ( 35 ) % in 2014 , 18 % in 2013 , and 32 % in 2012 . during 2014 , we favorably settled examinations with the internal revenue service ( irs ) for the 2009 and 2010 tax years that resulted in a tax benefit of $ 13 million . in addition , the 2014 tax rate was favorably impacted by a $ 9 million reduction in the u.s. valuation allowance and a favorable mix of earnings by country , primarily driven by actuarial pension losses due to a change in the u.s. mortality table .
| results discussion revenue revenue increased 7 % in 2013 from 2012 due to improvement in our retail solutions , hospitality , and emerging industries operating segments offset by declines in our financial services operating segment . the effects of foreign currency fluctuations had a 2 % unfavorable impact on revenue for the year . for the year ended december 31 , 2013 , our product revenue increased 2 % and services revenue increased 12 % compared to the year ended december 31 , 2012 . the increase in our product revenue was due to growth in the retail solutions operating segment in the americas , growth in the hospitality operating segment in all theaters , and growth in the financial services and emerging industries operating segments in the amea theater partially offset by declines in the financial services operating segment in the americas . the increase in our services revenue was primarily attributable to increases in professional and installation services , maintenance services and cloud revenue in the retail solutions operating segment in the americas and amea theaters , in the hospitality operating segment in all theaters and in the financial services operating segment in the amea theater , partially offset by declines in professional and installation services and maintenance services in the emerging industries operating segment in the americas theater . gross margin gross margin as a percentage of revenue was 28.4 % in 2013 compared to 28.7 % in 2012 . product gross margin in 2013 increased to 26.1 % compared to 24.9 % in 2012 . during 2013 and 2012 , product gross margin was adversely affected by approximately $ 36 million and $ 19 million , respectively , of acquisition related amortization of intangibles . product gross margin in 2013 was also negatively impacted by $ 14 million in lower pension benefit , or 0.5 % as a percentage of product revenue , year over year .
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70 notes to financial statements december 31 , 2011 , 2010 and 2009 the following table summarizes option activity for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_19_th as of december 31 , 2011 , there was approximately $ 9.5 million of total unrecognized compensation expense related to unvested stock options . this expense is expected to be recognized over a weighted-average period of 3.45 years . cash received from option exercises for the years ended december 31 , 2011 , 2010 and 2009 was $ 0 , $ 47,000 and $ 20,000 , respectively . the total intrinsic value of options exercised in the year ended december 31 , 2011 , 2010 and 2009 was $ 0 , $ 5,000 , and $ 7,000 , respectively . 71 notes to financial statements december 31 , 2011 , 2010 and 2009 the following table summarizes information about stock options outstanding at december 31 , 2011 : replace_table_token_20_th as of december 31 , 2011 , there were no unvested restricted stock awards granted to employees and directors . the compensation cost that has been expensed in the statements of operations for the restricted stock awards issued to employees and directors and stock issued in lieu of fees was $ 98,000 , $ 385,000 and $ 375,000 for 2011 , 2010 and 2009 , respectively . the following table summarizes unvested restricted stock awards activity for the year ended december 31 , 2011 : shares weighted-average grant date fair value outstanding at beginning of year 318,758 $ 0.85 awarded released ( 143,835 ) $ 0.73 forfeited ( 174,923 ) $ 0.94 outstanding at end of year $ 0.00 in november 2009 , our board of directors extended the vesting period for certain restricted stock awards granted in may 2009 from december 31 , 2009 to january 2 , 2010. the modification of the restricted stock awards did not result in additional compensation expense . 72 notes to financial statements december 31 , 2011 , 2010 and 2009 the following table summarizes information about the company 's warrants outstanding at december 31 , 2011 : replace_table_token_21_th * average exercise price common stock reserved for future issuance as of december 31 , 2011 , the company had reserved shares of common stock for future issuance as follows : no . of shares issuance upon exercise of outstanding stock options 50,106,287 issuance of future grants under stock option plans 44,261,608 issuance of future grants under employee stock purchase plan 531,176 issuance of common stock related to convertible notes * 200,359,458 issuance upon exercise of warrants 84,127,275 total 379,385,804 * assumes additional $ 3.0 million principal amount of notes purchased as of january 1 , 2012 and all interest payments are paid-in-kind . note 9 net loss per share the following options , unvested restricted stock awards and warrants were outstanding as of december 31 , 2011 , 2010 and 2009 , but were not included in the computation of diluted net loss per share since the inclusion of these potentially dilutive securities would have been anti-dilutive for the periods presented ( in thousands ) : replace_table_token_22_th 73 notes to financial statements december 31 , 2011 , 2010 and 2009 note 10 discontinued operations cosmeceutical and toiletry business on july 25 , 2000 , we completed the sale of certain technology rights for our cosmeceutical and toiletry business to rp scherer corporation ( rp scherer ) , a subsidiary of cardinal health , inc. under the terms of the agreement with rp scherer , we guaranteed a minimum gross profit percentage on rp scherer 's combined sales of products to ortho and dermik ( gross profit guaranty ) . in july 2011 , valeant pharmaceuticals announced it was acquiring both ortho and dermik . the guaranty period initially commenced on july 1 , 2000 and was to end on the earlier of july 1 , 2010 or the end of two consecutive guaranty periods where the combined gross profit on sales to ortho and dermik equals or exceeds the guaranteed gross profit ( two period test ) . the gross profit guaranty expense totaled $ 944,000 for the first seven guaranty years and in those years profits did not meet the two period test . effective march 2007 , in conjunction with a sale of assets by rp scherer 's successor company to an amcol international subsidiary ( amcol ) , a new agreement was signed between us and amcol to provide continuity of product supply to ortho and dermik . this new agreement potentially extends the gross profit guaranty period an additional two years to july 1 , 2013 , unless it is terminated earlier with the two period test . amcol has indicated that its costs differ from those it charged historically to the rp scherer successor company to produce the products . we have requested documentation from amcol to substantiate actual costs . until we receive confirmation of these amounts , we have accrued the full amount amcol represents it is currently owed . as there is no minimum amount of gross profit guaranty due , no accrual for the guaranty is estimable for future years . a liability of $ 1.1 million related to the current amount due under the gross profit guaranty is recorded in accrued disposition costs as of december 31 , 2011 , although we have not paid this amount to date due to our inability to substantiate the amounts claims by amcol . as of the date of filing of this report , our dispute with amcol over the gross profit guaranty has been submitted to an independent accountant for resolution . story_separator_special_tag clinical trial accruals our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage clinical trials on our behalf . since the invoicing related to these services does not always coincide with our financial statement close process , we must estimate the level of services performed and fees incurred in determining the accrued clinical trial costs . the financial terms of these agreements are subject to negotiation and vary from contract to contract , which may result in uneven payment flows . payments under the contracts depend on factors such as the successful enrollment of patients or achievement of certain events or the completion of portions of the clinical trial or similar conditions . expenses related to clinical trials generally are accrued based on the level of patient enrollment and services performed by the clinical research organization or related service provider according to the protocol . we monitor patient enrollment levels and related activity to the extent possible and adjust our estimates accordingly . historically these estimates have been reasonably accurate and no material adjustments have had to be made . income taxes we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes . as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes . 46 we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , including our historical levels of income and losses , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if we do not consider it more likely than not that we will recover our deferred tax assets , we will record a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . at december 31 , 2011 , we believed that the amount of our deferred income taxes would not be ultimately recovered . accordingly , we recorded a full valuation allowance for deferred tax assets . additionally , we believe that our deferred tax assets may have been limited in accordance with a provision of the internal revenue code of 1986 , whereby net operating loss and tax credit carryforwards available for use in a given period are limited upon the occurrence of certain events , including a significant change in ownership interests . as a result , our deferred tax assets and related valuation allowance were reduced for the estimated impact of the net operating losses and credits that may expire unused ( see note 12 to the financial statements included in item 8 of this annual report on form 10-k ) . should there be a change in our ability to recover our deferred tax assets , we would recognize a benefit to our tax provision in the period in which we determine that it is more likely than not that we will recover our deferred tax assets . stock-based compensation we account for share-based payment arrangements in accordance with asc 718 , compensation stock compensation and asc 505-50 , equity equity based payments to non-employees , which requires the recognition of compensation expense , using a fair-value based method , for all costs related to share-based payments including stock options , restricted stock awards and stock issued under the employee stock purchase plan . these standards require companies to estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model ( see note 8 to the financial statements included in item 8 of this annual report on form 10-k ) . results of operations for the years ended december 31 , 2011 , 2010 and 2009 the following sets forth the statement of operations data and percentage changes as compared to the prior years ( dollar amounts are presented in thousands ) : replace_table_token_7_th 47 revenue contract revenue decreased in 2011 by $ 0.7 million , or 50 % , compared to 2010. all of our contract revenue for the fiscal year 2011 was derived from an agreement with merial that we entered into in september 2009 for a long-acting pain management product for companion animals . in may 2011 , we received notice of termination from merial , as they did not see the commercial potential of the product under development in the animal health market . the majority of our contract revenue for the fiscal year 2010 was derived from our agreement with merial . contract revenue increased in 2010 by $ 40,000 , or 3 % , compared to 2009. the majority of our contract revenue for the fiscal year 2010 was derived from an agreement with merial that we entered into in september 2009. contract revenue in 2009 included $ 1.0 million of revenue recognized upon termination of our agreement with rhei pharmaceuticals , inc. ( rhei ) .
| general and administrative general and administrative expenses decreased in 2011 by $ 0.5 million , or 12 % , compared to 2010. the net decrease in the fiscal year 2011 was primarily due to compensation expense incurred in the prior year related to the resignation of our former chief executive officer , which was partially offset by higher professional fees and consultant costs . general and administrative expense for the year 2012 is expected to be higher as compared to 2011 due to increased support activities related to the nda submission to the fda . general and administrative expenses increased in 2010 by $ 0.3 million , or 7 % , compared to 2009. the net increase in the fiscal year 2010 included compensation expense related to the resignation of our chief executive officer , which was partially offset by lower expense resulting from the cost containment measures associated with our headcount reductions and outside services . general and administrative expenses consist of primarily salaries and related expenses , professional fees , directors ' fees , investor relations costs , insurance expense and related overhead cost allocation . other income ( expense ) interest expense , net of $ 373,000 for the year ended december 31 , 2011 consists primarily of interest expense , debt issuance costs and amortization of debt discount related to the april 2011 convertible note financing . the gain on sale of royalty interest of $ 2.5 million represents a milestone payment we received in january 2010 from an affiliate of the paul royalty fund . the payment represents a final milestone payment that became due to us in january 2010 under an agreement that we entered into effective october 1 , 2005 to sell our royalty rights to retin-a micro ® and carac ® . other income of $ 0.2 million represents a non-taxable grant from the united states government under the qualifying therapeutics discovery project ( qtdp ) program .
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f- 14 on september 18 , 2018 , the company obtained financing through one of its existing shareholders , sylva international , who also provides marketing services to the company . ( see note 7 ) . as of december 31 , 2019 , the company satisfied the remaining balance of the note and any accrued interest in full . the total marketing expense incurred for sylva was approximately $ 90,000 for the year ended december 31 , 2019. the company 's chief financial officer also facilitated the emerald grove asset purchase as described in note 3. during the year ended december 31 , 2019 , the company entered into definitive land purchase agreement with valdeland , s.a. de c.v. , a company controlled by our chief executive officer , to acquire approximately one acre of land with plans and permits to build 34 units at the bajamar ocean front golf resort located in ensenada , baja california ( see note 4 and 8 ) . on june 18 , 2019 , baja residents club sa de cv , a related party with common ownership and control by our chief executive officer , transferred title to the company for the oasis park property which was part of a previously held land project consisting of 497 acres to be acquired and developed into oasis park resort near san felipe , baja . note 6 – debt cash call , inc. on march 19 , 2018 , the company issued a promissory note to cashcall , inc. for $ 75,000 of cash consideration . the note bears interest at 94 % , matures on may 1 , 2028. the company also recorded a $ 7,500 debt discount due to origination fees due at the beginning of the note . during the years ended december 31 , 2019 and 2018 , the company amortized $ 5,301 and $ 582 of the debt discount into interest expense , leaving a remaining total debt discount on the note of $ 1,617 and $ 6,918 , respectively . on december 12 , 2019 the loan and outstanding interest was settled for $ 52,493 . as a result of the settlement , the company recorded a gain on settlement of debt of $ 64,075 . as of december 31 , 2019 , the remaining principal balance was $ 46,660 . interest expense for the years ended december 31 , 2019 and 2018 was $ 41,578 and $ 5,599 , respectively . prideco as discussed in note 3 , in march 2019 , the company assumed liabilities related to the assigned deeded property emerald grove in hemet , ca . the liabilities include a mortgage entered into with prideco private mortgage loan fund , lp for $ 605,000 with prepaid interest of $ 2,353 on the date of closing , march 18 , 2019. the mortgage loan was not assigned story_separator_special_tag this annual report on form 10-k contains forward-looking statements . our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements . the following discussion and analysis of our financial condition and results of operations should be read together with the audited financial statements and accompanying notes and the other financial information appearing elsewhere in this annual report on form 10-k. the analysis set forth below is provided pursuant to applicable securities and exchange commission regulations and is not intended to serve as a basis for projections of future events . refer also to “ risk factors ” and “ cautionary note regarding forward looking statements ” in “ item 1a . risk factors ” in this annual report on form 10-k. overview of our company international land alliance , inc. was incorporated pursuant to the laws of the state of wyoming on september 26 , 2013. we are based in san diego , california . we are a residential land development company with target properties located primarily in the baja california norte region of mexico and southern california . our principal activities are purchasing properties , obtaining zoning and other entitlements required to subdivide the properties into residential and commercial building lots , securing financing for the purchase of the lots , improving the properties ' infrastructure and amenities , and selling the lots to homebuyers , retirees , investors and commercial developers . we offer the option of financing ( i.e . taking a promissory note from the buyer for all or part of the purchase price ) with a guaranteed acceptance on any purchase for every customer . story_separator_special_tag december 31 , 2019 was $ 1,214,693 which resulted primarily due to the loss of $ 1,596,086 offset by debt discount amortization expense of $ 110,983 , depreciation and amortization of $ 36,707 , and stock based compensation of $ 482,584. net cash flows used in operating activities for the year ended december 31 , 2018 was $ 734,603 which resulted primarily due to the loss of $ 681,407 offset by debt discount amortization expense of $ 29,232 , increase in accounts payable of $ 11,974 and decrease in accrued expenses of $ 94,402. investing activities net cash flows used in investing activities was $ 793,195 for the year ended december 31 , 2019. the funds were used for the acquisition of an investment property . there were no investment cash activities for the year ended december 31 , 2018. financing activities net cash flows provided by financing activities for the year ended december 31 , 2019 was $ 2,179,443 primarily from cash proceeds from sale of common stocks and warrants of $ 733,675 , and cash proceeds from sale of common stock , warrants and plots of land promised to investors , net of expenses of $ 136,316 , cash proceeds from warrant exercise of $ 130,000 and cash proceeds from note payable of $ 2,528,094 and cash proceeds from convertible note payable of $ 75,000. net story_separator_special_tag f- 14 on september 18 , 2018 , the company obtained financing through one of its existing shareholders , sylva international , who also provides marketing services to the company . ( see note 7 ) . as of december 31 , 2019 , the company satisfied the remaining balance of the note and any accrued interest in full . the total marketing expense incurred for sylva was approximately $ 90,000 for the year ended december 31 , 2019. the company 's chief financial officer also facilitated the emerald grove asset purchase as described in note 3. during the year ended december 31 , 2019 , the company entered into definitive land purchase agreement with valdeland , s.a. de c.v. , a company controlled by our chief executive officer , to acquire approximately one acre of land with plans and permits to build 34 units at the bajamar ocean front golf resort located in ensenada , baja california ( see note 4 and 8 ) . on june 18 , 2019 , baja residents club sa de cv , a related party with common ownership and control by our chief executive officer , transferred title to the company for the oasis park property which was part of a previously held land project consisting of 497 acres to be acquired and developed into oasis park resort near san felipe , baja . note 6 – debt cash call , inc. on march 19 , 2018 , the company issued a promissory note to cashcall , inc. for $ 75,000 of cash consideration . the note bears interest at 94 % , matures on may 1 , 2028. the company also recorded a $ 7,500 debt discount due to origination fees due at the beginning of the note . during the years ended december 31 , 2019 and 2018 , the company amortized $ 5,301 and $ 582 of the debt discount into interest expense , leaving a remaining total debt discount on the note of $ 1,617 and $ 6,918 , respectively . on december 12 , 2019 the loan and outstanding interest was settled for $ 52,493 . as a result of the settlement , the company recorded a gain on settlement of debt of $ 64,075 . as of december 31 , 2019 , the remaining principal balance was $ 46,660 . interest expense for the years ended december 31 , 2019 and 2018 was $ 41,578 and $ 5,599 , respectively . prideco as discussed in note 3 , in march 2019 , the company assumed liabilities related to the assigned deeded property emerald grove in hemet , ca . the liabilities include a mortgage entered into with prideco private mortgage loan fund , lp for $ 605,000 with prepaid interest of $ 2,353 on the date of closing , march 18 , 2019. the mortgage loan was not assigned story_separator_special_tag this annual report on form 10-k contains forward-looking statements . our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements . the following discussion and analysis of our financial condition and results of operations should be read together with the audited financial statements and accompanying notes and the other financial information appearing elsewhere in this annual report on form 10-k. the analysis set forth below is provided pursuant to applicable securities and exchange commission regulations and is not intended to serve as a basis for projections of future events . refer also to “ risk factors ” and “ cautionary note regarding forward looking statements ” in “ item 1a . risk factors ” in this annual report on form 10-k. overview of our company international land alliance , inc. was incorporated pursuant to the laws of the state of wyoming on september 26 , 2013. we are based in san diego , california . we are a residential land development company with target properties located primarily in the baja california norte region of mexico and southern california . our principal activities are purchasing properties , obtaining zoning and other entitlements required to subdivide the properties into residential and commercial building lots , securing financing for the purchase of the lots , improving the properties ' infrastructure and amenities , and selling the lots to homebuyers , retirees , investors and commercial developers . we offer the option of financing ( i.e . taking a promissory note from the buyer for all or part of the purchase price ) with a guaranteed acceptance on any purchase for every customer . story_separator_special_tag december 31 , 2019 was $ 1,214,693 which resulted primarily due to the loss of $ 1,596,086 offset by debt discount amortization expense of $ 110,983 , depreciation and amortization of $ 36,707 , and stock based compensation of $ 482,584. net cash flows used in operating activities for the year ended december 31 , 2018 was $ 734,603 which resulted primarily due to the loss of $ 681,407 offset by debt discount amortization expense of $ 29,232 , increase in accounts payable of $ 11,974 and decrease in accrued expenses of $ 94,402. investing activities net cash flows used in investing activities was $ 793,195 for the year ended december 31 , 2019. the funds were used for the acquisition of an investment property . there were no investment cash activities for the year ended december 31 , 2018. financing activities net cash flows provided by financing activities for the year ended december 31 , 2019 was $ 2,179,443 primarily from cash proceeds from sale of common stocks and warrants of $ 733,675 , and cash proceeds from sale of common stock , warrants and plots of land promised to investors , net of expenses of $ 136,316 , cash proceeds from warrant exercise of $ 130,000 and cash proceeds from note payable of $ 2,528,094 and cash proceeds from convertible note payable of $ 75,000. net
| overview as of december 31 , 2019 , we had : ● continued our research and marketing efforts to identify potential home buyers in the united states , canada , europe , and asia . through the formation of a partnership with a similar development company in the baja california norte region of mexico , we have been able to leverage additional resources with the use of their established and proven marketing plan which can help us with sophisticated execution and the desired results for residential lot sales and development . ● completed development of our interactive website for visitors to view condominium and villa options and allow customization ; ● assumed title of the oasis park resort in san felipe . as progress continues on the development of the oasis park resort , we are expecting the transfer of title on the villas del enologo in rancho tecate , valle divino in ensenada , baja california and costa bajamar in ensenada , baja california in the near future as it continues to follow the necessary steps to complete this legal process . ● continued our efforts to secure the proper financing and capital by exploring various options that will help achieve our goals of advanced development and additional investment opportunities .
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this revaluation resulted in a discrete charge to income tax expense of $ 377,000 during fiscal year 2018. management evaluates items of income , deductions and credits reported on the company 's various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained . the company applies the provisions of fasb asc sub-topic 740-10-25 , which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements . recognized income tax positions are measured at the largest amount that has a greater than 50 % likelihood of being realized . changes in recognition or measurement are story_separator_special_tag the following discussion is intended to provide information concerning certain factors that management considers important in reviewing the company 's results of operations , financial position , liquidity and capital resources . this discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. story_separator_special_tag new roman ' , times , serif ; font-size:10pt ; margin:0pt ; text-align : justify ; text-indent:36pt ; '' > on december 22 , 2017 , the president of the united states signed into law the tcja , which includes a provision to lower the federal corporate income tax rate to 21 % effective as of january 1 , 2018. as the company 's fiscal year 2018 ended on april 1 , 2018 , the lower corporate income tax rate was phased in , resulting in a blended federal statutory rate of 30.75 % for fiscal year 2018. the company provides for deferred income taxes based on the difference between the financial statement and tax bases of the company 's assets and liabilities . the company 's net deferred income tax assets had previously been recorded based upon the enacted composite federal , state and foreign income tax rate of approximately 37.5 % that would have been applied as the financial statement-tax differences began to reverse . because these differences are now expected to reverse at a composite rate of approximately 24.5 % , the company was required to revalue its net deferred income tax assets . this revaluation resulted in a discrete charge to income tax expense of $ 377,000 during fiscal year 2018. management evaluates items of income , deductions and credits reported on the company 's various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained . the company applies the provisions of accounting guidelines that require a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements . recognized income tax positions are measured at the largest amount that has a greater than 50 % likelihood of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . 16 during fiscal year 2016 , an evaluation was made of the company 's process regarding the calculation of the state portion of its income tax provision . this evaluation resulted in the company taking a tax position that reflected opportunities for the application of more favorable state apportionment percentages for several prior fiscal years . after considering all relevant information , the company believes that the technical merits of this tax position would more likely than not be sustained . however , the company also believes that the ultimate resolution of the tax position will result in a tax benefit that is less than the full amount being sought . therefore , the company 's measurement regarding the tax impact of the revised state apportionment percentages resulted in the company recording a discrete reserve for unrecognized tax benefits during fiscal year 2018 of $ 113,000 , as compared with a reserve of $ 134,000 during fiscal year 2017. because the tax impact of the revised state apportionment percentages are measured net of federal income taxes , the provision in the tcja that lowered the federal corporate income tax rate to 21 % required the company to revalue its reserve for unrecognized tax benefits . this revaluation , which the company believes is complete , resulted in a net discrete charge to income tax expense of $ 120,000 during fiscal year 2018. income tax expense for fiscal year 2018 included a discrete income tax charge of $ 37,000 and a discrete income tax benefit of $ 60,000 to reflect the effect of the tax shortfall and the excess tax benefits , respectively , arising from the vesting of non-vested stock , as compared with $ 248,000 of net excess tax benefits arising from the effect of such items during fiscal year 2017. fiscal 2017 compared with fiscal 2016 the company 's provision for income taxes increased slightly to 36.7 % during 2017 from 36.4 % in 2016. the company 's effective tax rate for 2017 was beneficially impacted by the early adoption of revised accounting guidance , which resulted in the recognition of discrete income tax benefits amounting to $ 248,000 to reflect the effect of net excess tax benefits arising from the exercise of stock options and the vesting of non-vested stock during fiscal year 2017. the company recorded during 2016 discrete net income tax benefits of approximately $ 260,000 , primarily resulting from the application of more favorable state apportionment percentages to state income tax returns for several prior fiscal years . known trends and uncertainties the company 's financial results are closely tied to sales to the company 's top three customers , which represented approximately 65 % of the company 's gross sales in fiscal year 2018 , including 15 % of sales to toys-delaware . story_separator_special_tag as of april 1 , 2018 , the company had elected to pay interest on balances owed under the revolving line of credit under the libor option , which was 3.67 % as of april 1 , 2018. the financing agreement also provides for the payment by cit to the company of interest at the rate of prime as of the beginning of the calendar month minus 2.0 % , which was 2.75 % as of april 1 , 2018 , on daily negative balances , if any , held at cit . the financing agreement as in effect prior to december 28 , 2015 provided for a monthly fee , which was assessed based on 0.125 % of the average unused portion of the revolving line of credit , less any outstanding letters of credit ( the “ commitment fee ” ) . the commitment fee amounted to $ 25,000 during fiscal year 2016. the financing agreement was amended on december 28 , 2015 to eliminate the commitment fee . as of april 1 , 2018 , there was a balance of $ 9.5 million owed on the revolving line of credit , there was no letter of credit outstanding and $ 13.2 million was available under the revolving line of credit based on the company 's eligible accounts receivable and inventory balances . as of april 2 , 2017 , there was no balance owed on the revolving line of credit , there was no letter of credit outstanding and $ 21.4 million was available under the revolving line of credit based on the company 's eligible accounts receivable and inventory balances . the financing agreement contains usual and customary covenants for agreements of that type , including limitations on other indebtedness , liens , transfers of assets , investments and acquisitions , merger or consolidation transactions , transactions with affiliates , and changes in or amendments to the organizational documents for the company and its subsidiaries . the company believes it was in compliance with these covenants as of april 1 , 2018. to reduce its exposure to credit losses , the company assigns the majority of its trade accounts receivable to cit pursuant to factoring agreements , which have expiration dates that are coterminous with that of the financing agreement described above . under the terms of the factoring agreements , cit remits customer payments to the company as such payments are received by cit . cit bears credit losses with respect to assigned accounts receivable from approved shipments , while the company bears the responsibility for adjustments from customers related to returns , allowances , claims and discounts . cit may at any time terminate or limit its approval of shipments to a particular customer . if such a termination or limitation occurs , the company either assumes ( and may seek to mitigate ) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer . factoring fees , which are included in marketing and administrative expenses in the accompanying consolidated statements of income , were $ 223,000 , $ 395,000 and $ 556,000 during fiscal years 2018 , 2017 and 2016 , respectively . there were no advances on the factoring agreements at april 1 , 2018 or april 2 , 2017 . 18 c ontractual obligations the company 's contractual obligations as of april 1 , 2018 are as follows ( in thousands ) : replace_table_token_5_th critical accounting policies and estimates the company prepares its financial statements to conform with accounting principles generally accepted in the u.s. ( “ gaap ” ) as promulgated by the financial accounting standards board ( “ fasb ” ) . references herein to gaap are to topics within the fasb accounting standards codification ( the “ fasb asc ” ) , which the fasb periodically revises through the issuance of an accounting standards update ( “ asu ” ) and which has been established by the fasb as the authoritative source for gaap recognized by the fasb to be applied by nongovernmental entities . use of estimates : the preparation of financial statements in conformity with gaap 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 consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period . the listing below , while not inclusive of all of the company 's accounting policies , sets forth those accounting policies which the company 's management believes embody the most significant judgments due to the uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions . revenue recognitio n : sales made directly to consumers are recorded when shipped products have been received by customers . sales made to retailers are recorded when products are shipped to customers and are reported net of anticipated returns , which are estimated based on historical rates , and other allowances in the accompanying consolidated statements of income . reserves for returns and other allowances , including cooperative advertising allowances , warehouse allowances , placement fees and volume rebates , are recorded commensurate with sales activity or using the straight-line method , as appropriate , and the cost of such allowances is netted against sales in reporting the results of operations . shipping costs are included in cost of products sold . allowances against accounts receivable : the company 's allowances against accounts receivable are primarily contractually agreed-upon deductions for items such as cooperative advertising and warehouse allowances , placement fees and volume rebates . these deductions are recorded throughout the year commensurate with sales activity or using the straight-line method , as appropriate . funding of the majority of the company 's allowances occurs on a per-invoice basis .
| results of operations the following table contains results of operations for fiscal years 2018 , 2017 and 2016 and the dollar and percentage changes for those periods ( in thousands , except percentages ) . replace_table_token_4_th net sales : fiscal 2018 compared with fiscal 2017 sales of $ 70.3 million for 2018 were $ 4.3 million higher than 2017 , an increase of 6.5 % . the increase is due to sales that resulted from the carousel acquisition and the sassy acquisition , which added $ 5.4 million and $ 2.1 million of sales during fiscal 2018 , respectively , and which amount was offset by a decrease of $ 4.3 million in sales by ccip for the same period . a portion of the decrease resulted from reduced product shipments in the current year to a customer that experienced credit problems throughout the year . also affecting sales is the continuing change in the infant bedding marketplace in which parents are purchasing fewer bedding sets in favor of separates , leading to a lower average price point for the company 's infant bedding products . fiscal 2017 compared with fiscal 2016 sales of $ 66.0 million for 2017 were lower than 2016 , having decreased 21.8 % , or $ 18.4 million . a portion of the sales decrease was due to a black friday promotion in 2016 that was not repeated in fiscal year 2017 and reduced product shipments to a customer that experienced credit problems . additionally , due to the increased value of the u.s. dollar relative to the chinese renminbi , the company received a series of price reductions from most of its suppliers , which were partially passed along to the company 's customers . also affecting sales was the continuing overall sluggish retail environment , coupled with a change in the infant bedding marketplace .
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finally , given expected growth in permian basin crude oil production , industry participants have placed into service 575,000 bpd of pipeline capacity in 2018 and have plans to place an additional 2.1 million bpd of pipeline capacity into service in 2019 and 2021 to transport crude oil from west texas to the houston refining and distribution hub for domestic consumption or export to other markets . our sponsor expects that these industry dynamics will contribute to growing demand for storage , staging , blending , export and other logistics services along the gulf coast , including at its houston ship channel property . accordingly , our sponsor is actively engaged in commercial negotiations with potential customers to provide export solutions for crude oil , refined products , and natural gas liquids . any such development project would be wholly-owned by usdg and would be subject to our existing right of first offer with respect to midstream projects developed by usdg . if successful , the texas deepwater development represents a meaningful opportunity to add complementary logistics assets that diversify our current network and have the potential to add additional high-quality take-or-pay agreements with terms beyond those related to our existing network . right of first offer in connection with our ipo , we entered into an omnibus agreement with usd and usdg , pursuant to which we were granted a right of first offer on any midstream infrastructure assets that they may develop , construct , or acquire for a period of seven years after the october 15 , 2014 , closing of our ipo . additional information about the omnibus agreement and the right of first offer are included in note 12. transactions with related parties of our consolidated financial statements at part ii , item 8. financial statements and supplementary data of this annual report on form 10-k. we can not assure you that usd will be able to develop or construct , or that we or usd will be able to acquire , any additional midstream infrastructure projects . among other things , the ability of usd to further develop the hardisty and stroud terminals , or any other project , and our ability to acquire such projects , will depend upon usd 's and our ability to raise additional equity and debt financing . we are under no obligation to make any offer , and usd and usdg are under no obligation to accept any offer we make , with respect to any asset subject to our right of first offer . additionally , the approval of energy capital partners is required for the sale of any assets by usd or its subsidiaries , including us ( other than sales in the ordinary course of business ) , acquisitions of securities of other entities that exceed specified materiality thresholds and any material unbudgeted expenditures or deviations from our approved budgets . energy capital partners may make these decisions free of any duty to us and our unitholders . this approval would be required for the potential acquisition by us of any projects to expand the hardisty and stroud terminals , as well as any other projects or assets that usd may develop or acquire in the future or any third-party acquisition we may pursue independently or jointly with usd . energy capital partners is under no obligation to approve any such transaction . please refer to the discussion under item 10. directors , executive officers and corporate governance—special approval rights of energy capital partners regarding the rights of energy capital partners . if we are unable to acquire any projects to expand the hardisty and stroud terminals from usd , these expansion projects , once completed , may compete directly with our existing business for future throughput volumes , which may impact our ability to enter into new terminal services agreements , including with our existing customers , following the termination of our existing agreements , or the terms thereof , and our ability to compete for future spot volumes . furthermore , cyclical changes in the demand for crude oil and other liquid hydrocarbons may cause usd , or us , to further re-evaluate any future expansion projects , including expansion of the hardisty and stroud terminals . how we generate revenue we conduct our business through two distinct reporting segments : terminalling services and fleet services . we have established these reporting segments as strategic business units to facilitate the achievement of our long-term objectives , to assist in resource allocation decisions and to assess operational performance . terminalling services the terminalling services segment includes a network of strategically-located terminals that provide customers with railcar loading and or unloading capacity , as well as related logistics services , for crude oil and biofuels . substantially all of our cash flows are generated under multi-year , take-or-pay terminal services agreements that include minimum monthly commitment fees . we generally have no direct commodity price exposure , although fluctuating 57 commodity prices could indirectly influence our activities and results of operations over the long term . we may on occasion enter into buy-sell arrangements in which we take temporary title to commodities while in our terminals . we expect any such agreements to be at fixed prices where we do not take commodity price exposure . hardisty terminal services agreements . we have terminal services agreements with six high-quality , primarily investment grade counterparties or their subsidiaries : cenovus energy , gibson , suncor energy , total , conocophillips , and usdm . usdm 's agreement is supported by commitments from an investment grade rated multi-national energy company , who is also a customer of our stroud terminal . substantially all of the terminalling capacity at our hardisty terminal is contracted under multi-year , take-or-pay terminal services agreements subject to inflation-based escalators with a volume-weighted average remaining contract life of approximately 3.3 years as of december 31 , 2018. all of our counterparties are obligated story_separator_special_tag finally , given expected growth in permian basin crude oil production , industry participants have placed into service 575,000 bpd of pipeline capacity in 2018 and have plans to place an additional 2.1 million bpd of pipeline capacity into service in 2019 and 2021 to transport crude oil from west texas to the houston refining and distribution hub for domestic consumption or export to other markets . our sponsor expects that these industry dynamics will contribute to growing demand for storage , staging , blending , export and other logistics services along the gulf coast , including at its houston ship channel property . accordingly , our sponsor is actively engaged in commercial negotiations with potential customers to provide export solutions for crude oil , refined products , and natural gas liquids . any such development project would be wholly-owned by usdg and would be subject to our existing right of first offer with respect to midstream projects developed by usdg . if successful , the texas deepwater development represents a meaningful opportunity to add complementary logistics assets that diversify our current network and have the potential to add additional high-quality take-or-pay agreements with terms beyond those related to our existing network . right of first offer in connection with our ipo , we entered into an omnibus agreement with usd and usdg , pursuant to which we were granted a right of first offer on any midstream infrastructure assets that they may develop , construct , or acquire for a period of seven years after the october 15 , 2014 , closing of our ipo . additional information about the omnibus agreement and the right of first offer are included in note 12. transactions with related parties of our consolidated financial statements at part ii , item 8. financial statements and supplementary data of this annual report on form 10-k. we can not assure you that usd will be able to develop or construct , or that we or usd will be able to acquire , any additional midstream infrastructure projects . among other things , the ability of usd to further develop the hardisty and stroud terminals , or any other project , and our ability to acquire such projects , will depend upon usd 's and our ability to raise additional equity and debt financing . we are under no obligation to make any offer , and usd and usdg are under no obligation to accept any offer we make , with respect to any asset subject to our right of first offer . additionally , the approval of energy capital partners is required for the sale of any assets by usd or its subsidiaries , including us ( other than sales in the ordinary course of business ) , acquisitions of securities of other entities that exceed specified materiality thresholds and any material unbudgeted expenditures or deviations from our approved budgets . energy capital partners may make these decisions free of any duty to us and our unitholders . this approval would be required for the potential acquisition by us of any projects to expand the hardisty and stroud terminals , as well as any other projects or assets that usd may develop or acquire in the future or any third-party acquisition we may pursue independently or jointly with usd . energy capital partners is under no obligation to approve any such transaction . please refer to the discussion under item 10. directors , executive officers and corporate governance—special approval rights of energy capital partners regarding the rights of energy capital partners . if we are unable to acquire any projects to expand the hardisty and stroud terminals from usd , these expansion projects , once completed , may compete directly with our existing business for future throughput volumes , which may impact our ability to enter into new terminal services agreements , including with our existing customers , following the termination of our existing agreements , or the terms thereof , and our ability to compete for future spot volumes . furthermore , cyclical changes in the demand for crude oil and other liquid hydrocarbons may cause usd , or us , to further re-evaluate any future expansion projects , including expansion of the hardisty and stroud terminals . how we generate revenue we conduct our business through two distinct reporting segments : terminalling services and fleet services . we have established these reporting segments as strategic business units to facilitate the achievement of our long-term objectives , to assist in resource allocation decisions and to assess operational performance . terminalling services the terminalling services segment includes a network of strategically-located terminals that provide customers with railcar loading and or unloading capacity , as well as related logistics services , for crude oil and biofuels . substantially all of our cash flows are generated under multi-year , take-or-pay terminal services agreements that include minimum monthly commitment fees . we generally have no direct commodity price exposure , although fluctuating 57 commodity prices could indirectly influence our activities and results of operations over the long term . we may on occasion enter into buy-sell arrangements in which we take temporary title to commodities while in our terminals . we expect any such agreements to be at fixed prices where we do not take commodity price exposure . hardisty terminal services agreements . we have terminal services agreements with six high-quality , primarily investment grade counterparties or their subsidiaries : cenovus energy , gibson , suncor energy , total , conocophillips , and usdm . usdm 's agreement is supported by commitments from an investment grade rated multi-national energy company , who is also a customer of our stroud terminal . substantially all of the terminalling capacity at our hardisty terminal is contracted under multi-year , take-or-pay terminal services agreements subject to inflation-based escalators with a volume-weighted average remaining contract life of approximately 3.3 years as of december 31 , 2018. all of our counterparties are obligated
| results of operations we conduct our business through two distinct reporting segments : terminalling services and fleet services . we have established these reporting segments as strategic business units to facilitate the achievement of our long-term objectives , to aid in resource allocation decisions and to assess operational performance . effective january 1 , 2018 , we adopted the requirements of accounting standards update 2014-09 , revenue from contracts with customers , or asc 606. all amounts and disclosures set forth in this form 10-k have been updated to comply with the new standard . refer to note 2. summary of significant accounting policies of our consolidated financial statements included in part ii , item 8. financial statements and supplementary data of this report for a comprehensive discussion regarding our adoption of asc 606 the following table summarizes our operating results by business segment and corporate charges for each of the years indicated : replace_table_token_3_th summary analysis of operating results year ended december 31 , 2018 compared to the year ended december 31 , 2017 our operating results for the year ended december 31 , 2018 , compared with our operating results for the year ended december 31 , 2017 , were largely driven by the following : our average daily terminal throughput increased to 112,289 bpd for the year ended december 31 , 2018 , from 41,328 bpd for the same period in 2017 , due primarily to increased activity by customers of our hardisty terminal resulting from increased western canadian crude oil production and constrained pipeline takeaway capacity out of the region , coupled with the commencement of operations at our stroud terminal in the fourth quarter of 2017 ; the positive impact to operating income of our terminalling services business associated with the commencement of operations of our stroud terminal in october 2017 , which contributed $ 11.2 million of incremental operating income during the current year .
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the following is a summary of stock option activity during the year ended august 31 , 2019 and 2018 : replace_table_token_14_th 63 the following table summarizes information relating to exercisable stock options as of august 31 , 2019 : replace_table_token_15_th the intrinsic value of the 234,000 options as of august 31 , 2019 is $ 0 . the intrinsic value of the 50,000 options outstanding as of august 31 , 2018 was $ 0 . note 6 - provision for income taxes the company has not made provision for income taxes for the year end august 31 , 2019 and 2018 , since the company has the benefit of net operating losses in these periods . due to uncertainties surrounding the company 's ability to generate future taxable income to realize deferred income tax assets arising as a result of net operating losses carried forward , the company has not recorded any deferred income tax asset as at august 31 , 2019. the company has incurred a net operating loss of $ 5,041,541 , the net operating losses carry forward will begin to expire in varying amounts from year 2034 subject to its eligibility as determined by respective tax regulating authorities . the company 's net operating loss carry forwards may be subject to annual limitations , which could eliminate , reduce or defer the utilization of the losses because of an ownership change as defined in section 382 of the internal revenue code . the company 's federal tax returns remain subject to examination by the irs . on december 22 , 2017 , the tax cuts and jobs act ( the “ tax act ” ) , was signed into law . the tax act includes numerous changes to tax laws impacting business , the most significant being a permanent reduction in the federal corporate income tax rate from 34 % to 21 % . the rate reduction took effect on january 1 , 2018. as the company 's 2018 fiscal year ended on august 31 , 2018 , the company 's federal blended corporate tax rate for fiscal year 2018 is 25.3 % , based on the applicable tax rates before and after the tax act and the number of days in the fiscal year to which the two different rates applied . net deferred tax assets consist of the following components as of : replace_table_token_16_th 64 note 7 – intangible asset during the year ended august 31 , 2019 , the company made a $ 1,500,000 payment and recorded stock payable of 61,297 shares of common stock , valued at $ 539,417 for the exercise of an option for an exclusive worldwide license to develop and commercialize products comprising or containing the compound neo1940 . the company has capitalized the costs associated with acquiring the worldwide license as an intangible asset at a value of $ 2,039,417 as of august 31 , 2019. note 8 – commitments and contengencies the company has certain financial commitments in relation to research and development contracts . as of august 31 , 2019 : · the company is invoiced monthly and quarterly in relation to several research and development contracts . · the company may be obligated to make additional payments related to research and development contracts entered into , dependent on the progress and milestones achieved through the programs . · our principal executive office is currently located at 888 prospect street , suite 210 , la jolla , ca , 92037 , u.s. additionally , we have an office located at 29 fitzwilliam street upper , dublin 2 ireland which serves as administrative space for managing our european subsidiaries : trinity reliant ventures , ltd ( ireland ) and trinity research & development , ltd. ( u.k. ) . we do not currently own any properties , laboratories , or manufacturing facilities . the leases for our office space are month-to-month . note 9 – derivative liability and fair value measurements the company recognized a derivative liability related to the purchase price protection clause associated with the series d and series e private offerings ( note 5 ) . additional units would be issued to the unit holder if the company should issue common stock or the equivalent at a share price less than $ 6.00 per share ( series d ) or a share price less than $ 7.60 ( series e ) . in accordance with asc 815-10- derivatives and hedging we measured the derivative liability using a monte carlo pricing model . accordingly , at the end of each quarterly reporting date , the derivative fair market value is re-measured and adjusted to current market value . changes in the fair value of the warrant liability were as follows : fair value – august 31 , 2018 $ - reclass of warrant derivative liability from equity 1,035,600 change in fair value for the period of warrant derivative liability ( 1,006,099 ) fair value – august 31 , 2019 29,501 as of august 31 , 2019 , there is no derivative liability associated with series d shares as they are freely tradable . the monte carlo pricing model was used to estimate the fair value of the derivative liability and reflected the following assumptions : year ended august 31 , 2019 year ended august 31 , 2018 assumptions for pricing model : expected term in years 0.46 - volatility 127 % - risk-free interest rate 1.42 % -2.10 % - expected annual dividends 0 % - note 10 – subsequent events management has evaluated subsequent events through the date these financial statements were issued story_separator_special_tag story_separator_special_tag text-align : center '' > 46 recent accounting pronouncements in july 2017 , the financial accounting standards board ( “ fasb ” ) issued a two-part accounting standards update ( “ asu ” ) no . 2017-11 , i. accounting for certain financial instruments with down round features and ii . replacement of the indefinite deferral for mandatorily redeemable financial story_separator_special_tag the following is a summary of stock option activity during the year ended august 31 , 2019 and 2018 : replace_table_token_14_th 63 the following table summarizes information relating to exercisable stock options as of august 31 , 2019 : replace_table_token_15_th the intrinsic value of the 234,000 options as of august 31 , 2019 is $ 0 . the intrinsic value of the 50,000 options outstanding as of august 31 , 2018 was $ 0 . note 6 - provision for income taxes the company has not made provision for income taxes for the year end august 31 , 2019 and 2018 , since the company has the benefit of net operating losses in these periods . due to uncertainties surrounding the company 's ability to generate future taxable income to realize deferred income tax assets arising as a result of net operating losses carried forward , the company has not recorded any deferred income tax asset as at august 31 , 2019. the company has incurred a net operating loss of $ 5,041,541 , the net operating losses carry forward will begin to expire in varying amounts from year 2034 subject to its eligibility as determined by respective tax regulating authorities . the company 's net operating loss carry forwards may be subject to annual limitations , which could eliminate , reduce or defer the utilization of the losses because of an ownership change as defined in section 382 of the internal revenue code . the company 's federal tax returns remain subject to examination by the irs . on december 22 , 2017 , the tax cuts and jobs act ( the “ tax act ” ) , was signed into law . the tax act includes numerous changes to tax laws impacting business , the most significant being a permanent reduction in the federal corporate income tax rate from 34 % to 21 % . the rate reduction took effect on january 1 , 2018. as the company 's 2018 fiscal year ended on august 31 , 2018 , the company 's federal blended corporate tax rate for fiscal year 2018 is 25.3 % , based on the applicable tax rates before and after the tax act and the number of days in the fiscal year to which the two different rates applied . net deferred tax assets consist of the following components as of : replace_table_token_16_th 64 note 7 – intangible asset during the year ended august 31 , 2019 , the company made a $ 1,500,000 payment and recorded stock payable of 61,297 shares of common stock , valued at $ 539,417 for the exercise of an option for an exclusive worldwide license to develop and commercialize products comprising or containing the compound neo1940 . the company has capitalized the costs associated with acquiring the worldwide license as an intangible asset at a value of $ 2,039,417 as of august 31 , 2019. note 8 – commitments and contengencies the company has certain financial commitments in relation to research and development contracts . as of august 31 , 2019 : · the company is invoiced monthly and quarterly in relation to several research and development contracts . · the company may be obligated to make additional payments related to research and development contracts entered into , dependent on the progress and milestones achieved through the programs . · our principal executive office is currently located at 888 prospect street , suite 210 , la jolla , ca , 92037 , u.s. additionally , we have an office located at 29 fitzwilliam street upper , dublin 2 ireland which serves as administrative space for managing our european subsidiaries : trinity reliant ventures , ltd ( ireland ) and trinity research & development , ltd. ( u.k. ) . we do not currently own any properties , laboratories , or manufacturing facilities . the leases for our office space are month-to-month . note 9 – derivative liability and fair value measurements the company recognized a derivative liability related to the purchase price protection clause associated with the series d and series e private offerings ( note 5 ) . additional units would be issued to the unit holder if the company should issue common stock or the equivalent at a share price less than $ 6.00 per share ( series d ) or a share price less than $ 7.60 ( series e ) . in accordance with asc 815-10- derivatives and hedging we measured the derivative liability using a monte carlo pricing model . accordingly , at the end of each quarterly reporting date , the derivative fair market value is re-measured and adjusted to current market value . changes in the fair value of the warrant liability were as follows : fair value – august 31 , 2018 $ - reclass of warrant derivative liability from equity 1,035,600 change in fair value for the period of warrant derivative liability ( 1,006,099 ) fair value – august 31 , 2019 29,501 as of august 31 , 2019 , there is no derivative liability associated with series d shares as they are freely tradable . the monte carlo pricing model was used to estimate the fair value of the derivative liability and reflected the following assumptions : year ended august 31 , 2019 year ended august 31 , 2018 assumptions for pricing model : expected term in years 0.46 - volatility 127 % - risk-free interest rate 1.42 % -2.10 % - expected annual dividends 0 % - note 10 – subsequent events management has evaluated subsequent events through the date these financial statements were issued story_separator_special_tag story_separator_special_tag text-align : center '' > 46 recent accounting pronouncements in july 2017 , the financial accounting standards board ( “ fasb ” ) issued a two-part accounting standards update ( “ asu ” ) no . 2017-11 , i. accounting for certain financial instruments with down round features and ii . replacement of the indefinite deferral for mandatorily redeemable financial
| results of operations the following summary of our results of operations , for the year ended august 31 , 2019 and 2018 , should be read in conjunction with our audited financial statements , as included in this form 10-k. our company does not have any revenue . we classify our operating expenses into research and development , professional fees , and selling , general and administrative expenses . research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates . this includes conducting preclinical studies and clinical trials , development efforts and activities related to regulatory filings for product candidates . we recognize research and development expenses as they are incurred . our research and development expense primarily consists of : costs incurred in research and development partnerships , preliminary studies , development of potential intellectual property , and research initiatives . our financial statements have been prepared assuming that we will continue as a going concern and , accordingly , do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation . we expect we will require additional capital to meet our long term operating requirements . we expect to raise additional capital through , among other things , the sale of equity or debt securities , but we can not guarantee that we will be able to achieve same . the following table provides selected financial data about the company as of august 31 , 2019 and 2018. balance sheet data replace_table_token_1_th 44 we have not generated any revenues since inception through august 31 , 2019. the increase cash was primarily due to equity raising activities .
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factors that might cause such differences include , but are not limited to , those discussed in part i , item 1a of this form 10-k under the heading “ risk factors , ” which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in part ii , item 8 of this form 10-k. all information presented herein is based on the company 's fiscal calendar . unless otherwise stated , references to particular years , quarters , months or periods refer to the company 's fiscal years ended in september and the associated quarters , months and periods of those fiscal years . each of the terms the “ company ” and “ apple ” as used herein refers collectively to apple inc. and its wholly-owned subsidiaries , unless otherwise stated . the company assumes no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview and highlights the company designs , manufactures and markets mobile communication and media devices and personal computers , and sells a variety of related software , services , accessories and third-party digital content and applications . the company 's products and services include iphone , ipad , mac , apple watch , airpods , apple tv , homepod , a portfolio of consumer and professional software applications , ios , macos , watchos and tvos operating systems , icloud , apple pay and a variety of other accessory , service and support offerings . the company sells and delivers digital content and applications through the itunes store , app store , mac app store , tv app store , book store and apple music ( collectively “ digital content and services ” ) . the company sells its products worldwide through its retail stores , online stores and direct sales force , as well as through third-party cellular network carriers , wholesalers , retailers and resellers . in addition , the company sells a variety of third-party apple-compatible products , including application software and various accessories , through its retail and online stores . the company sells to consumers , small and mid-sized businesses and education , enterprise and government customers . fiscal period the company 's fiscal year is the 52- or 53-week period that ends on the last saturday of september . the company 's fiscal years 2018 and 2016 spanned 52 weeks each , whereas fiscal year 2017 included 53 weeks . a 14th week was included in the first quarter of 2017 , as is done every five or six years , to realign the company 's fiscal quarters with calendar quarters . story_separator_special_tag style= '' line-height:120 % ; padding-top:16px ; text-align : justify ; font-size:9pt ; '' > europe net sales increased during 2017 compared to 2016 due primarily to higher net sales of iphone and services . the weakness in foreign currencies relative to the u.s. dollar had an unfavorable impact on europe net sales during 2017. apple inc. | 2018 form 10-k | 25 greater china the following table presents greater china net sales information for 2018 , 2017 and 2016 ( dollars in millions ) : replace_table_token_10_th greater china net sales increased during 2018 compared to 2017 due primarily to higher net sales of iphone and services . the strength in foreign currencies relative to the u.s. dollar had a favorable impact on greater china net sales during 2018. greater china net sales decreased during 2017 compared to 2016 due primarily to lower net sales of iphone , partially offset by higher net sales of services . the weakness in foreign currencies relative to the u.s. dollar had an unfavorable impact on greater china net sales during 2017. japan the following table presents japan net sales information for 2018 , 2017 and 2016 ( dollars in millions ) : replace_table_token_11_th japan net sales increased during 2018 compared to 2017 due primarily to higher net sales of iphone and services . the year-over-year increase in japan net sales in 2017 was due to higher net sales of services and the strength in the japanese yen relative to the u.s. dollar . rest of asia pacific the following table presents rest of asia pacific net sales information for 2018 , 2017 and 2016 ( dollars in millions ) : replace_table_token_12_th rest of asia pacific net sales increased during 2018 compared to 2017 due primarily to higher net sales of iphone and services . the strength in foreign currencies relative to the u.s. dollar had a favorable impact on rest of asia pacific net sales during 2018. rest of asia pacific net sales increased during 2017 compared to 2016 due primarily to higher net sales of iphone , services and mac . the strength in foreign currencies relative to the u.s. dollar had a favorable impact on rest of asia pacific net sales during 2017. gross margin gross margin for 2018 , 2017 and 2016 was as follows ( dollars in millions ) : replace_table_token_13_th gross margin increased in 2018 compared to 2017 due primarily to a favorable shift in mix of iphones with higher average selling prices and higher services net sales , partially offset by higher product cost structures . gross margin percentage decreased year-over-year due primarily to higher product cost structures , partially offset by higher services net sales . the strength in foreign currencies relative to the u.s. dollar had a favorable impact on gross margin and gross margin percentage during 2018. apple inc. | 2018 form 10-k | 26 gross margin increased in 2017 compared to 2016 due primarily to a shift in mix to services and an overall increase in product volumes . gross margin percentage decreased year-over-year due primarily to higher product costs , partially offset by a favorable shift in mix to services . story_separator_special_tag as of september 29 , 2018 , the company had deferred tax assets arising from deductible temporary differences , tax losses and tax credits of $ 6.3 billion and deferred tax liabilities of $ 426 million . management believes it is more likely than not that forecasted income , including income that may be generated as a result of certain tax planning strategies , together with future reversals of existing taxable temporary differences , will be sufficient to recover the deferred tax assets . the company will continue to evaluate the realizability of deferred tax assets quarterly by assessing the need for and the amount of a valuation allowance . on august 30 , 2016 , the european commission announced its decision that ireland granted state aid to the company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the irish branches of two subsidiaries of the company ( the “ state aid decision ” ) . the state aid decision ordered ireland to calculate and recover additional taxes from the company for the period june 2003 through december 2014. the recovery amount was calculated to be 13.1 billion , plus interest of 1.2 billion . irish legislative changes , effective as of january 2015 , eliminated the application of the tax opinions from that date forward . the company believes the state aid decision to be without merit and appealed to the general court of the court of justice of the european union . ireland has also appealed the state aid decision . the company believes that any incremental irish corporate income taxes potentially due related to the state aid decision would be creditable against u.s. taxes , subject to any foreign tax credit limitations in the act . as of september 29 , 2018 , the entire recovery amount plus interest was funded into escrow , where it will remain restricted from general use pending conclusion of all appeals . on july 24 , 2018 , the u.s. ninth circuit court of appeals reversed the u.s. tax court 's decision in altera corp v. commissioner , regarding the inclusion of share-based compensation in cost-sharing arrangements with foreign subsidiaries . the reversal was subsequently withdrawn , and the company believes adequate provision has been made for any adjustments that may result from the final resolution of the case . recent accounting pronouncements hedging in august 2017 , the financial accounting standards board ( the “ fasb ” ) issued asu no . 2017-12 , derivatives and hedging ( topic 815 ) : targeted improvements to accounting for hedging activities ( “ asu 2017-12 ” ) . asu 2017-12 expands component and fair value hedging , specifies the presentation of the effects of hedging instruments , and eliminates the separate measurement and presentation of hedge ineffectiveness . the company will adopt asu 2017-12 in its first quarter of 2020 utilizing the modified retrospective transition method and is currently evaluating the impact of adoption on its consolidated financial statements . apple inc. | 2018 form 10-k | 28 income taxes in october 2016 , the fasb issued asu no . 2016-16 , income taxes ( topic 740 ) : intra-entity transfers of assets other than inventory ( “ asu 2016-16 ” ) , which requires the recognition of the income tax consequences of an intra-entity transfer of an asset , other than inventory , when the transfer occurs . the company will adopt asu 2016-16 in its first quarter of 2019 utilizing the modified retrospective transition method . currently , the company estimates recording $ 3 billion of net deferred tax assets on its condensed consolidated balance sheets upon adoption . however , the ultimate impact of adopting asu 2016-16 will depend on the balance of intellectual property transferred between its subsidiaries as of the adoption date , as well as the deferred tax impact of the new minimum tax on certain future foreign earnings . the company will recognize incremental deferred income tax expense thereafter as these net deferred tax assets are utilized . leases in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) ( “ asu 2016-02 ” ) , which modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements . the company will adopt asu 2016-02 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the beginning of its first quarter of 2020. while the company is currently evaluating the impact of adopting asu 2016-02 , based on the lease portfolio as of september 29 , 2018 , the company anticipates recording lease assets and liabilities of approximately $ 8.9 billion on its condensed consolidated balance sheets , with no material impact to its condensed consolidated statements of operations . however , the ultimate impact of adopting asu 2016-02 will depend on the company 's lease portfolio as of the adoption date . financial instruments in january 2016 , the fasb issued asu no . 2016-01 , financial instruments – overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities ( “ asu 2016-01 ” ) , which updates certain aspects of recognition , measurement , presentation and disclosure of financial instruments . the company will adopt asu 2016-01 in its first quarter of 2019 utilizing the modified retrospective transition method . based on the composition of the company 's investment portfolio , the adoption of asu 2016-01 is not expected to have a material impact on its consolidated financial statements . in june 2016 , the fasb issued asu no . 2016-13 , financial instruments – credit losses ( topic 326 ) : measurement of credit losses on financial instruments ( “ asu 2016-13 ” ) , which modifies the measurement of expected credit losses of certain financial instruments . the company will adopt asu 2016-13 in its first quarter of 2021 utilizing the modified retrospective transition method .
| fiscal 2018 highlights net sales increased 16 % or $ 36.4 billion during 2018 compared to 2017 , driven by higher net sales of iphone , services and other products . net sales increased year-over-year in each of the geographic reportable segments . in may 2018 , the company announced a new capital return program of $ 100 billion and raised its quarterly dividend from $ 0.63 to $ 0.73 per share beginning in may 2018. during 2018 , the company spent $ 73.1 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $ 13.7 billion . fiscal 2017 highlights net sales increased 6 % or $ 13.6 billion during 2017 compared to 2016 , primarily driven by growth in services , iphone and mac . the year-over-year increase in net sales reflected growth in each of the geographic reportable segments , with the exception of greater china . the weakness in foreign currencies relative to the u.s. dollar had an unfavorable impact on net sales during 2017. in may 2017 , the company announced an increase to its capital return program by raising the total size of the program from $ 250 billion to $ 300 billion . this included increasing its share repurchase authorization from $ 175 billion to $ 210 billion and raising its quarterly dividend from $ 0.57 to $ 0.63 per share beginning in may 2017. during 2017 , the company spent $ 33.0 billion to repurchase shares of its common stock and paid dividends and dividend equivalents of $ 12.8 billion .
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risk factors ” in this annual report on form 10-k. story_separator_special_tag bold ; text-transform : uppercase ; font-size:10pt ; font-style : normal ; font-variant : normal ; '' > results of operations — continuing operations we provide professional business services that help clients manage their finances and employees . we deliver our integrated services through the following three practice groups : financial services , benefits and insurance services and national practices . a description of these groups ' operating results and factors affecting their businesses is provided below . same-unit revenue represents total revenue adjusted to reflect comparable periods of activity for acquisitions and divestitures . for example , for a business acquired on july 1 , 2015 , revenue for the period january 1 , 2016 through june 30 , 2016 would be reported as revenue from acquired businesses ; same-unit revenue would include revenue for the periods july 1 through december 31 of both years . divested operations represent operations that did not meet the criteria for treatment as discontinued operations . those businesses that have met the requirements to be treated as a discontinued operation are eliminated from continuing operations for all periods presented below . revenue the following table summarizes total revenue for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_6_th 20 a detailed discussion of same-unit revenue by practice group is included under “ operating practice groups. ” non-qualified deferred compensation plan we sponsor a non-qualified deferred compensation plan , under which a cbiz employee 's compensation deferral is held in a rabbi trust and invested accordingly as directed by the employee . income and expenses related to the non-qualified deferred compensation plan are included in “ operating expenses ” , “ gross margin ” and “ g & a expenses ” and are directly offset by deferred compensation gains or losses in “ other income , net ” in the accompanying consolidated statements of comprehensive income . the non-qualified deferred compensation plan has no impact on “ income from continuing operations before income tax expense ” or diluted earnings per share from continuing operations . operating expenses the following table presents our operating expenses for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_7_th 2016 compared to 2015 the majority of our operating expenses relate to personnel costs , which includes ( i ) salaries and benefits , ( ii ) commissions paid to producers ( iii ) incentive compensation and ( iv ) share-based compensation . our operating expenses increased by $ 45.3 million , or 6.9 % , in 2016 compared to 2015 , and increased to 87.2 % of revenue from 86.9 % of revenue for the prior year . personnel costs increased $ 36.9 million , or 7.3 % , to support our growth in revenue , with acquisitions contributing approximately $ 17.9 million to personnel costs . personnel costs and other operating expenses are discussed in further detail under “ operating practice groups. ” the non-qualified deferred compensation plan added expense of $ 4.6 million in 2016 compared to income of $ 0.6 million in 2015. excluding these items , operating expenses would have been $ 693.2 million , or 86.7 % of revenue , in 2016 compared to $ 652.9 million , or 87.0 % , in 2015 . 2015 compared to 2014 our operating expenses increased $ 22.6 million , or 3.5 % , in 2015 compared to 2014 , and decreased to 86.9 % of revenue from 87.5 % of revenue for the prior year . the increase in operating expenses was due to the same factors in the “ 2016 compared to 2015 ” period as discussed above . personnel costs increased $ 20.2 million , or 4.2 % . acquisitions contributed approximately $ 11.0 million to personnel costs . the non-qualified deferred compensation plan added income of $ 0.6 million in 2015 compared to expense of $ 3.2 million in 2014. excluding these items , operating expenses would have been $ 652.9 million , or 87.0 % of revenue , in 2015 compared to $ 626.6 million , or 87.1 % , in 2014. g & a expenses the following table presents our g & a expenses for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_8_th 21 2016 compared to 2015 our g & a expenses increased by $ 3.8 million , or 11.7 % , in 2016 compared to 2015 , and increased to 4.6 % of revenue from 4.4 % of revenue for the prior year . personnel costs increased $ 1.8 million , or 9.9 % , due to an increase in incentive-based compensation due to the company 's performance in 2016. also contributing to the increase in g & a expenses was an increase of $ 0.9 million in professional fees related to legal fees incurred . the non-qualified deferred compensation plan added expense of $ 0.7 million in 2016 compared to income of $ 0.1 million in 2015. excluding these items , g & a expenses would have been $ 35.6 million , or 4.5 % of revenue , in 2016 compared to $ 32.6 million , or 4.4 % of revenue , in 2015 . 2015 compared to 2014 our g & a expenses decreased by $ 1.7 million , or 4.8 % , in 2015 compared to 2014 , and decreased to 4.4 % of revenue from 4.8 % of revenue for the prior year . professional fees decreased $ 1.2 million due to a decrease in legal expenses related to case dismissals and settlements . also contributing to the decrease in g & a expenses was a decrease of $ 0.3 million related to incentive-based compensation . story_separator_special_tag 23 financial services replace_table_token_12_th replace_table_token_13_th 2016 compared to 2015 the financial services practice group revenue in 2016 grew by 5.2 % to $ 501.3 million from $ 476.4 million in 2015 , primarily reflecting same-unit growth of 5.1 % , driven by those units that provide national services , which increased 8.3 % , as well as those units that provide traditional accounting and tax related services , which increased 3.5 % , respectively . the financial services practice group benefited from project work and growth in the governmental health care compliance business , as well as an increase of 2 % in billable hours and moderate price increases in those units that provide traditional accounting and tax related services . we provide a range of services to affiliated cpa firms under asas . fees earned under the asas are recorded as revenue in the accompanying consolidated statements of comprehensive income and were $ 144.8 million and $ 137.5 million in 2016 and 2015 , respectively . operating expenses increased by $ 20.9 million in 2016 , but decreased to 86.2 % of revenue from 86.3 % of revenue for the prior year . to support the growth of our revenue in 2016 , personnel costs increased by $ 21.5 million , driven by incremental growth in our headcount and salaries and related benefits . 2015 compared to 2014 the financial services practice group revenue in 2015 grew by 2.4 % to $ 476.4 million from $ 465.1 million in 2014. same-unit revenue grew 3.4 % , driven by project work and growth in the governmental health care compliance business , as well as a slight increase in those units that provide traditional accounting and tax related services . the revenue from divestitures was from a business located in miami , florida which was sold in the fourth quarter of 2014. fees earned under the asas were $ 137.5 million and $ 133.7 million in 2015 and 2014 , respectively . operating expenses increased by $ 11.5 million in 2015 to 86.3 % of revenue from 86.0 % of revenue for the prior year due to the same factors as discussed above in the 2016 compared to 2015 period . in 2015 , personnel costs increased by $ 8.5 million , while occupancy costs increased by $ 2.3 million due to additional costs related to the relocation of the kansas city , missouri office as well as increases in common area charges at numerous other locations . 24 benefits and insurance services replace_table_token_14_th replace_table_token_15_th 2016 compared to 2015 the benefits and insurance services practice group revenue in 2016 grew by 9.5 % to $ 267.6 million from $ 244.5 million in 2015 , primarily driven by $ 27.3 million of incremental revenue from the acquisition of the savitz organization ( “ savitz ” ) , flex-pay business services , inc. ( “ flex-pay ” ) , pension resource group , inc. ( “ prg ” ) and cottonwood group , inc. ( “ cottonwood ” ) . the same-unit revenue decrease in 2016 was primarily attributable to fewer recruiting projects in our human capital services group as well as non-recurring actuarial projects in our retirement plan services group . operating expenses increased by $ 21.3 million in 2016 to 83.5 % of revenue from 82.7 % of revenue for the prior year . personnel costs increased by $ 16.8 million primarily due to the acquisitions as discussed above . excluding acquisitions , personnel costs decreased $ 1.1 million , due to decreased commissions paid to producers associated with decreased revenue . occupancy costs increased $ 1.8 million primarily due to the acquisitions as discussed above . 2015 compared to 2014 the benefits and insurance services practice group revenue in 2015 grew by 8.7 % to $ 244.5 million from $ 224.9 million in 2014 , primarily driven by $ 15.1 million of incremental revenue from the acquisition of weeks & callaway ( “ w & c ” ) , tegrit group ( “ tegrit ” ) and model consulting , inc. ( “ model ” ) . the same-unit revenue increase in 2015 was primarily driven by property and casualty and a strong performance within its specialty program business , as well as an increase in carrier bonus payments . operating expenses increased by $ 16.1 million in 2015 , but remained flat at 82.7 % of revenue in 2015 and 2014. personnel costs increased by $ 11.5 million primarily due to the acquisitions as discussed above in revenue . excluding acquisitions , personnel costs increased slightly at $ 0.5 million . occupancy costs increased $ 1.7 million primarily due to the acquisitions as discussed above , as well as additional costs related to the relocation of the kansas city , missouri office . 25 national practi ces replace_table_token_16_th 2016 compared to 2015 revenue in 2016 grew by 4.7 % to $ 30.9 million from $ 29.5 million in 2015 , primarily driven by our cost-plus contract with a single client . since 1999 , this cost-plus contract has been renewed several times . the cost-plus contract is a five year contract with the most recent renewal through december 31 , 2018. revenues from this single client accounted for approximately 70 % of the national practice group 's revenue . operating expenses increased by $ 1.3 million in 2016 and increased to 89.6 % of revenue from 89.4 % of revenue for the prior year , mainly due to an increase in salaries and benefits . 2015 compared to 2014 revenue remained flat in 2015 , but operating expenses decreased $ 0.4 million in 2015 and decreased to 89.4 % of revenue from 91.0 % of revenue for the prior year , primarily due to lower legal fees incurred by the healthcare consulting business in 2015 compared to 2014. liquidity our principal sources of liquidity are cash generated from operating activities and financing activities .
| executive summary revenue revenue of $ 799.8 million in 2016 grew $ 49.4 million , or 6.6 % , from revenue of $ 750.4 million in 2015. acquisitions contributed $ 29.9 million , or 4.0 % , while same-unit revenue improved by $ 19.5 million , or 2.6 % . a detailed discussion of revenue by practice group is included under “ operating practice groups. ” income from continuing operations income from continuing operations in 2016 increased $ 5.6 million , or 16.0 % , to $ 40.6 million from $ 35.0 million in 2015. refer to “ results of operations — continuing operations ” for a detailed discussion of the components of income from continuing operations . earnings per diluted share from continuing operations earnings per diluted share from continuing operations were $ 0.76 , $ 0.66 and $ 0.59 in 2016 , 2015 and 2014 , respectively , with a fully diluted weighted average share count of 53.5 million shares , 52.7 million shares and 51.5 million shares , respectively , in those same periods . the dilutive impact of the common stock equivalents related to the 4.875 % 2010 convertible senior subordinated notes ( the “ 2010 notes ” ) was 1.2 million shares in 2015 and 2.0 million shares in 2014. excluding the impact of the common stock equivalents , fully diluted earnings per share from continuing operations would have been $ 0.68 and $ 0.61 in 2015 and 2014 , respectively . share repurchases our first priority for the use of capital is to make strategic acquisitions . we have the financing flexibility and the capacity to carry out an active acquisition program and to take an opportunistic approach towards using funds to repurchase shares .
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30 overview we are an equity real estate investment trust ( “ reit ” ) specializing in the ownership , management , and redevelopment of high quality retail and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the northeast and mid-atlantic regions of the united states , california , and south florida . as of december 31 , 2016 , we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 96 predominantly retail real estate projects comprising approximately 22.6 million square feet . in total , the real estate projects were 94.4 % leased and 93.3 % occupied at december 31 , 2016 . we have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 49 consecutive years . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america , referred to as “ gaap ” , requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and revenues and expenses . these estimates are prepared using management 's best judgment , after considering past and current events and economic conditions . in addition , information relied upon by management in preparing such estimates includes internally generated financial and operating information , external market information , when available , and when necessary , information obtained from consultations with third party experts . actual results could differ from these estimates . a discussion of possible risks which may affect these estimates is included in “ item 1a . risk factors ” of this report . management considers an accounting estimate to be critical if changes in the estimate could have a material impact on our consolidated results of operations or financial condition . our significant accounting policies are more fully described in note 2 to the consolidated financial statements ; however , the most critical accounting policies , which involve the use of estimates and assumptions as to future uncertainties and , therefore , may result in actual amounts that differ from estimates , are as follows : revenue recognition and accounts receivable our leases with tenants are classified as operating leases . substantially all such leases contain fixed escalations which occur at specified times during the term of the lease . base rents are recognized on a straight-line basis from when the tenant controls the space through the term of the related lease , net of valuation adjustments , based on management 's assessment of credit , collection and other business risk . percentage rents , which represent additional rents based upon the level of sales achieved by certain tenants , are recognized at the end of the lease year or earlier if we have determined the required sales level is achieved and the percentage rents are collectible . real estate tax and other cost reimbursements are recognized on an accrual basis over the periods in which the related expenditures are incurred . for a tenant to terminate its lease agreement prior to the end of the agreed term , we may require that they pay a fee to cancel the lease agreement . lease termination fees for which the tenant has relinquished control of the space are generally recognized on the termination date . when a lease is terminated early but the tenant continues to control the space under a modified lease agreement , the lease termination fee is generally recognized evenly over the remaining term of the modified lease agreement . current accounts receivable from tenants primarily relate to contractual minimum rent and percentage rent as well as real estate tax and other cost reimbursements . accounts receivable from straight-line rent is typically longer term in nature and relates to the cumulative amount by which straight-line rental income recorded to date exceeds cash rents billed to date under the contractual lease agreement . we make estimates of the collectability of our current accounts receivable and straight-line rents receivable which requires significant judgment by management . the collectability of receivables is affected by numerous factors including current economic conditions , bankruptcies , and the ability of the tenant to perform under the terms of their lease agreement . while we make estimates of potentially uncollectible amounts and provide an allowance for them through bad debt expense , actual collectability could differ from those estimates which could affect our net income . with respect to the allowance for current uncollectible tenant receivables , we assess the collectability of outstanding receivables by evaluating such factors as nature and age of the receivable , past history and current financial condition of the specific tenant including our assessment of the tenant 's ability to meet its contractual lease obligations , and the status of any pending disputes or lease negotiations with the tenant . at december 31 , 2016 and 2015 , our allowance for doubtful accounts was $ 11.9 million and $ 11.7 million , respectively . historically , we have recognized bad debt expense between 0.3 % and 1.3 % of rental income and it was 0.3 % in 2016 . a change in the estimate of collectability of a receivable would result in a change to our allowance for doubtful accounts and correspondingly bad debt expense and net income . for example , in the event our estimates were not accurate and we were required to increase our allowance by 1 % of rental income , our bad debt expense would have increased and our net income would have decreased by $ 7.9 million . 31 due to the nature of the accounts receivable from straight-line rents , the collection period of these amounts typically extends beyond one year . story_separator_special_tag total capitalized costs were $ 511 million and $ 307 million for 2016 and 2015 , respectively . 32 when applicable , as lessee , we classify our leases of land and building as operating or capital leases . we are required to use judgment and make estimates in determining the lease term , the estimated economic life of the property and the interest rate to be used in determining whether or not the lease meets the qualification of a capital lease and is recorded as an asset . real estate acquisitions upon acquisition of operating real estate properties , we estimate the fair value of assets and liabilities acquired including land , building , improvements , leasing costs , intangibles such as in-place leases , assumed debt , and current assets and liabilities , if any . based on these estimates , we allocate the purchase price to the applicable assets and liabilities . we utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities . the value allocated to in-place leases is amortized over the related lease term and reflected as rental income in the statement of operations . we consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options . if the value of below market lease intangibles includes renewal option periods , we include such renewal periods in the amortization period utilized . if a tenant vacates its space prior to contractual termination of its lease , the unamortized balance of any in-place lease value is written off to rental income . long-lived assets and impairment there are estimates and assumptions made by management in preparing the consolidated financial statements for which the actual results will be determined over long periods of time . this includes the recoverability of long-lived assets , including our properties that have been acquired or redeveloped and our investment in certain joint ventures . management 's evaluation of impairment includes review for possible indicators of impairment as well as , in certain circumstances , undiscounted and discounted cash flow analysis . since most of our investments in real estate are wholly-owned or controlled assets which are held for use , a property with impairment indicators is first tested for impairment by comparing the undiscounted cash flows , including residual value , to the current net book value of the property . if the undiscounted cash flows are less than the net book value , the property is written down to expected fair value . the calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including revenues , operating expenses , required maintenance and development expenditures , market conditions , demand for space by tenants and rental rates over long periods . because our properties typically have a long life , the assumptions used to estimate the future recoverability of book value requires significant management judgment . actual results could be significantly different from the estimates . these estimates have a direct impact on net income , because recording an impairment charge results in a negative adjustment to net income . contingencies we are sometimes involved in lawsuits , warranty claims , and environmental matters arising in the ordinary course of business . management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters . we accrue a liability for litigation if an unfavorable outcome is probable and the amount of loss can be reasonably estimated . if an unfavorable outcome is probable and a reasonable estimate of the loss is a range , we accrue the best estimate within the range ; however , if no amount within the range is a better estimate than any other amount , the minimum within the range is accrued . any difference between our estimate of a potential loss and the actual outcome would result in an increase or decrease to net income . in addition , we reserve for estimated losses , if any , associated with warranties given to a buyer at the time an asset is sold or other potential liabilities relating to that sale , taking any insurance policies into account . these warranties may extend up to ten years and the calculation of potential liability requires significant judgment . if changes in facts and circumstances indicate that warranty reserves are understated , we will accrue additional reserves at such time a liability has been incurred and the costs can be reasonably estimated . warranty reserves are released once the legal liability period has expired or all related work has been substantially completed . any changes to our estimated warranty losses would result in an increase or decrease in net income . 33 self-insurance we are self-insured for general liability costs up to predetermined retained amounts per claim , and we believe that we maintain adequate accruals to cover our retained liability . we currently do not maintain third party stop-loss insurance policies to cover liability costs in excess of predetermined retained amounts . our accrual for self-insurance liability is determined by management and is based on claims filed and an estimate of claims projected to be incurred but not yet reported . management considers a number of factors , including third-party actuarial analysis , previous experience in our portfolio , and future increases in costs of claims , when making these determinations . if our liability costs differ from these accruals , it will increase or decrease our net income . recently adopted and recently issued accounting pronouncements see note 2 to the consolidated financial statements .
| summary of cash flows replace_table_token_17_th net cash provided by operating activities increased $ 59.4 million to $ 419.3 million during 2016 from $ 359.8 million during 2015 . the increase was primarily attributable to higher net income before certain non-cash items , timing of payments from tenants , and the timing of interest payments and other operating costs . net cash used in investing activities increased $ 236.5 million to $ 590.2 million during 2016 from $ 353.8 million during 2015 . the increase in net cash used was primarily attributable to : $ 150.7 million increase in capital investments and leasing costs as we continue to invest in assembly row , pike & rose , santana row , and other current redevelopments , and $ 97.4 million decrease in proceeds from the sale of real estate , as we sold both houston street and courtyard shops in 2015 , partially offset by $ 11.4 million decrease in acquisitions of real estate . 43 net cash provided by financing activities increased $ 206.3 million to $ 173.3 million provided during 2016 from $ 33.0 million used in 2015 . the increase was primarily attributable to : the april 2015 redemption of $ 200.0 million of senior notes with a make-whole premium of $ 19.2 million , a $ 218.2 million increase in net proceeds from the issuance of common shares as we issued 1.0 million common shares at $ 149.43 per share in an underwritten public offering in march 2016 , and we sold 1.2 million common shares under our atm equity program at a weighted average price of $ 152.92 during 2016 compared to 0.8 million shares at a weighted average price of $ 135.01 during 2015 , and a $ 131.8 million decrease in repayment of mortgages , capital leases and notes payable due to the payoff of $ 34.4 million of mortgage loans on april 1 , 2016 , compared to the payoff
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the preparation of consolidated financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . ( b ) valuation : the company applies asc 820-10 , fair value measurement ( `` asc 820-10 `` ) , to its holdings of financial instruments . asc 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements . the valuation hierarchy is based upon the observability of inputs to the valuation of an asset or liability as of the measurement date . the three levels are defined as follows : level 1—inputs to the valuation methodology are observable and reflect quoted prices ( unadjusted ) for identical assets or liabilities in active markets . currently , the types of financial instruments the company generally includes in this category are listed equities , exchange-traded derivatives , and cash equivalents ; level 2—inputs to the valuation methodology other than quoted prices included in level 1 are observable for the asset or liability , either directly or indirectly . currently , story_separator_special_tag executive summary we are a specialty finance company that invests in a diverse array of financial assets , including residential mortgage-backed securities , or `` rmbs , '' commercial mortgage-backed securities , or `` cmbs , '' residential and commercial mortgage loans , consumer loans and asset-backed securities , or `` abs , '' backed by consumer loans , collateralized loan obligations , or `` clos , '' corporate equity and debt securities ( including distressed debt ) , non-mortgage and mortgage-related derivatives , equity investments in mortgage-related entities , and other strategic investments . we are externally managed and advised by ellington financial management llc , or our `` manager , '' an affiliate of ellington management group , l.l.c . ellington management group , l.l.c . and its affiliated investment advisory firms , including our manager , or `` ellington , '' is a registered investment adviser with a 23-year history of investing in the credit markets . we conduct all of our operations and business activities through ellington financial operating partnership llc , or the `` operating partnership . '' as of december 31 , 2017 , we have an ownership interest of approximately 99.3 % in the operating partnership . the interest of approximately 0.7 % not owned by us represents the interest in the operating partnership that is owned by an affiliate of our manager and certain related parties , and is reflected in our financial statements as a non-controlling interest . our primary objective is to generate attractive , risk-adjusted total returns for our shareholders . we seek to attain this objective by utilizing an opportunistic strategy to make investments , without restriction as to ratings , structure , or position in the capital structure , that we believe compensate us appropriately for the risks associated with them rather than targeting a specific yield . our evaluation of the potential risk-adjusted return of any potential investment typically involves weighing the potential returns of such investment under a variety of economic scenarios against the perceived likelihood of the various 53 scenarios . potential investments subject to greater risk ( such as those with lower credit ratings and or those with a lower position in the capital structure ) will generally require a higher potential return to be attractive in comparison to investment alternatives with lower potential return and a lower degree of risk . however , at any particular point in time , depending on how we perceive the market 's pricing of risk both generally and across sectors , we may favor higher-risk assets or we may favor lower-risk assets , or a combination of the two in the interests of portfolio diversification or other considerations . through december 31 , 2017 , our credit portfolio , which includes all of our investments other than agency rmbs , has been the primary driver of our risk and return , and we expect that this will continue in the near- to medium-term . for more information on our targeted assets , see `` —our targeted asset classes '' below . we believe that ellington 's capabilities allow our manager to identify attractive assets in these classes , value these assets , monitor and forecast the performance of these assets , and opportunistically hedge our risk with respect to these assets . we continue to maintain a highly leveraged portfolio of agency rmbs to take advantage of opportunities in that market sector and to maintain our exclusion from registration as an investment company under the investment company act of 1940 , as amended , or the `` investment company act . '' unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the investment company act , we expect that we will always maintain some core amount of agency rmbs . the strategies that we employ are intended to capitalize on opportunities in the current market environment . we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time . we believe that this flexibility , combined with ellington 's experience , will help us generate more consistent returns on our capital throughout changing market cycles . we also use leverage in our credit strategy , albeit significantly less leverage than that used in our agency rmbs strategy . through december 31 , 2017 , we financed the vast majority of our agency rmbs assets , and the majority of our credit assets , through reverse repurchase agreements , or `` reverse repos , '' which we account for as collateralized borrowings . we expect to continue to finance the vast majority of our agency rmbs through the use of reverse repos . story_separator_special_tag ios , pos , iios , and inverse floaters ; and . collateralized debt obligations , or `` cdos . '' residential mortgage loans . residential non-performing mortgage loans , or `` npls '' ; . non-qm loans ; and . retained tranches from securitizations to which we have contributed assets . 55 other . real estate , including commercial and residential real property ; . strategic debt and or equity investments in mortgage originators and other mortgage -related entities ; . mortgage servicing rights , or `` msrs '' ; . credit risk transfer securities , or `` crts '' ; and . other non-mortgage-related derivatives . agency rmbs our agency rmbs assets consist primarily of whole pool ( and to a lesser extent , partial pool ) pass-through certificates , the principal and interest of which are guaranteed by a federally chartered corporation , such as the federal national mortgage association , or `` fannie mae , '' the federal home loan mortgage corporation , or `` freddie mac , '' or the government national mortgage association , within the u.s. department of housing and urban development , or `` ginnie mae , '' and which are backed by arms , hybrid arms , or fixed-rate mortgages . in addition to investing in pass-through certificates which are backed by traditional mortgages , we have also invested in agency rmbs backed by reverse mortgages . reverse mortgages are mortgage loans for which neither principal nor interest is due until the borrower dies , the home is sold , or other trigger events occur . mortgage pass-through certificates are securities representing undivided interests in pools of mortgage loans secured by real property where payments of both interest and principal , plus prepaid principal , on the securities are made monthly to holders of the security , in effect `` passing through '' monthly payments made by the individual borrowers on the mortgage loans that underlie the securities , net of fees paid to the issuer/guarantor and servicers of the securities . whole pool pass-through certificates are mortgage pass-through certificates that represent the entire ownership of ( as opposed to merely a partial undivided interest in ) a pool of mortgage loans . our agency rmbs assets are typically concentrated in specified pools . specified pools are fixed-rate agency pools consisting of mortgages with special characteristics , such as mortgages with low loan balances , mortgages backed by investor properties , mortgages originated through the government-sponsored `` making homes affordable '' refinancing programs , and mortgages with various other characteristics . our agency strategy also includes rmbs that are backed by arms or hybrid arms and reverse mortgages , and cmos , including ios , pos , and iios . tbas in addition to investing in specific pools of agency rmbs , we utilize forward-settling purchases and sales of agency rmbs where the underlying pools of mortgage loans are tbas . pursuant to these tba transactions , we agree to purchase or sell , for future delivery , agency rmbs with certain principal and interest terms and certain types of underlying collateral , but the particular agency rmbs to be delivered is not identified until shortly before the tba settlement date . tbas are liquid and have quoted market prices and represent the most actively traded class of mortgage-backed securities , or `` mbs . '' tba trading is based on the assumption that mortgage pools that are eligible to be delivered at tba settlement are fungible and thus the specific mortgage pools to be delivered do not need to be explicitly identified at the time a trade is initiated . we primarily engage in tba transactions for purposes of managing certain risks associated with our investment strategies . the principal risks that we use tbas to mitigate are interest rate and yield spread risks . for example , we may hedge the interest rate and or yield spread risk inherent in our long agency rmbs by taking short positions in tbas that are similar in character . alternatively , we may engage in tba transactions because we find them attractive in their own right , from a relative value perspective or otherwise . clos we acquire clos , a form of asset-backed security collateralized by syndicated corporate loans . our current clo holdings include mezzanine and equity interests , and are concentrated in securitizations that have exited the reinvestment period . we have also contributed , and may contribute in the future , assets to new clo securitizations in order to retain certain tranches from such securitizations . in addition , in anticipation of a securitization transaction , we may provide capital to a vehicle accumulating assets for such securitization , and such vehicle may enter into a warehouse financing facility in order to facilitate such accumulation . securitizations can effectively provide us with long-term , locked-in financing on the related collateral pool , with an effective cost of funds well below the expected yield on the collateral pool . cmbs we acquire cmbs , which are securities collateralized by mortgage loans on commercial properties . the majority of cmbs issued are fixed rate securities backed by fixed rate loans made to multiple borrowers on a variety of property types , 56 though single-borrower cmbs and floating rate cmbs have also been issued . the majority of cmbs utilize senior/subordinate structures , similar to those found in non-agency rmbs . subordination levels vary so as to provide for one or more aaa credit ratings on the most senior classes , with less senior securities rated investment grade and non-investment grade , including a first loss component which is typically unrated . this first loss component is commonly referred to as the `` b-piece , '' which is the most subordinated ( and therefore highest yielding and riskiest ) tranche of a cmbs securitization . much of our focus within the cmbs sector has been in b-pieces .
| results of operations for the years ended december 31 , 2017 and 2016 summary of net increase ( decrease ) in shareholders ' equity from operations for the year ended december 31 , 2017 we had a net increase in shareholders ' equity resulting from operations of $ 34.0 million , and for the year ended december 31 , 2016 we had a net decrease in shareholders ' equity resulting from operations of $ ( 16.0 ) million . the year-over-year reversal in our results of operations was primarily due to a significant decrease in our net realized and unrealized losses on our financial derivatives as well as an increase in our net realized and unrealized gains on investments . because our credit hedges during the year ended december 31 , 2016 were primarily in the form of short positions in financial instruments tied to high-yield corporate credit , we incurred significant losses in the year ended december 31 , 2016 as high-yield corporate credit rallied meaningfully during the period . for the year ended december 31 , 2017 , high-yield corporate credit also rallied , but we had significantly less exposure to these credit hedges during the period , and as a result we had much lower credit hedging losses as compared to the prior period . total return based on changes in `` net asset value '' or `` book value '' for our common shares was 6.14 % for the year ended december 31 , 2017 as compared to ( 1.83 ) % for the year ended december 31 , 2016 . total return on our common shares is calculated based on changes in net asset value per share or book value per share and assumes reinvestment of dividends . net investment income net investment income was $ 35.2 million and $ 35.8 million for the years ended december 31 , 2017 and 2016 , respectively .
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the company has also completed its evaluation of changes to its processes and internal controls , story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , includes forward looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the ‘ ‘ risk factors '' section of this annual report on form10-k , our actual results could differ materially from the results described , in or implied , by these forward-looking statements . overview we are a medical technology company that uses our proprietary ifit image-to-implant technology platform to develop , manufacture and sell joint replacement implants that are individually sized and shaped , which we refer to as customized , to fit each patient 's unique anatomy . the worldwide market for joint replacement products is approximately $ 17.5 billion annually and growing , and we believe our ifit technology platform is applicable to all major joints in this market . we offer a broad line of customized knee implants designed to restore the natural shape of a patient 's knee . we have sold a total of more than 50,000 knee implants in the united states and europe . in clinical studies , itotal cr , our cruciate-retaining total knee replacement implant and best-selling product , demonstrated superior clinical outcomes , including better function and greater patient satisfaction compared to off-the-shelf implants . in march 2016 , we initiated the broad commercial launch of itotal ps , our posterior-stabilized total knee replacement implant which addresses the largest segment of the knee replacement market . our ifit technology platform comprises three key elements : ifit design , our proprietary algorithms and computer software that we use to design customized implants and associated single-use patient-specific instrumentation , which we refer to as ijigs , based on computed tomography , or ct scans of the patient and to prepare a surgical plan customized for the patient that we call iview . ifit printing , a three-dimensional , or 3d , printing technology that we use to manufacture ijigs and that we may extend to manufacture certain components of our customized knee replacement implants . ifit just-in-time delivery , our just-in-time manufacturing and delivery capabilities . we believe our ifit technology platform enables a scalable business model that greatly lowers our inventory requirements , reduces the amount of working capital required to support our operations and allows us to launch new products and product improvements more rapidly , as compared to manufacturers of off-the-shelf implants . all of our joint replacement products have been cleared by the fda under the premarket notification process of section 510 ( k ) of the federal food , drug , and cosmetic act , or the fdca , and have received certification to ce mark . we market our products to orthopedic surgeons , hospitals and other medical facilities and patients . we use direct sales representatives , independent sales representatives and distributors to market and sell our products in the united states , germany , the united kingdom and other markets . we were incorporated in delaware and commenced operations in 2004. components of our results of operations the following is a description of factors that may influence our results of operations , including significant trends and challenges that we believe are important to an understanding of our business and results of operations . revenue our product revenue is generated from sales to hospitals and other medical facilities that are served through a direct sales force , independent sales representatives and distributors in the united states , germany , the united kingdom , austria , ireland , switzerland , singapore , hong kong , malaysia and monaco . in order for surgeons to use our products , the medical facilities where these surgeons treat patients typically require us to enter into 61 pricing agreements . the process of negotiating a pricing agreement can be lengthy and time-consuming , require extensive management time and may not be successful . revenue from sales of our products fluctuates principally based on the selling price of the joint replacement product , as the sales price of our products varies among hospitals and other medical facilities . in addition , our product revenue may fluctuate based on the product sales mix and mix of sales by geography . our product revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates , as our sales are denominated in the local currency in the countries in which we sell our products . we expect our product revenue to fluctuate from quarter-to-quarter due to a variety of factors , including seasonality , as we have historically experienced lower sales in the summer months and around year-end , the timing of the introduction of our new products , if any , and the impact of the buying patterns and implant volumes of medical facilities . in april 2015 , we entered into a worldwide license agreement with microport orthopedics inc. , or microport , a wholly owned subsidiary of microport scientific corporation . under the terms of this license agreement , we granted a perpetual , irrevocable , non-exclusive license to microport to use patient-specific instrument technology covered by our patents and patent applications with off-the-shelf implants in the knee . this license does not extend to patient-specific implants . this license agreement provides for the payment to us of a fixed royalty at a high single to low double digit percentage of net sales on patient-specific instruments and associated implant components in the knee , including microport 's prophecy patient-specific instruments used with its advance and evolution implant components . story_separator_special_tag we believe that areas of opportunity to expand our gross margin in the future , if and as the volume of our product sales increases , include the following : absorbing overhead costs across a larger volume of product sales ; obtaining more favorable pricing for the materials used in the manufacture of our products ; obtaining more favorable pricing of certain component of our products manufactured for us by third parties ; increasing the proportion of certain components of our products that we manufacture in-house , which we believe we can manufacture at a lower unit cost than vendors we currently use ; developing new versions of our software used in the design of our customized joint replacement implants , which we believe will reduce costs associated with the design process ; and expanding our cad labor in india , which we believe will reduce labor costs required to design our products . we continue to explore the application of our 3d printing technology to select metal components of our products , which we believe may be a future opportunity for reducing our manufacturing costs . we also continue to explore other opportunities to reduce our manufacturing costs . however , these and the above opportunities may not be realized . in addition , our gross margin may fluctuate from period to period . operating expenses our operating expenses consist of sales and marketing , research and development and general and administrative expenses . personnel costs are the most significant component of operating expenses and consist of salaries , benefits , stock-based compensation and sales commissions . sales and marketing . sales and marketing expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in sales , marketing , customer service , medical education and training , as well as investments in surgeon training programs , industry events and other promotional activities . in addition , our sales and marketing expense includes sales commissions and bonuses , generally based on a percentage of sales , to our sales managers , direct sales representatives and independent sales representatives . recruiting , training and retaining productive sales representatives and educating surgeons about the benefits of our products are required to generate and grow revenue . we expect sales and marketing expense to significantly increase as we build up our sales and support personnel and expand our marketing efforts . our sales and marketing expense may fluctuate from period to period due to the seasonality of our revenue and the timing and extent of our expenses . research and development . research and development expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in research and 63 development , regulatory and clinical areas . research and development expense also includes costs associated with product design , product refinement and improvement efforts before and after receipt of regulatory clearance , development prototypes , testing , clinical study programs and regulatory activities , contractors and consultants , and equipment and software to support our development . as our revenue increases , we will also incur additional expenses for revenue share payments to our past and present scientific advisory board members , including one of our directors . we expect research and development expense to increase in absolute dollars as we develop new products to expand our product pipeline , add research and development personnel and conduct clinical activities . general and administrative . general and administrative expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for our administrative personnel that support our general operations , including executive management , general legal and intellectual property , finance and accounting , information technology and human resources personnel . general and administrative expense also includes outside legal costs associated with intellectual property and general legal matters , financial audit fees , insurance , fees for other consulting services , depreciation expense , freight , and facilities expense . we expect our general and administrative expense will increase in absolute dollars as we increase our headcount and expand our infrastructure to support growth in our business and our operations as a public company . as our revenue increases we also will incur additional expenses for freight . our general and administrative expense may fluctuate from period to period due to the timing and extent of the expenses . total other income ( expense ) , net total other income ( expense ) , net consists primarily of interest expense and amortization of debt discount associated with our term loans outstanding during the year and realized gains ( losses ) from foreign currency transactions . the effect of exchange rates on our foreign currency-denominated asset and liability balances are recorded as foreign currency translation adjustments in the consolidated statements of comprehensive loss . income tax provision income tax provision consists primarily of a provision for income taxes in foreign jurisdictions in which we conduct business . we maintain a full valuation allowance for deferred tax assets including net operating loss carryforwards and research and development credits and other tax credits . on december 22 , 2017 , the tax cuts and jobs act ( the `` tax act '' ) was signed into law and , as a result , the u.s. federal statutory corporate tax rate was lowered from 35 % to 21 % and imposes a one-time transition tax on unremitted foreign earnings on foreign subsidiaries . the company has remeasured its deferred tax positions as of december 31 , 2017 at the new enacted tax rate , resulting in a decrease to deferred tax assets in 2017 in the amount of $ 48.5 million . since the company has a valuation allowance on its deferred tax assets , there is no impact on current tax expense . for deferred taxes purposes , the company recorded a benefit of approximately $ 19,000 due to the revaluation of the deferred tax liability hanging credit .
| consolidated results of operations comparison of the years ended december 31 , 2017 and 2016 the following table sets forth our results of operations expressed as dollar amounts , percentage of total revenue and year-over-year change ( in thousands ) : replace_table_token_3_th product revenue . product revenue was $ 77.1 million for the year ended december 31 , 2017 compared to $ 78.9 million for the year ended december 31 , 2016 , a decrease of $ 1.8 million or 2 % , due principally to decreased sales of our partial knee products and decreased sales of our itotal cr in germany , offset by increased sales of our itotal ps . the following table sets forth , for the periods indicated , our product revenue by geography expressed as u.s. dollar amounts , percentage of product revenue and year-over-year change ( in thousands ) : replace_table_token_4_th product revenue in the united states was generated through our direct sales force and independent sales representatives . product revenue outside the united states was generated through our direct sales force and distributors . the percentage of product revenue generated in the united states was 84 % for the year ended december 31 , 2017 compared to 79 % for the year ended december 31 , 2016 . we believe the higher level of revenue as a percentage of product revenue inside the united states in 2017 was due to the introduction of the itotal ps in the united states , coupled with the change in the reimbursement of our iuni and iduo partial implants and continued weakness in our itotal cr business in germany . 65 cost of revenue , gross profit and gross margin . cost of revenue was $ 49.3 million for the year ended december 31 , 2017 compared to $ 53.2 million for the year ended december 31 , 2016 , a decrease of $ 3.9 million or 7 % .
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as a result of the rapid development , fluidity and uncertainty surrounding this situation , the company expects that such statistical and other information will change , potentially significantly , going forward and may not be indicative of the actual impact of the covid-19 pandemic on the company 's business , operations , cash flows and financial condition for future periods . the united states of america has been subject to significant economic disruption caused by the onset of covid-19 . nearly every industry has been impacted directly or indirectly , and the u.s. retail market has come under severe pressure due to numerous factors , including preventative measures taken by local , state and federal authorities to alleviate the public health crisis such as mandatory business closures , quarantines , restrictions on travel and “ shelter-in-place ” or “ stay-at-home ” orders at the state and local levels . these containment measures , which generally do not apply to businesses designated as “ essential ” , are affecting the operations of different categories of the company 's base to varying degrees with , for example , grocery stores and pharmacies generally permitted to remain open and operational , restaurants generally limited to take-out and delivery services only and capacity restrictions while open , and non-essential businesses generally forced to close . there is uncertainty as to the time , date and extent to which these restrictions will be relaxed or lifted , businesses of tenants that have closed , either voluntarily or by mandate , will reopen or partially reopen . the properties are geographically located in the southeast , mid-atlantic and northeast , which markets represented approximately 61 % , 35 % and 4 % , respectively , of the total annualized base rent of the properties in our portfolio . our operating portfolio contains retail shopping centers with a particular emphasis on grocery-anchored retail centers ; grocers represent approximately 26 % of total annualized base rent as of december 31 , 2020. we generally lease our properties to national and regional retailers . the company 's portfolio and tenants have been impacted as follows : the company 's sixty retail shopping centers are open and operating . as of december 31 , 2020 , all of the company 's shopping centers feature necessity-based tenants , with forty-three of the sixty properties anchored by grocery and or drug stores . the company agreed to lease modifications with nine tenants who declared bankruptcy , resulting in a weighted average rate decrease of 7.54 % or $ 0.86 rate per square foot . nine tenants vacated due to bankruptcy and three of these vacated tenants have been backfilled . beginning in april 2020 , the company received certain rent relief requests , most often in the form of rent deferral requests , as a result of covid-19 . the company evaluates each tenant rent relief request on an individual basis , considering a number of factors . not all tenant requests ultimately result in concessions or modification of agreements , nor is the company forgoing its contractual rights under its lease agreements . as a result , the company granted 148 concessions as of march 5 , 2021 and modified 72 leases as of december 31 , 2020 , with a weighted average rate increase of 3.53 % and 3 year weighted average extension term . during the three months ended december 31 , 2020 , the company modified 4 leases at no rate change and five months weighted average extension term . the company has received payment of 97 % of contractual base rent and tenant reimbursements billed for the three months ended december 31 , 2020 , total 2020 collections were 99 % . as of december 31 , 2020 , $ 257 thousand of accounts receivable relate to short term deferral of rents , a decrease of $ 132 thousand compared to september 30 , 2020. the company has taken a number of proactive measures to maintain the strength of its business and manage the impact of covid-19 on the company 's operations and liquidity , including the following : 11 along with the company 's tenants and the communities they serve , the health and safety of the company 's employees and their families is a top priority . the company has adapted its operations to protect employees , including implementing a work from home policy and the company 's it systems have enabled its team to work seamlessly . the company is in constant communication with its tenants and sharing resources on how to identify local , state and federal resources that may be available to support their businesses and employees during the pandemic , including stimulus funds that may be available under the coronavirus aid , relief and economic security act of 2020 and the consolidated appropriations act of 2021. the company currently has approximately $ 7.66 million in cash and cash equivalents and an additional $ 35.11 million in restricted cash . given the uncertainty of the covid-19 pandemic 's near and potential long-term impact on the company 's business , and in order to preserve its liquidity position , the company has continued its suspension of any dividend distributions . the company derives revenues primarily from rents received from tenants under leases at the company 's properties . the company 's operating results therefore depend materially on the ability of its tenants to make required rental payments . story_separator_special_tag the powerscourt warrant agreement contains terms and features that give rise to derivative liability classification . the company utilized the monte carlo simulation model to calculate the fair value of these warrants at the date of commitment . significant observable and unobservable inputs include stock price , conversion price , annual risk free rate , term , likelihood of an event of contractual conversion and expected volatility . the monte carlo simulation is a level 3 valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators . the warrants were valued at approximately $ 594 thousand and the company recorded a liability included on the consolidated balance sheet . see note 6 included in this form 10-k for additional details . keybank credit agreement on january 24 , 2020 , the company and keybank entered into a second amendment to the keybank credit agreement ( the `` second amendment '' ) , effective december 21 , 2019. pursuant to the second amendment , the company began making monthly principal payments of $ 350 thousand on november 1 , 2019. the second amendment , among other provisions , requires a pledge of additional collateral of $ 15.00 million in residual equity interests and staggered maturity dates with an ultimate maturity of june 30 , 2020. on july 21 , 2020 , the company and keybank entered into a third amendment to the keybank credit agreement ( the `` third amendment '' ) . the third amendment , among other provisions , reduces the pledge of additional collateral by two properties and extends the maturity to december 31 , 2020. the keybank credit agreement was paid in full as of december 22 , 2020. the following collateralized portions of the amended and restated credit agreement had principal paydowns associated with each refinancing as noted below : $ 1.78 million paydown from st. matthews sale proceeds on january 21 , 2020 ; 13 $ 5.75 million paydown from shoppes at myrtle park refinancing proceeds on january 23 , 2020 ; $ 2.50 million paydown from cash released to the company from restricted cash accounts on may 20 , 2020 ; $ 1.00 million paydown on november 12 , 2020 ; $ 3.00 million final paydown from powerscourt financing agreement proceeds on december 22 , 2020. columbia fire station extension effective september 3 , 2020 , the company extended the columbia fire station promissory note ( `` columbia fire station loan '' ) to december 3 , 2020 , with the monthly principal payment increasing $ 20 thousand for a total monthly principal and interest payment of $ 46 thousand beginning on october 3 , 2020. on december 7 , 2020 , the company received a letter demanding payment in full from pinnacle bank for all amounts due under columbia fire station loan and the interest rate increased to 14 % , the default rate . on december 29 , 2020 , pinnacle bank filed a suit against the company , guarantor . on january 21 , 2021 , the company entered into a forbearance agreement ( the `` forbearance agreement '' ) with pinnacle bank at an interest rate of 14 % and made a $ 500 thousand principal payment . the forbearance agreement , among other provisions , extends the maturity date of the columbia fire station loan to july 21 , 2021 and waives all defaults and late fees existing prior to the forbearance agreement . operating partnership purchase of stock on september 22 , 2020 , the operating partnership purchased 71,343 shares of series d preferred from an unaffiliated investor at $ 15.50 per share . these shares are deemed to be retired on the consolidated financial statements . preferred dividends at december 31 , 2020 , the company had accumulated undeclared dividends of $ 30.51 million to holders of shares of our series a preferred stock , series b preferred stock , and series d preferred stock of which $ 13.85 million is attributable to the year ended december 31 , 2020 . 14 new leases , leasing renewals and expirations the following table presents selected lease activity statistics for our properties . replace_table_token_6_th ( 1 ) lease data presented is based on average rate per square foot over the renewed or new lease term . ( 2 ) the company does not include ground leases entered into for the purposes of new lease sq feet and weighted average rate ( per sq foot ) on new leases . ( 3 ) includes transactions related to bankruptcy negotiations , unless otherwise noted . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this form 10-k , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates 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 .
| results of operations the following table presents a comparison of the consolidated statements of operations for the years ended december 31 , 2020 and 2019 , respectively ( in thousands , except property data ) . replace_table_token_9_th ( 1 ) excludes the undeveloped land parcels . includes assets held for sale . total revenue total revenue was $ 61.00 million for the year ended december 31 , 2020 compared to $ 63.16 million for the year ended december 31 , 2019 , representing a decrease of 3.42 % primarily due to sold properties , three new anchor vacancies of which two were backfilled with rent commencing in 2021 and an increase in the credit loss on operating receivables driven by higher accounts receivable due to impacts of covid-19 on the portfolio . these negative impacts were partially offset by increases in straight-line rental revenues resulting from long-term lease extensions . see same store and non-same store operating income for further details about the changes within operating revenue . total operating expenses total operating expenses for the year ended december 31 , 2020 were $ 42.61 million compared to $ 53.70 million for the year ended december 31 , 2019 , representing a decrease of 20.66 % . the decrease are primarily a result of decreases in impairments , depreciation and amortization and corporate general and administrative expense . impairments decreased as a 20 result of the $ 5.00 million impairment of the sea turtle notes receivable and $ 1.00 million decrease in impairment of assets held for sale , perimeter square and st. matthews impaired in 2019 compared to columbia fire station impairment in 2020. depreciation and amortization decreased $ 4.03 million primarily as a result of lease intangibles becoming fully amortized and ceasing of depreciation and amortization as properties were classified as available held for sale .
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corporate functions and certain other businesses and operations are included in corporate & other . our range of products and services includes : credit card , charge card and other payment and financing products merchant acquisition and processing , servicing and settlement , and point-of-sale marketing and information products and services for merchants network services other fee services , including fraud prevention services and the design and operation of customer loyalty programs expense management products and services travel and lifestyle services our various products and services are sold globally to diverse customer groups , including consumers , small businesses , mid-sized companies and large corporations . these products and services are sold through various channels , including mobile and online applications , affiliate marketing , customer referral programs , third-party vendors and business partners , direct mail , telephone , in-house sales teams , and direct response advertising . business travel-related services are offered through our non-consolidated joint venture , american express global business travel ( the gbt jv ) . the following types of revenue are generated from our various products and services : discount revenue , our largest revenue source , primarily represents the amount we earn on transactions occurring at merchants that have entered into a card acceptance agreement with us , or a global network services ( gns ) partner or other third-party merchant acquirer , for facilitating transactions between the merchants and card members . the amount of fees charged for accepting our cards as payment for goods or services , or merchant discount , varies with , among other factors , the industry in which the merchant does business , the merchant 's overall american express-related transaction volume , the method of payment , the settlement terms with the merchant , the method of submission of transactions and , in certain instances , the geographic scope for the related card acceptance agreement between the merchant and us ( e.g. , domestic or global ) and the transaction amount . in some instances , an additional flat transaction fee is assessed as part of the merchant discount , and additional fees may be charged such as a variable fee for “ non-swiped ” card transactions or for transactions using cards issued outside the united states at merchants located in the united states ; interest on loans , principally represents interest income earned on outstanding balances ; net card fees , represent revenue earned from annual card membership fees , which vary based on the type of card and the number of cards for each account ; other fees and commissions , primarily represent card member delinquency fees , foreign currency conversion fees charged to card members , loyalty coalition-related fees , service fees earned from merchants , travel commissions and fees , and membership rewards program fees ; and other revenue , primarily represents revenues arising from contracts with partners of our gns business ( including commissions and signing fees less issuer rate payments ) , cross-border card member spending , ancillary merchant-related fees , earnings ( losses ) from equity method investments ( including the gbt jv ) , insurance premiums earned from card members , and prepaid card and travelers cheque-related revenue . 42 non-gaap measures we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) . however , certain information included within this report constitutes non-gaap financial measures . our calculations of non-gaap financial measures may differ from the calculations of similarly titled measures by other companies . business environment the covid-19 pandemic has brought unprecedented challenges to businesses and economies around the world . our 2020 financial results were significantly down year-over-year , reflecting the impact of the deterioration in the global economy due to the pandemic and the related containment measures . there remains a high degree of uncertainty relating to the ongoing spread and severity of the virus and new variants , as well as the availability , distribution and use of effective treatments and vaccines . to the extent that the global economy continues to be negatively impacted by the pandemic , our results will be affected , with credit trends and spending volumes being the key drivers of our financial performance . throughout 2020 , we focused and made substantial progress on our four priorities to manage through this period of uncertainty : supporting our colleagues and winning as a team ; protecting our customers and our brand ; structuring the company for growth in the future ; and remaining financially strong . since the first quarter of 2020 , our colleague base has successfully operated in a mostly remote working environment and we have sought to ensure that our colleagues have the flexibility and resources they needed to stay safe , healthy and productive . to support our customers and merchants , we offered financial and other assistance , added product benefits to reflect today 's environment , and provided the high level of customer service they expect and rely on . we experienced lower voluntary attrition rates on our proprietary products compared to the prior year . in addition , our card members continued to recognize our commitment to service excellence , ranking us number one in the j.d . power u.s. credit card satisfaction study for the tenth time . we worked with our strategic partners on initiatives to support our communities and launched our largest ever shop small campaign to help support small merchants . in addition , we remained committed to strengthening inclusion and diversity , and committed to an action plan to promote racial , ethnic and gender equity for our colleagues , customers and communities . reflective of the impacts of the pandemic and the broader macroeconomic environment , our billed business for the year was down 19 percent compared to the prior year , with a low in mid-april followed by a gradual recovery over the remainder of the year . story_separator_special_tag ( b ) relates to other receivables included in other assets on the consolidated balance sheets of $ 3 billion , $ 3.1 billion , and $ 2.9 billion , less reserves of $ 85 million , $ 27 million , $ 25 million as of december 31 , 2020 , 2019 , and 2018 , respectively . provisions for credit losses card member loans and receivables provision for credit losses increased , primarily driven by a higher reserve build reflecting the deterioration of the global macroeconomic outlook , including unemployment and gdp , partially offset by improved credit performance and a decline in the outstanding balance of card member loans and receivables . other provision for credit losses increased , primarily driven by a higher reserve build and higher net write-offs . refer to note 1 to the `` consolidated financial statements '' for further information about cecl , including the january 1 , 2020 implementation impact on reserves . table 4 : expenses summary replace_table_token_7_th expenses in january 2020 , we re-launched our delta cobrand products following the renewal extending our cobrand relationship with delta air lines on march 31 , 2019. the contract renewal included new pricing terms , some of which became effective upon contract signing and others that were tied to the product re-launch . these pricing changes , as well as changes in the expense classification of certain benefits associated with the re-launch , resulted in an increase to marketing and business development and decreases to both card member rewards and card member services expenses , as compared to the prior year . 47 marketing and business development expense decreased , primarily due to a temporary reduction in proactive marketing for card member acquisitions , as well as decreases in corporate client incentives and network partner payments due to lower billed business , all of which were a result of the impacts of the covid-19 pandemic , partially offset by incremental investments in limited time enhancements to our card member value proposition to maintain customer engagement and the delta changes described above . card member rewards expense decreased , primarily driven by decreases in membership rewards and cash back rewards expenses of $ 1,579 million and cobrand rewards expense of $ 819 million , both of which were primarily driven by lower billed business as a result of the impacts of the covid-19 pandemic . in addition , changes in redemption mix due to a decline in higher cost travel redemptions since the onset of the covid-19 pandemic contributed to a decrease in the membership rewards weighted average cost ( wac ) per reward point and expense . cobrand rewards expense also reflected the impact of the delta changes described above . the membership rewards ultimate redemption rate ( urr ) for current program participants was 96 percent ( rounded up ) at both december 31 , 2020 and 2019. card member services expense decreased , primarily due to lower usage of travel-related benefits as a result of the impacts of the covid-19 pandemic , as well as the delta changes described above . salaries and employee benefits expense decreased , primarily driven by lower incentive compensation expenses , partially offset by increased payroll costs due to a higher full year average headcount as compared to the prior year . other expenses decreased , primarily driven by a prior year litigation-related charge , lower employee-related operating costs and lower professional services expense , partially offset by a prior year non-income tax-related benefit . 48 income taxes the effective tax rate for 2020 was 27.0 percent . the effective tax rate for 2019 was 19.8 percent . the increase in the effective tax rate in the current period primarily reflected discrete tax charges related to the realizability of certain foreign deferred tax assets , resulting from cumulative losses in certain non-u.s. legal entities that were exacerbated by the impacts of the covid-19 pandemic . the tax rates in both periods reflect the level of pretax income in relation to recurring permanent tax benefits and the geographic mix of business . table 5 : selected card-related statistical information replace_table_token_8_th ( a ) average fee per card is computed based on proprietary net card fees divided by average proprietary total cards-in-force . 49 table 6 : billed business-related statistical information replace_table_token_9_th ( a ) the foreign currency adjusted information assumes a constant exchange rate between the periods being compared for purposes of currency translation into u.s. dollars ( i.e. , assumes the foreign exchange rates used to determine results for the current year apply to the corresponding prior-year period against which such results are being compared ) . ( b ) based on billed business from merchants we acquire or merchants acquired by third parties on our behalf ( e.g. , optblue merchants ) . 50 table 7 : selected credit-related statistical information replace_table_token_10_th # denotes a variance greater than 100 percent ( a ) includes an increase of $ 1,643 million and decrease of $ 493 million to the beginning reserve balances for card member loans and receivables , respectively , as of january 1 , 2020 , related to the adoption of the cecl methodology . refer to note 3 to the `` consolidated financial statements '' for further information . ( b ) other includes foreign currency translation adjustments . ( c ) we present a net write-off rate based on principal losses only ( i.e. , excluding interest and or fees ) to be consistent with industry convention . in addition , as our practice is to include uncollectible interest and or fees as part of our total provision for credit losses , a net write-off rate including principal , interest and or fees is also presented . ( d ) refer to tables 10 and 13 for net write-off rate - principal only and 30+ days past due metrics for gcsg and global small business services ( gsbs ) receivables , respectively .
| consolidated results of operations refer to the `` glossary of selected terminology '' for the definitions of certain key terms and related information appearing within this section . the discussions in the “ financial highlights ” , “ consolidated results of operations ” and “ business segment results of operations ” provide commentary on the variances for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , as presented in the accompanying tables . these discussions should be read in conjunction with the discussion under `` business environment , '' which contains further information on the covid-19 pandemic and the related impacts on our consolidated results of operations . for a discussion of the financial condition and results of operations for 2019 compared to 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 , filed with the sec on february 13 , 2020. as a result of the adoption of cecl on january 1 , 2020 , there is a lack of comparability in both the reserves and provisions for credit losses for the periods presented . results for reporting periods beginning after january 1 , 2020 are presented using the cecl methodology , while comparative information continues to be reported in accordance with the incurred loss methodology in effect for prior periods . refer to note 3 to the `` consolidated financial statements '' for further information . table 1 : summary of financial performance replace_table_token_4_th ( a ) represents net income , less ( i ) earnings allocated to participating share awards of $ 20 million , $ 47 million and $ 54 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively , and ( ii ) dividends on preferred shares of $ 79 million , $ 81 million and $ 80 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively .
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f-13 other current assets other current assets consisted of the following ( in thousands ) : replace_table_token_25_th story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations with our audited consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. 43 forward-looking statements this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. forward-looking statements include any statements that address future results or occurrences . in some cases you can identify forward-looking statements by terminology such as may , might , will , would , should , could or the negative thereof . generally , the words anticipate , believe , continue , expect , intend , estimate , project , plan and similar expressions identify forward-looking statements . in particular , statements about our expectations , beliefs , plans , objectives , assumptions or future events or performance contained are forward-looking statements . we have based these forward-looking statements on our current expectations , assumptions , estimates and projections . while we believe these expectations , assumptions , estimates and projections are reasonable , such forward-looking statements are only predictions and involve known and unknown risks , uncertainties and other factors , many of which are outside of our control , which could cause our actual results , performance or achievements to differ materially from any results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and other factors include , but are not limited to : our significant indebtedness , our ability to meet our debt obligations , and our ability to incur substantially more debt ; difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of our acquisitions and joint ventures ; our ability to implement our business strategies in the u.s. and the u.k. and adapt to the regulatory and business environment in the u.k. ; potential difficulties operating our business in light of political and economic instability in the u.k. and globally following the referendum in the u.k. on june 23 , 2016 , in which voters approved an exit from the european union , or brexit ; the impact of fluctuations in foreign exchange rates , including the devaluations of the gbp relative to the usd following the brexit vote ; the impact of payments received from the government and third-party payors on our revenue and results of operations including the significant dependence of our u.k. facilities on payments received from the nhs ; our ability to recruit and retain quality psychiatrists and other physicians ; the impact of competition for staffing on our labor costs and profitability ; the impact of increases to our labor costs ; the occurrence of patient incidents , which could result in negative media coverage , adversely affect the price of our securities and result in incremental regulatory burdens and governmental investigations ; our future cash flow and earnings ; our restrictive covenants , which may restrict our business and financing activities ; our ability to make payments on our financing arrangements ; the impact of the economic and employment conditions in the u.s. and the u.k. on our business and future results of operations ; compliance with laws and government regulations ; the impact of claims brought against us or our facilities ; the impact of governmental investigations , regulatory actions and whistleblower lawsuits ; the impact of healthcare reform in the u.s. and abroad , including the potential repeal , replacement or modification of ppaca ; the impact of our highly competitive industry on patient volumes ; our dependence on key management personnel , key executives and local facility management personnel ; our acquisition , joint venture and de novo strategies , which expose us to a variety of operational and financial risks , as well as legal and regulatory risks ; the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations ; our potential inability to extend leases at expiration ; 44 the impact of controls designed to reduce inpatient services on our revenue ; the impact of different interpretations of accounting principles on our results of operations or financial condition ; the impact of environmental , health and safety laws and regulations , especially in locations where we have concentrated operations ; the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations ; the risk of a cyber-security incident and any resulting violation of laws and regulations regarding information privacy or other negative impact ; the impact of laws and regulations relating to privacy and security of patient health information and standards for electronic transactions ; our ability to cultivate and maintain relationships with referral sources ; the impact of a change in the mix of our u.s. and u.k. earnings , adverse changes in our effective tax rate and adverse developments in tax laws generally ; changes in interpretations , assumptions and expectations regarding the tax act , including additional guidance that may be issued by federal and state taxing authorities ; failure to maintain effective internal control over financial reporting ; the impact of fluctuations in our operating results , quarter to quarter earnings and other factors on the price of our securities ; the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients ; the impact of value-based purchasing programs on our revenue ; and those risks and uncertainties described from time to time in our filings with the sec . given these risks and uncertainties , you are cautioned not to place undue reliance on such forward-looking statements . these risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements . story_separator_special_tag we entered into foreign currency forward contracts during the year ended december 31 , 2016 in connection with ( i ) acquisitions in the u.k. and ( ii ) certain transfers of cash between the u.s. and the u.k. under our cash management and foreign currency risk management programs . exchange rate changes between the contract date and the settlement date resulted in a gain on foreign currency derivatives of $ 0.5 million for the year ended december 31 , 2016 . 48 transaction-related expenses . transaction-related expenses were $ 24.3 million for the year ended december 31 , 2017 compared to $ 48.3 million for the year ended december 31 , 2016. transaction-related expenses represent costs incurred in the respective periods , primarily related to the 2016 acquisitions , the u.k. divestiture and the related integration efforts , as summarized below ( in thousands ) : replace_table_token_6_th provision for income taxes . for the year ended december 31 , 2017 , the provision for income taxes was $ 37.2 million , reflecting an effective tax rate of 15.7 % , compared to $ 28.8 million , reflecting an effective tax rate of 87.3 % , for 2016. the decrease in the effective tax rate for the year ended december 31 , 2017 was primarily attributable to the company 's estimate of the one-time tax benefit on revaluation of deferred tax items pursuant to the enactment of the tax act as well as changes in the foreign exchange rate between usd and gbp in 2017 and the disparity between the accounting treatment and the tax treatment of the u.k. divestiture on november 30 , 2016. the company will continue to analyze the effects of the tax act on its financial statements and operations . additional impacts from the enactment of the tax act will be recorded as they are identified during the measurement period as provided for in staff accounting bulletin 118 ( sab 118 ) . year ended december 31 , 2016 compared to the year ended december 31 , 2015 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 1.0 billion , or 55.9 % , to $ 2.9 billion for the year ended december 31 , 2016 from $ 1.8 billion for the year ended december 31 , 2015. the increase related primarily to revenue generated during the year ended december 31 , 2016 from the facilities acquired in our 2015 and 2016 acquisitions , particularly the acquisition of priory . the decrease in the gbp to usd exchange rate had an unfavorable impact on revenue before provision for doubtful accounts of $ 35.6 million for the year ended december 31 , 2016. same-facility revenue before provision for doubtful accounts increased by $ 127.2 million , or 7.5 % , for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 , primarily resulting from same-facility growth in patient days of 7.2 % . consistent with the same-facility patient day growth in 2015 , the growth in same-facility patient days for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 resulted from the addition of beds to our existing facilities and ongoing demand for our services . provision for doubtful accounts . the provision for doubtful accounts was $ 41.9 million for the year ended december 31 , 2016 , or 1.5 % of revenue before provision for doubtful accounts , compared to $ 35.1 million for the year ended december 31 , 2015 , or 1.9 % of revenue before provision for doubtful accounts . the same-facility provision for doubtful accounts was $ 35.3 million for the year ended december 31 , 2016 , or 1.9 % of revenue before provision for doubtful accounts , compared to $ 31.5 million for the year ended december 31 , 2015 , or 1.9 % of revenue before provision for doubtful accounts . salaries , wages and benefits . salaries , wages and benefits expense was $ 1.5 billion for the year ended december 31 , 2016 compared to $ 973.7 million for the year ended december 31 , 2015 , an increase of $ 568.1 million . swb expense included $ 28.3 million and $ 20.5 million of equity-based compensation expense for the years ended december 31 , 2016 and 2015 , respectively . excluding equity-based compensation expense , swb expense was $ 1.5 billion , or 53.8 % of revenue , for the year ended december 31 , 2016 , compared to $ 953.3 million , or 53.1 % of revenue , for the year ended december 31 , 2015. the $ 560.3 million increase in swb expense , excluding equity-based compensation expense , was primarily attributable to swb expense incurred by the facilities acquired in our 2015 and 2016 acquisitions , particularly the acquisition of priory . same-facility swb expense was $ 895.0 million for the year ended december 31 , 2016 , or 50.2 % of revenue , compared to $ 830.8 million for the year ended december 31 , 2015 , or 50.0 % of revenue . professional fees . professional fees were $ 185.5 million for the year ended december 31 , 2016 , or 6.6 % of revenue , compared to $ 116.5 million for the year ended december 31 , 2015 , or 6.5 % of revenue . the $ 69.0 million increase was primarily attributable to professional fees incurred by the facilities acquired in our 2015 and 2016 acquisitions , particularly the acquisition of priory . same-facility professional fees were $ 92.8 million for the year ended december 31 , 2016 , or 5.2 % of revenue , compared to $ 95.0 million , for the year ended december 31 , 2015 , or 5.7 % of revenue . supplies . supplies expense was $ 117.4 million for the year ended december 31 , 2016 , or 4.2 % of revenue , compared to $ 80.7 million for the year ended december 31 , 2015 , or 4.5 % of revenue .
| results of operations the following table illustrates our consolidated results of operations from continuing operations for the respective periods shown ( dollars in thousands ) : replace_table_token_5_th year ended december 31 , 2017 compared to the year ended december 31 , 2016 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 24.4 million , or 0.9 % , to $ 2.9 billion for the year ended december 31 , 2017 from $ 2.9 billion for the year ended december 31 , 2016. the increase related primarily to revenue generated during the year ended december 31 , 2017 from the facilities acquired in our 2016 acquisitions , particularly the acquisition of priory , offset by the reduction in revenue before provision for doubtful accounts related to the u.k. divestiture of $ 154.7 million and the decline in the exchange rate between usd and gbp of $ 45.5 million . same-facility revenue before provision for doubtful accounts increased by $ 138.2 million , or 5.5 % , for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , resulting from same-facility growth in patient days of 3.6 % and an increase in same-facility revenue per day of 1.9 % . consistent with the same-facility patient day growth in 2016 , the growth in same-facility patient days for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 resulted from the addition of beds to our existing facilities and ongoing demand for our services . provision for doubtful accounts . the provision for doubtful accounts was $ 40.9 million for the year ended december 31 , 2017 , or 1.4 % of revenue before provision for doubtful accounts , compared to $ 41.9 million for the year ended december 31 , 2016 , or 1.5 % of revenue before provision for doubtful accounts . salaries , wages and benefits .
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please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under item 8 of this annual report on form 10-k. overview of our company logitech is a world leader in designing products that have an every day place in people 's lives , connecting them to the digital experiences they care about . over 30 years ago we started connecting people through computers , and now we are designing products that bring people together through music , gaming , video and computing . we design , manufacture and market products that allow people to connect through music , gaming , video , computing , and other digital platforms . our products participate in five large markets that all have growth potential : music , gaming , video collaboration , home , and creativity and productivity . we sell our products to a broad network of domestic and international customers , including direct sales to retailers , e-tailers , and indirect sales through distributors . our worldwide retail network includes consumer electronics distributors , retailers , mass merchandisers , specialty electronics stores , computer and telecommunications stores , value-added resellers and online merchants . we seek to fulfill the increasing demand for interfaces between people and the expanding digital world across multiple platforms and user environments . the interface evolves as platforms , user models and our target markets evolve . as access to digital information has expanded , we have extended our focus to mobile devices , the digital home , and the digital world . all of these platforms require interfaces that are customized according to how the devices are used . we believe that continued investment in product research and development is critical to creating the innovation required to strengthen our competitive advantage and to drive future sales growth . we are committed to identifying and meeting current and future consumer trends with new and improved product technologies , as well as leveraging the value of the logitech brand from a competitive , channel partner , and consumer experience perspective . we believe that innovation , design and product quality are important to gaining market acceptance and maintaining market leadership . from time to time , we may seek to partner with , or acquire when appropriate , companies that have products , personnel , and technologies that complement our strategic direction . we continually review our product offerings and our strategic direction in light of our profitability targets , competitive conditions , changing consumer trends and the evolving nature of the interface between the consumer and the digital world . in fiscal years prior to fiscal year 2016 , we had two segments : peripherals , including retail and oem products ; and lifesize video conferencing . during fiscal year 2016 , we divested the lifesize video conferencing segment , and exited the oem business . our financial results treat the lifesize segment as discontinued operations for all the periods presented in this annual report on form 10-k. as a result , sales of products through our retail channels represented 96 % , 94 % and 93 % of our net sales for the fiscal years 2016 , 2015 and 2014 , respectively . on april 20 , 2016 , we acquired jaybird llc of salt lake city , utah , ( `` jaybird '' ) for approximately $ 50 million in cash , with an additional earn-out of up to $ 45 million based on achievement of growth targets over two years . jaybird is a leader in wireless audio wearables for sports and active lifestyles , and the acquisition of jaybird expands our long-term growth potential in our music market . on december 28 , 2015 , we and lifesize , inc. , a wholly owned subsidiary of logitech which holds the assets of our lifesize video conferencing business , entered into a stock purchase agreement with three venture capital firms . immediately following the december 28 , 2015 closing of the transaction , the venture capital firms held 62.5 % of the outstanding shares of lifesize , which resulted in a divestiture of the lifesize video conferencing business by us . the historical results of operations and the financial position of lifesize are included in the consolidated financial statements of logitech and are reported as discontinued operations within this annual report on form 10-k. unless logitech international s.a. | fiscal 2016 form 10-k | 39 indicated otherwise , the information included in item 7 relates to our continuing operations and historical financial information has been recast to conform to this new presentation within our financial statements . we exited our oem business during our fiscal quarter ended december 31 , 2015. the results of our oem business are included in our financial statements as part of continuing operations for the nine months ended december 31 , 2015 and prior periods . there is no revenue and cost associated with this business in three months ended march 31 , 2016 , and we do not expect any in future periods . summary of financial results our total net sales for fiscal year 2016 increased 1 % in comparison to fiscal year 2015 due to an increase in retail sales , partially offset by a decrease in oem sales as a result of exiting the oem business in the third quarter ended december 31 , 2015. retail sales during fiscal year 2016 increased 3 % compared to fiscal year 2015 . retail sales increased 3 % and 10 % in the americas ( `` amr '' ) and asia pacific , respectively , partially offset by a decrease of 1 % in emea . our gross margin for fiscal year 2016 decreased to 33.7 % , compared to 35.2 % for fiscal year 2015 . the decrease in gross margin is primarily driven by the unfavorable fluctuations in currency exchange rates , partially offset by sales price increases and savings from supply chain efficiencies related to freight . story_separator_special_tag we believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations , and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . accruals for customer programs we record accruals for cooperative marketing arrangements , customer incentive programs , pricing programs and product returns . an allowance against accounts receivable is recorded for accruals and program activity related to our direct customers and indirect customers who receive payments for program activity through our direct customers . a liability is recorded for accruals and program activity related to our indirect customers who receive payments directly and do not have a right of offset against a receivable balance . the estimated cost of these programs is usually recorded as a reduction of revenue . if we receive a separately identifiable benefit from the customer and can reasonably estimate the fair value of that benefit , such cost is reflected in operating expenses . significant management judgment and estimates must be used to determine the cost of these programs in any accounting period . cooperative marketing arrangements . we enter into customer marketing programs with many of our distribution and retail customers , and with certain indirect partners , allowing customers to receive a credit equal to a set percentage of their purchases of our products , or a fixed dollar credit for various marketing programs . the objective of these arrangements is to encourage advertising and promotional events to increase sales of our logitech international s.a. | fiscal 2016 form 10-k | 41 products . accruals for these marketing arrangements are recorded at the later of time of sale or time of commitment , based on negotiated terms , historical experience and inventory levels in the channel . customer incentive programs . customer incentive programs include performance-based incentives and consumer rebates . we offer performance-based incentives to our distribution customers , retail customers and indirect partners based on pre-determined performance criteria . accruals for performance-based incentives are recognized as a reduction of the sale price at the time of sale . estimates of required accruals are determined based on negotiated terms , consideration of historical experience , anticipated volume of future purchases , and inventory levels in the channel . consumer rebates are offered from time to time at our discretion for the primary benefit of end-users . accruals for the estimated costs of consumer rebates and similar incentives are recorded at the later of time of sale or when the incentive is offered , based on the specific terms and conditions . certain incentive programs , including consumer rebates , require management to estimate the number of customers who will actually redeem the incentive based on historical experience and the specific terms and conditions of particular programs . pricing programs . we have agreements with certain customers that contain terms allowing price protection credits to be issued in the event of a subsequent price reduction . at our discretion , we also offer special pricing discounts to certain customers . special pricing discounts are usually offered only for limited time periods or for sales of selected products to specific indirect partners . our decision to make price reductions is influenced by product life cycle stage , market acceptance of products , the competitive environment , new product introductions and other factors . accruals for estimated expected future pricing actions are recognized at the time of sale based on analysis of historical pricing actions by customer and by products , inventories owned by and located at distributors and retailers , current customer demand , current operating conditions , and other relevant customer and product information , such as stage of product life-cycle . returns . we grant limited rights to return products . return rights vary by customer , and range from just the right to return defective product to stock rotation rights limited to a percentage of sales approved by management . estimates of expected future product returns are recognized at the time of sale based on analyses of historical return trends by customer and by product , inventories owned by and located at distributors and retailers , current customer demand , current operating conditions , and other relevant customer and product information . upon recognition , we reduce sales and cost of sales for the estimated return . return trends are influenced by product life cycle status , new product introductions , market acceptance of products , sales levels , product sell-through , the type of customer , seasonality , product quality issues , competitive pressures , operational policies and procedures , and other factors . return rates can fluctuate over time , but are sufficiently predictable to allow us to estimate expected future product returns . we regularly evaluate the adequacy of our accruals for cooperative marketing arrangements , customer incentive programs , pricing programs and product returns . future market conditions and product transitions may require us to take action to increase such programs . in addition , when the variables used to estimate these costs change , or if actual costs differ significantly from the estimates , we would be required to record incremental increases or reductions to revenue or operating expenses . if , at any future time , we become unable to reasonably estimate these costs , recognition of revenue might be deferred until products are sold to users , which would adversely impact revenue in the period of transition . inventory valuation we must order components for our products and build inventory in advance of customer orders . further , our industry is characterized by rapid technological change , short-term customer commitments and rapid changes in demand . we record inventories at the lower of cost or market value and record write-downs of inventories that are obsolete or in excess of anticipated demand or market value .
| results of operations net sales net sales by channel for fiscal years 2016 , 2015 and 2014 were as follows ( dollars in thousands ) : replace_table_token_7_th retail : during fiscal year 2016 , retail sales increased 3 % , in comparison to fiscal year 2015 . if currency exchange rates had been constant in 2016 and 2015 , our constant dollar retail sales would have increased 9 % . the increase in sales was driven by double digit growth in mobile speakers , gaming and video collaboration product categories . during fiscal year 2015 , retail sales increased 1 % , compared to fiscal year 2014. if currency exchange rates had been constant in 2015 and 2014 , our constant dollar retail sales would have increased 4 % . the increase in retail sales is primarily due to triple-digit growth in mobile speakers and video collaboration product categories , and double-digit growth in gaming product category , partially offset by declines in audio-pc & wearables , tablet & other accessories , pc webcams and the other product categories , compared to fiscal year 2014. oem : during fiscal year 2016 , oem sales decreased 40 % , compared to fiscal year 2015 . the decline was primarily due to the exit from our oem business in december 2015 , and there was no revenue during the quarter ended march 31 , 2016. during fiscal year 2015 , oem sales decreased 17 % compared to fiscal year 2014. logitech international s.a. | fiscal 2016 form 10-k | 45 sales denominated in other currencies although our financial results are reported in u.s. dollars , a portion of our sales were generated in currencies other than the u.s. dollar , such as the euro , chinese renminbi , japanese yen , canadian dollar , taiwan dollar , british pound and australian dollar .
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in certain instances , students may story_separator_special_tag financial condition and results of operations the discussion below contains “ forward-looking statements , ” as defined in section 21e of the securities exchange act of 1934 , as amended , that reflect our current expectations regarding our future growth , results of operations , cash flows , performance and business prospects , and opportunities , as well as assumptions made by , and information currently available to , our management . we have tried to identify forward-looking statements by using words such as “ anticipate , ” “ believe , ” “ expect , ” “ plan , ” “ intend , ” “ should , ” “ will , ” “ continue to , ” “ outlook , ” “ focused on ” and similar expressions , but these words are not the exclusive means of identifying forward-looking statements . these statements are based on information currently available to us and are subject to various risks , uncertainties , and other factors , including , but not limited to , those matters discussed in item 1a , “ risk factors , ” in part i of this annual report on form 10-k that could cause our actual growth , results of operations , cash flows , performance , business prospects and opportunities to differ materially from those expressed in , or implied by , these statements . except as expressly required by the federal securities laws , we undertake no obligation to update such factors or to publicly announce the results of any of the forward-looking statements contained herein to reflect future events , developments , or changed circumstances , or for any other reason . as used in this annual report on form 10-k , the terms “ we , ” “ us , ” “ our , ” “ the company ” and “ cec ” refer to career education corporation and our wholly-owned subsidiaries . the terms “ institution ” and “ university ” refer to an individual , branded , for-profit educational institution , owned by us and including its campus locations . the term “ campus ” refers to an individual main or branch campus operated by one of our institutions . the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the company 's consolidated financial statements and the notes thereto appearing elsewhere in this annual report on form 10-k. the md & a is intended to help investors understand the results of operations , financial condition and present business environment . the md & a is organized as follows : overview consolidated results of operations segment results of operations summary of critical accounting policies and estimates liquidity , financial position and capital resources overview our academic institutions offer a quality education to a diverse student population in a variety of disciplines through online , campus-based and blended learning programs which combine campus-based and online education . our two regionally-accredited universities – colorado technical university ( “ ctu ” ) and american intercontinental university ( “ aiu ” ) – provide degree programs through the master 's or doctoral level as well as associate and bachelor 's levels . both universities predominantly serve students online with career-focused degree programs that are designed to meet the educational needs of today 's busy adults . ctu and aiu continue to show innovation in higher education , advancing new personalized learning technologies like their intelli path ® learning platform . career education is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce . additionally , during 2018 cec successfully completed the multi-year process of teaching out all campuses within our all other campuses segment , as part of the strategic decision to pursue a transformation strategy aimed at reducing the complexity of operations and focusing our attention on our university group institutions . campuses within this segment include those which have completed their teach-out activities , including our former le cordon bleu and sanford-brown institutions . students enrolled at these campuses were provided a reasonable opportunity to complete their program of study prior to the final teach-out date . the results of operations for these campuses will remain reported as part of continuing operations in accordance with asc topic 360 , which limits discontinued operations reporting effective january 1 , 2015. our reporting segments are determined in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 280 – segment reporting and are based upon how the company analyzes performance and makes decisions . each segment represents a group of postsecondary education providers that offer a variety of degree and non-degree academic programs . these segments are organized by key market segments to enhance operational alignment and , for our two universities , to enhance brand focus within each segment to more effectively execute our strategic plan . our three reporting segments as of december 31 , 2018 are ctu , aiu and all other campuses . see note 17 “ segment reporting ” for a description of each of our reporting segments along with revenues , operating income ( loss ) and total assets by reporting segment for each of the past three fiscal years . 43 beginning in 2019 , the company will no longer report results for closed campuses separately as these campuses will no longer meet the definition of an operating segment under asc topic 280. any remaining results of operations , which is expected to primaril y consist of occupancy expenses for remaining properties , will be reported within corporate and other beginning january 1 , 2019. regulatory environment we operate in a highly regulated industry , which has significant impacts on our business and creates risks and uncertainties . story_separator_special_tag graduate teams have shared accountability for serving students and are focused on improving student experiences before they start school , providing a differentiated onboarding and orientation process based on a student 's degree , program and prior academic qualifications , facilitating completion of the financial aid process and continuing to provide support as students work towards graduating in their field of study . additionally , we believe optimization of course sequencing and redesign of course content has promoted better student learning and engagement . there is significant focus on step by step learning versus assignment completion and classroom navigation is simplified , with content and related study materials easily accessible through a hyperlink . technology continues to be a key focus and important competitive advantage for the universities and the investments we have made have enabled and supported student-serving processes and initiatives within both ctu and aiu . during the year , we continued to roll out additional courses under our intelli path personalized learning format which we believe has increased faculty engagement and student participation . additionally , we implemented a student engagement and retention analytics tool at ctu and advisors are now better able to proactively reach out to the right student at the right time reinforcing positive behaviors while also being proactive with the most relevant intervention and support . during the fourth quarter we implemented a new student contact center technology that is significantly more efficient and effective in serving prospective students and providing them with a customized experience as they explore our program offerings and courses and evaluate our universities as their choice for education . lastly , we continued to enhance our overall mobile application capabilities and implemented new features , including two-way messaging between students and faculty . usage of this feature continues to grow as a communication and engagement channel for students . story_separator_special_tag them with the necessary support and tools as they work towards graduation . our balance shee t will grow stronger , and will allow us to execute against our strategy to drive sustainable and responsible growth by making appropriate long-term investments in our u niversities . 2019 outlook we currently expect the following results , subject to the key assumptions identified below ( see the gaap to non-gaap reconciliation for adjusted operating income and adjusted earnings per diluted share below ) : financial outlook : full year 2019 - total company : o operating income in the range of $ 102.0 million to $ 107.0 million o adjusted operating income in the range of $ 114.0 million to $ 119.0 million o earnings per diluted share in the range of $ 1.08 to $ 1.12 o adjusted earnings per diluted share in the range of $ 1.11 to $ 1.15 first quarter 2019 - total company : o operating income in the range of $ 27.5 million to $ 29.0 million o adjusted operating income in the range of $ 30.5 million to $ 32.0 million o earnings per diluted share in the range of $ 0.29 to $ 0.31 o adjusted earnings per diluted share in the range of $ 0.30 to $ 0.32 university group enrollment outlook : ctu o new student enrollments for the full year 2019 are expected to grow as compared to the prior year . aiu o aiu 's new student enrollments are expected to experience significant growth in the first quarter of 2019 primarily driven by the academic calendar redesign , which will more than offset the decline in new student enrollments during the fourth quarter of 2018 and also contribute to new enrollment growth for the full year 2019. replace_table_token_11_th 47 replace_table_token_12_th _ ( 1 ) unused space charges include initial charges representing the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income . these charges relate to exited leased space and therefore are not considered representative of ongoing operations . subsequently , as early lease terminations or subleases occur , or as assumptions are otherwise adjusted , these unused space charges are increased or decreased . these subsequent adjustments are also included in the amounts presented . ( 2 ) severance and related costs , net of cancellations , include charges related to significant restructuring actions . these restructuring charges do not regularly occur and are not considered part of ongoing operating results . forward looking adjusted operating income and adjusted earnings per diluted share are presented in the reconciliation of gaap to non-gaap items above . operating income , which is the most directly comparable gaap measure to adjusted operating income , may not follow the same trends stated in the outlook above because of adjustments made for certain significant and non-cash items such as unused space charges that represent the present value of future remaining lease obligations for vacated space less an estimated amount for sublease income and subsequent adjustments as well as depreciation , amortization , asset impairment charges , significant restructuring charges and significant legal settlements . the operating income , adjusted operating income , earnings per share , adjusted earnings per share and enrollment outlook provided above for 2019 are based on the following key assumptions and factors , among others : ( i ) prospective student interest in the company 's programs continues to trend in line with recent experiences , ( ii ) initiatives and investments in student-serving operations continue to positively impact enrollment trends within the university group , ( iii ) no material changes in the current legal or regulatory environment , and excludes legal and regulatory liabilities and other related impacts which are not probable and estimable at this time , and any impact of new or proposed regulations , including the “ borrower defense to repayment ” and gainful employment regulations and any modifications thereto , ( iv ) no significant impact from ongoing legal or regulatory matters , including legal fees associated therewith , ( v ) no material changes in the estimated amount of compensation expense that could be impacted by changes in the company 's stock price or the
| financial highlights revenue from continuing operations in 2018 decreased $ 15.1 million or 2.5 % as compared to the prior year , driven by reduced revenues within our teach-out campuses as they continued to wind down their operations . excluding our teach-out campuses , revenue increased by $ 11.1 million or 2.0 % as compared to the prior year . we reported operating income of $ 71.3 million as compared to operating income of $ 34.1 million for the prior year , an improvement of 108.9 % . this improvement was driven by reduced operating losses at our teach-out campuses . lastly , we reported cash provided by operations for the current year of $ 57.0 million as compared to cash used in operations of $ 21.8 million in the prior year . the prior year cash usage included a payment of $ 32.0 million for legal settlements as compared to $ 17.1 million in the current year . for our university group , revenue during 2018 increased $ 11.1 million or 2.0 % as compared to the prior year . revenue within our ctu segment increased $ 4.4 million or 1.2 % driven by an increase in new and total student enrollments while aiu 's revenue increased by $ 6.7 million or 3.4 % . operating income for the university group increased $ 2.2 million or 1.9 % , with ctu 's increase of $ 2.4 million or 2.2 % being partially offset with an operating loss of $ 0.2 million or 2.7 % within aiu . aiu 's decrease was primarily a result of severance charges recorded during the current year as a result of restructuring actions as well as investments within student-serving processes and initiatives . the severance charges during the year were recorded as a result of process reengineering within our university group , primarily within non-student serving operations .
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deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts story_separator_special_tag executive summary the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to provide the readers of our financial statements with a narrative discussion about our business . the md & a is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes . we are reporting a $ 31,960 increase in net sales and an $ 8,816 increase in operating income for fiscal 2012 from fiscal 2011. our net income increased to $ 16,981 , or $ 0.63 per diluted share , an increase of $ 8,013 or 89.0 % compared to fiscal year 2011. our financial position as of june 30 , 2012 , remains strong , as we had cash , cash equivalents and short-term investments of $ 26,380 , working capital of $ 118,328 and shareholders ' equity of $ 168,003. our business is separated into three principal segments : human health , pharmaceutical ingredients and performance chemicals . products that fall within the human health segment include finished dosage form generic drugs and nutraceutical products . on december 31 , 2010 , we acquired certain assets of rising . this acquisition was a natural extension of our successful business model which will provide customers and suppliers additional opportunities to penetrate the end user segment of the pharmaceutical market . with the rising brand label , we have been able to expand our direct involvement in the pharmaceutical distribution space through greater global awareness of our capabilities in the marketing of pharmaceutical intermediates , active ingredients and the ultimate end-products , finished dosage form generics . aceto supplies the raw materials used in the production of nutritional and packaged dietary supplements , including vitamins , amino acids , iron compounds and biochemicals used in pharmaceutical and nutritional preparations . aceto 's identification of a change in the attitudes of europeans towards nutritional products led to the decision to globalize this business and create an operating model to focus on it . this globally structured business has become the model for all of our business segments , providing international reach and perspective for our customers . 20 the pharmaceutical ingredients segment has two product groups : active pharmaceutical ingredients ( apis ) and pharmaceutical intermediates . as the use of generic drugs has grown significantly over the years , aceto 's presence in this market also increased dramatically , both domestically and internationally . we supply apis to all the major generic drug companies , who view aceto as a valued partner in their effort to develop and market generic drugs . the process of introducing a new api from pipeline to market spans a number of years and begins with aceto partnering with a generic pharmaceutical manufacturer and jointly selecting an api , several years before the expiration of a composition of matter patent , for future generisizing . we then identify the appropriate supplier , and concurrently utilizing our global technical network , ensure they meet the highest standards of quality to comply with regulations . the generic pharmaceutical company will submit the anda for fda approval or european-equivalent approval . the introduction of the api to market occurs after all the development testing has been completed and the anda or european-equivalent is approved and the patent expires or is deemed invalid . aceto , at all times , has a robust pipeline of apis poised to reach commercial levels , both in the united states and europe . aceto has long been a supplier of pharmaceutical intermediates , the complex chemical compounds that are the building blocks used in producing apis . these are the critical components of all drugs , whether they are already on the market or currently undergoing clinical trials . faced with significant economic pressures as well as ever-increasing regulatory barriers , the innovative drug companies look to aceto as a source for high quality intermediates . utilizing our global sourcing , regulatory support and quality assurance network , aceto works with the large , global pharmaceutical companies , sourcing lower cost , quality pharmaceutical intermediates that will meet the same high level standards that their current commercial products adhere to . the performance chemicals segment includes specialty chemicals and agricultural protection products . aceto is a major supplier to many different industrial segments that require outstanding performance from chemical raw materials and additives . we provide chemicals which make plastics , surface coatings , textiles , fuels and lubricants perform to their designed capabilities . these additive specialty products include antioxidants , photo initiators , catalysts , curatives , brighteners and adhesion promoters . aceto is at the forefront as a supplier of chemicals to ecofriendly technologies , which are critical in protecting and enhancing the world 's ecology . we provide specialty chemicals for the food , beverage and fragrance industries . aceto 's raw materials are also used in sophisticated technology products , such as high-end electronic parts ( circuit boards and computer chips ) and binders for specialized rocket fuels . aceto is also a leader in the supply of diazos and couplers to the paper and film industries . specific end uses for these products include microfilm , blueprints and photo tooling of printed circuit boards . we also provide organic intermediates and colorants . the color producing industry manufactures a wide assortment of products and aceto is the supplier of choice to these producers of “ color. ” from textiles and plastics to inks and paints , our specialty colorant intermediates allow manufacturers to develop an endless rainbow of colorful possibilities . aceto 's a gricultural protection products including herbicides , fungicides and insecticides which control weed growth as well as the spread of insects and microorganisms that can severely damage plant growth . story_separator_special_tag a significant sudden increase in demand for our products could result in a short-term increase in the cost of inventory purchases , while a significant decrease in demand could result in an increase in the excess inventory quantities on-hand . additionally , we may overestimate or underestimate the demand for our products which would result in our understating or overstating , respectively , the write-down required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand could have a significant impact on the value of our inventory and reported operating results . goodwill and other indefinite-lived intangible assets goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . other indefinite-lived intangible assets principally consist of trademarks . goodwill and other indefinite-lived intangible assets are not amortized . in accordance with gaap , we test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis . to determine the fair value of these intangible assets , we use many assumptions and estimates that directly impact the results of the testing . in making these assumptions and estimates , we use industry-accepted valuation models and appropriate market participant assumptions that are reviewed and approved by various levels of management . if our estimates or our related assumptions change in the future , we may be required to record impairment charges for these assets . long-lived assets in accordance with gaap , long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . identifiable intangible assets principally consist of customer relationships , product rights and related intangibles , epa registrations and related data , patent license , and technology-based intangibles . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset . recoverability of assets held for sale is measured by comparing the carrying amount of the assets to their estimated fair value . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . environmental and other contingencies we establish accrued liabilities for environmental matters and other contingencies when it is probable that a liability has been incurred and the amount of the liability can reasonably be estimated . if the contingency is resolved for an amount greater or less than the accrual , or our share of the contingency increases or decreases , or other assumptions relevant to the development of the estimate were to change , we would recognize an additional expense or benefit in income in the period that the determination was made . 23 taxes we account for income taxes in accordance with gaap . gaap establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years . it requires an asset-and-liability approach to financial accounting and reporting of income taxes . as of june 30 , 2012 , we had current net deferred tax assets of $ 948 and non-current net deferred tax assets of $ 4,711. these net deferred tax assets have been recorded based on our projecting that we will have sufficient future earnings to realize these assets , and the net deferred tax assets have been provided for at currently enacted income tax rates . if we determine that we will not be able to realize a deferred tax asset , an adjustment to the deferred tax asset could result in a reduction of net income at that time . deferred taxes have not been provided for on the majority of undistributed earnings of foreign subsidiaries since substantially all of these earnings are expected to be permanently reinvested in our foreign operations . a deferred tax liability is recognized when we expect that we will recover those undistributed earnings in a taxable manner , such as through receipt of dividends or sale of the investments . the company intends to permanently reinvest any undistributed earnings and has no plan for further repatriation . determination of the amount of the unrecognized u.s. income tax liability on undistributed earnings is not practical because of the complexities of the hypothetical calculation . in addition , unrecognized foreign tax credit carryforwards would be available to reduce a portion of such u.s. tax liability . stock-based compensation in accordance with gaap , we are required to record the fair value of stock-based compensation awards as an expense . in order to determine the fair value of stock options on the date of grant , the company uses the black-scholes option-pricing model , including an estimate of forfeiture rates . inherent in this model are assumptions related to expected stock-price volatility , risk-free interest rate , expected life and dividend yield . the company uses an expected stock-price volatility assumption that is a combination of both historical volatility , calculated based on the daily closing prices of its common stock over a period equal to the expected life of the option and implied volatility , utilizing market data of actively traded options on aceto 's common stock , which are obtained from public data sources . the company believes that the historical volatility of the price of its common stock over the expected life of the option is a reasonable indicator of the expected future volatility and that implied volatility takes into consideration market expectations of how future volatility might differ from historical volatility .
| results of operations fiscal year ended june 30 , 2011 compared to fiscal year ended june 30 , 2010 replace_table_token_6_th 28 net sales net sales increased $ 65,797 , or 19.0 % , to $ 412,428 for the year ended june 30 , 2011 , compared with $ 346,631 for the prior year . we reported sales increases in all three of our business segments . human health net sales for the human health segment increased by $ 22,810 for the year ended june 30 , 2011 , to $ 69,856 , which represents a 48.5 % increase over net sales of $ 47,046 for the prior year . on december 31 , 2010 , we acquired certain assets of rising , a new jersey based company that markets and distributes generic prescription and over the counter pharmaceutical products to leading wholesalers , chain drug stores , distributors , mass market merchandisers and others under its own label , throughout the united states . we experienced sales of these products of $ 18,057 , where there was no comparable amount in the prior year . in addition , the human health segment saw an increase in sales from our international operations over the prior year , particularly in europe . pharmaceutical ingredients net sales for the pharmaceutical ingredients segment increased by $ 12,886 for the year ended june 30 , 2011 , to $ 149,340 , which represents a 9.4 % increase over net sales of $ 136,454 for the prior year , due primarily to an increase in sales from our international operations , particularly in europe . performance chemicals net sales for the performance chemicals segment were $ 193,232 for the year ended june 30 , 2011 , compared to $ 163,131 for the prior year , representing a $ 30,101 or 18.5 % increase .
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this adoption of this new asu had the following effects : consolidated statement of operations - asu 2016-09 imposes a new requirement to record all of the excess income tax benefits and deficiencies ( that result from an increase or decrease in the value of an award from grant date to settlement date ) related to 75 share-based payments at settlement through the statement of operations instead of the former requirement to record income tax benefits in excess of compensation cost ( `` windfalls `` ) in equity , and income tax deficiencies ( `` shortfalls `` ) in equity to the extent of previous windfalls , and then story_separator_special_tag you should read the following management 's discussion and analysis of financial condition and results of operations together with `` item 6 - selected financial data '' and our audited financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements about our business , operations and industry that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations and intentions . our future results and financial condition may differ materially from those currently anticipated by us as a result of the factors described in the sections entitled `` item 1a - risk factors '' and `` cautionary note regarding forward looking statements . '' certain amounts in this section may not foot due to rounding . for a description and additional information about our two reportable segments , see note 16 , segment information , contained in `` item 8 - financial statements and supplementary data '' of this annual report on form 10-k. story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 47 other , net increased $ 1.2 million from a net expense of $ 5.6 million in the year ended december 31 , 2017 to a net expense of $ 6.8 million in the year ended december 31 , 2018. this change was primarily due to debt modification costs of $ 2.0 million in the year ended december 31 , 2018. income tax expense ( benefit ) we became part of a `` c-corporation '' reporting tax group on july 25 , 2018 in connection with the business combination . on july 25 , 2018 , we recognized a net deferred income tax asset of $ 47.5 million , which also resulted in a credit to our additional paid-in capital within our consolidated stockholders ' equity ( deficit ) . the net deferred tax asset is the result of the difference between the initial tax bases in the assets and liabilities and their respective carrying amounts for financial statement purposes . for the year ended december 31 , 2018 , our income tax benefit was $ 1.8 million , resulting in an effective income tax benefit rate of 10.5 % . this income tax benefit was based on the pre-tax loss incurred after july 25 , 2018. on a pro-forma basis assuming c-corp status for the full year 2018 , our income tax benefit would have been $ 2.6 million , resulting in a pro-forma effective income tax benefit rate of 15.6 % . our annualized pro-forma effective income tax benefit rate for 2018 is less than the statutory rate due to timing and permanent differences between amounts calculated under gaap and the tax code . the actual and pro-forma effective income tax rates for 2018 may not be indicative of our effective tax rates for future periods . net loss our consolidated net loss for the year ended december 31 , 2018 was $ 15.0 million compared to net income of $ 4.6 million for the year ended december 31 , 2017 for the aforementioned reasons . 48 year ended december 31 , 2017 compared to year ended december 31 , 2016 the following table shows our consolidated income statement data for the periods indicated : replace_table_token_5_th 49 the following table shows our segment income statement data and selected performance measures for the periods indicated : replace_table_token_6_th revenue consolidated revenue increased $ 81.5 million , or 23.7 % , from $ 344.1 million in 2016 to $ 425.6 million in 2017. this increase was driven primarily by a $ 77.7 million , or 24.1 % , increase in revenue from our consumer payments segment and a $ 3.9 million , or 18.0 % , increase in revenue from our commercial payments and managed services segment . the increase in consumer payments revenue was attributable primarily to a 13.6 % increase in merchant bankcard processing dollar value and a 10.2 % increase in the number of merchant bankcard transactions , attributable mainly to higher consumer spending trends in 2017 , positive net boarding of new active merchants , including the onboarding of a sizeable merchant portfolio in july 2017 , and merchant mix . the increase in merchant processing dollar value was also impacted by a small increase in average transaction dollar value . a small increase in average transaction processing fees , attributable to merchant mix , also contributed to revenue growth . 50 the increase in commercial payments and managed services revenue was attributable primarily to an increase in headcount in our in-house sales force dedicated to selling merchant financing products on behalf of our financial institution partners ( for which we record revenue on a cost-plus basis , as described above ) . operating expenses consolidated operating expenses increased $ 72.1 million , or 22.7 % , from $ 318.3 million in 2016 to $ 390.4 million in 2017. this increase was driven primarily by a $ 62.4 million , or 25.7 % , increase in costs of merchant card fees , attributable to growth in processing volume . selling , general and administrative expenses increased $ 5.7 million as a result of growth in business volume and 2017 litigation settlements and related expenses . story_separator_special_tag we anticipate that cash on hand , funds generated from operations and available borrowings under our revolving credit agreement are sufficient to meet our working capital requirements for at least the next twelve months . our principal uses of cash are to fund business operations , administrative costs , and debt service . our working capital , defined as current assets less current liabilities , was $ 21.1 million at december 31 , 2018 and $ 39.5 million at december 31 , 2017. as of december 31 , 2018 , we had cash totaling $ 15.6 million compared to $ 28.0 million at december 31 , 2017. these balances do not include restricted cash , which reflects cash accounts holding customer settlement funds and reserves for potential losses of $ 18.2 million at december 31 , 2018 and $ 16.2 million at december 31 , 2017. at december 31 , 2018 , we had availability of $ 25.0 million under our revolving credit arrangement . the following tables and narrative reflect our changes in cash flows for the comparative annual periods . year ended december 31 , 2018 compared to year ended december 31 , 2017 replace_table_token_8_th cash provided by operating activities net cash provided by operating activities was $ 31.3 million and $ 36.9 million for the year ended december 31 , 2018 and 2017 , respectively . the $ 5.5 million , or 15.0 % , decrease was principally the result of reduced income from operations of $ 15.3 million , partially offset by changes in operating working capital . changes in operating working capital increased by $ 11.9 million for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. cash used in investing activities net cash used in investing activities was $ 108.9 million and $ 9.0 million for the year ended december 31 , 2018 and 2017 , respectively . cash flow used in investing activities includes the acquisitions of merchant portfolios , purchases of property , equipment and software , and acquisitions of businesses . for the year ended december 31 , 2018 , we invested $ 90.9 million in merchant portfolio acquisitions , an $ 88.4 million increase from the year ended december 31 , 2017. we used $ 7.5 million for business acquisitions for the year ended december 31 , 2018 , compared to zero in the prior year . cash used for purchases of property , plant and equipment for the year ended december 31 , 2018 was $ 10.6 million , an increase of $ 4.0 million from the year ended december 31 , 2017. the increase in purchases was driven primarily by equipment purchases for mx connect and cpx , capitalization of internally developed software and improvements to the legal and cpx office space . 54 cash provided by ( used in ) financing activities net cash provided by financing activities was $ 67.3 million in the year ended december 31 , 2018 compared to net cash used in financing activities of $ 25.4 million in the prior year . cash flows from financing activities for the year ended december 31 , 2018 resulted primarily from the proceeds received in the january 2018 and december 2018 debt upsizings and the equity recapitalization in connection with the business combination , offset in part by cash used for equity redemptions , the redemption of the goldman sachs warrant , and equity distributions prior to july 25 , 2018. cash flows used in financing activities for the year ended december 31 , 2017 primarily reflected equity redemptions partially offset by a net increase in long term debt . year ended december 31 , 2017 compared to year ended december 31 , 2016 replace_table_token_9_th cash provided by operating activities net cash provided by operating activities was $ 36.9 million in 2017 , a $ 14.6 million , or 65.5 % , increase from $ 22.3 million in 2016. the $ 14.6 million increase from 2016 to 2017 was principally the result of the $ 9.4 million increase in income from operations as well as changes in working capital . cash used in investing activities net cash used in investing activities was $ 9.0 million for 2017 and $ 6.4 million for 2016. cash flows used in investing activities in 2017 and 2016 reflect the purchases of property , plant , equipment and software , which increased by $ 2.5 million from 2016 to 2017 , driven primarily by leasehold improvements related to an increase in office space to support the roll out of new business lines , and additions to merchant portfolios . cash provided by ( used in ) financing activities net cash used in financing activities was $ 25.4 million in 2017 and $ 10.5 million in 2016. cash flows used in financing activities in 2017 primarily reflect $ 203.0 million in membership unit redemptions and $ 90.7 million in repayments of the long-term debt , which more than offset new debt proceeds of $ 276.3 million . cash flows used in financing activities in 2016 primarily include $ 10.0 million in equity distributions . long-term debt as of december 31 , 2018 , we had outstanding long-term debt of $ 412.7 million compared to $ 283.1 million at december 31 , 2017 , an increase of $ 129.6 million . the debt balance consisted of outstanding term debt of $ 322.7 million under the senior credit facility and $ 90.0 million in term debt under the subordinated credit and guaranty agreement with goldman sachs specialty lending group , l.p. ( the `` gs credit facility '' ) ( including accrued payment-in-kind ( `` pik '' ) interest through december 31 , 2018 ) . additionally , under the senior credit facility , we have a $ 25.0 million revolving credit facility , which was undrawn as of december 31 , 2018 and december 31 , 2017. the outstanding principal amounts under the senior credit facility and the subordinated gs credit facility mature in january 2023 and july 2023 , respectively .
| results of operations this section includes a summary of our results of operations for the periods presented followed by a detailed discussion of our results for ( i ) the year ended december 31 , 2018 compared to the year ended december 31 , 2017 and ( ii ) the year ended december 31 , 2017 compared to the year ended december 31 , 2016. we have derived this data , except key indicators for merchant bankcard processing dollar values and transaction volumes , from our audited consolidated financial statements included elsewhere in this annual report on form 10-k. our revenue for the year ended december 31 , 2018 has been negatively affected by the closure of high-margin accounts with certain subscription-billing e-commerce merchants . the closure of merchants in this channel was due to industry-wide changes for enhanced card association compliance . this revenue , which is entirely within our consumer payments reportable segment , was $ 65.2 million , $ 95.6 million , and $ 58.3 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . our income from operations associated with these merchants was $ 21.3 million , $ 31.9 million , and $ 19.0 million for the years ended december 31 , 2018 , 2017 , and 2016 , respectively . based upon the current trend , we currently expect revenue from this channel of subscription-billing e-commerce merchants to be approximately $ 15.0 million and income from operations to be approximately $ 6.0 million for the year ending december 31 , 2019. in addition to the impact of the closures of certain merchants described above , our income from operations for the year ended december 31 , 2018 has been negatively affected by expenses associated with our business combination , conversion to a public company , and certain legal matters .
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” genesis , a company incorporated on january 3 , 2003 under the companies ordinance of hong kong as a limited liability company , is a wholly-owned subsidiary of the company . henglong usa corporation , “ hlusa , ” which was incorporated on january 8 , 2007 in troy , michigan , is a wholly-owned subsidiary of the company , and mainly engages in marketing of automotive parts in north america , and provides after sales service and research and development support accordingly . furthermore , the company owns the following aggregate net interests in the subsidiaries incorporated in the prc and brazil as of december 31 , 2017 and 2016. replace_table_token_6_th page 30 of 114 story_separator_special_tag 10pt times new roman , times , serif ; margin : 0pt 0 '' > cost of sales for the year ended december 31 , 2017 , the cost of sales was $ 414.4 million , compared with $ 381.1 million for the year ended december 31 , 2016 , representing an increase of $ 33.3 million , or 8.7 % . the increase in cost of sales was mainly due to an increase in sales volumes with a cost of sales increase of $ 24.1 million , an increase in unit cost with a cost of sales increase of $ 2.6 million and the appreciation of the rmb against the u.s. dollar with a cost of sales increase of $ 6.6 million . the increase in the unit cost of sales was primarily due to an increase in the costs of raw materials , such as steel . further analysis is as follows : — cost of sales for henglong was $ 250.5 million for the year ended december 31 , 2017 , compared with $ 263.1 million for the year ended december 31 , 2016 , representing a decrease of $ 12.6 million , or 4.8 % . a decrease in sales volumes resulted in a cost of sales decrease of $ 14.8 million , an increase in unit material and subcomponents costs led to a cost of sales increase of $ 1.1 million and the effect of foreign currency translation of the rmb against the u.s. dollar led to a cost of sales increase of $ 1.1 million . — cost of sales for jiulong was $ 87.7 million for the year ended december 31 , 2017 , compared with $ 66.9 million for the year ended december 31 , 2016 , representing an increase of $ 20.8 million , or 31.1 % . the increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 18.8 million , an increase in unit cost resulting in a cost of sales increase of $ 1.0 million , and the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales increase of $ 1.0 million . — cost of sales for shenyang was $ 34.8 million for the year ended december 31 , 2017 , compared with $ 30.1 million for the year ended december 31 , 2016 , representing an increase of $ 4.7 million , or 15.6 % . the increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 3.9 million , an increase in unit cost resulting in a cost of sales increase of $ 0.3 million and the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales increase of $ 0.5 million . — cost of sales for wuhu was $ 23.6 million for the year ended december 31 , 2017 , compared with $ 22.0 million for the year ended december 31 , 2016 , representing an increase of $ 1.6 million , or 7.3 % . the increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 1.1 million , an increase in unit cost resulting in a cost of sales increase of $ 0.3 million and the effect of foreign currency translation of the rmb against the u.s. dollar resulting in a cost of sales increase of $ 0.2 million . — cost of sales for hubei henglong was $ 66.4 million for the year ended december 31 , 2017 , compared with $ 40.0 million for the year ended december 31 , 2016 , representing an increase of $ 26.4 million , or 66.0 % . the net increase in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $ 25.2 million , an increase in unit cost resulting in a cost of sales increase of $ 0.6 million and the appreciation of the rmb against u.s. dollar resulting in a cost of sales increase of $ 0.6 million — cost of sales for other sectors was $ 49.9 million for the year ended december 31 , 2017 , compared with $ 38.4 million for the year ended december 31 , 2016 , representing an increase of $ 11.5 million , or 29.9 % . the increase in cost of sales for other sectors was mainly due to the increase in cost of sales of jielong . gross margin was 17.0 % for the year ended december 31 , 2017 , representing a 0.5 % decrease from 17.5 % for the year ended december 31 , 2016 , which was primarily due to the product mix change in 2017. page 32 of 114 gain on other sales gain on other sales mainly consisted of net amount retained from sales of materials , property , plant and equipment , land use rights and scraps . story_separator_special_tag the company elected to pay the one-time transition tax over eight years commencing in april 2018. in addition , withholding tax of $ 4.0 million was accrued in the fourth quarter of 2017 since the company plans to distribute dividends from its prc subsidiaries to the company in order to fund the payment of such one-time transition tax . excluding the one-time transition tax and the withholding tax discussed above , income tax expense was $ 2.0 million , representing a decrease of $ 0.5 million which was mainly due to the decrease in income before income tax . the effective tax rate ( excluding the impact of the one-time transition tax ) was consistent from 2016 to 2017 at approximately 10 % . page 35 of 114 net ( loss ) /income net loss was $ 18.6 million for the year ended december 31 , 2017 , compared with net income of $ 23.0 million for the year ended december 31 , 2016 , representing a decrease of $ 41.6 million , mainly due to a decrease in income before income tax expenses of $ 4.5 million and an increase in income tax expenses of $ 39.1 million , offset by an increase in equity in earnings of affiliated companies of $ 2.0 million . net income attributable to non-controlling interests the company recorded net income attributable to non-controlling interests of $ 0.7 million for the year ended december 31 , 2017 , consistent with $ 0.5 million for the year ended december 31 , 2016. the company owns different equity interests in nine non-wholly owned subsidiaries established in the prc and brazil , through which it conducts its operations . all of the operating results of these non-wholly owned subsidiaries were consolidated in the company 's consolidated financial statements as of december 31 , 2017 and 2016 , and the share of the income attributable to the holders of the non-controlling interests was presented as net income attributable to non-controlling interest . net ( loss ) /income attributable to parent company net loss attributable to parent company was $ 19.3 million for the year ended december 31 , 2017. as compared to $ 22.5 million for the year ended december 31 , 2016 , there was a decrease of $ 41.8 million , mainly resulting from the decrease in net income of $ 41.6 million . privatization proposal on august 2 , 2017 , the company issued a press release announcing the appointment by the special committee ( the “ special committee ” ) of the company 's board of directors ( the “ board ” ) of houlihanlokey capital , inc. as its financial advisor and kirkland & ellis as its u.s. legal counsel in connection with its review and evaluation of the previously announced preliminary non-binding proposal letter that the board received on may 14 , 2017 from mr.hanlin chen , the chairman of the board of the company , relating to a possible “ going private ” transaction , as well as in connection with its review and evaluation of any other sale , merger , business combination or other corporate transaction , with mr. chen or any other party , and any other strategic alternatives . as previously announced , mr. chen has submitted a preliminary non-binding proposal to the board to acquire all of the outstanding shares of common stock of the company not already beneficially owned by mr. chen for $ 5.45 per share of common stock in cash . mr. chen and his affiliates currently beneficially own approximately 56.4 % of the issued and outstanding shares of common stock of the company on a fully diluted and as-converted basis . the proposal is expressly conditioned on approval by a special committee of the board comprised of independent directors and is subject to a non-waivable condition requiring approval by a majority vote of the company 's unaffiliated stockholders . the special committee , consisting of mr. arthur wong , mr. robert tung and mr. guangxun xu , is empowered to , and will be responsible for , among other things , investigating , evaluating , negotiating and making a recommendation to the board with respect to the proposal . the special committee is also empowered to retain its own independent advisors to assist in the evaluation of the proposal and any alternative proposals . page 36 of 114 the board cautions the company 's shareholders , and others considering trading in its securities , that it has only received a proposal . no decision has been made with respect to the company 's response to the proposal . there can be no assurance that any definitive offer will be made , that any agreement will be executed or that a transaction with mr. chen or any other transaction will be approved or consummated . the company is not obligated to make , and does not at this time anticipate making , any further public statements about this matter or the activities of the special committee unless and until either the company enters into a definitive agreement for a transaction or the special committee determines that no such transaction will be effected . liquidity and capital resources capital resources and use of cash the company has historically financed its liquidity requirements from a variety of sources , including short-term borrowings under bank credit agreements , bankers ' acceptances , issuances of capital stock and notes and internally generated cash . as of december 31 , 2017 , the company had cash and cash equivalents and short-term investments of $ 94.1 million , compared with $ 61.6 million as of december 31 , 2016 , an increase of $ 32.5 million , or 52.8 % .
| results of operations 2017 versus 2016 comparative net sales and cost of sales for the years ended december 31 , 2017 and 2016 , net sales and cost of sales are summarized as follows ( figures are in thousands of usd ) : replace_table_token_7_th net sales net product sales were $ 499.1 million for the year ended december 31 , 2017 , as compared to $ 462.1 million for the year ended december 31 , 2016 , representing an increase of $ 37.0 million , or 8.0 % . the product mix change also caused an increase in the company 's net product sales . net sales of traditional steering products were $ 378.4 million for the year ended december 31 , 2017 , compared to $ 329.7 million for 2016 , representing an increase of $ 48.7 million , or 14.8 % . net sales of eps were $ 120.7 million for the year ended december 31 , 2017 , compared to $ 129.2 million for 2016 , representing a decrease of $ 8.5 million , or 6.6 % . as a percentage of net sales , the sales of eps was 24.2 % for the year ended december 31 , 2017 , compared to 28.0 % for 2016. the appreciation of the rmb against the u.s. dollar in 2017 also caused an increase in net sales , as more than 80.0 % of the company 's business is conducted in china . in summary , an increase in sales volume led to a sales increase of $ 35.3 million , a decrease in average selling price of steering gears led to a sales decrease of $ 6.2 million , and the effect of foreign currency translation of the rmb against the u.s. dollar led to a sales increase of $ 7.9 million .
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factors the company considers important , which could trigger an impairment of such asset , include the following : significant underperformance relative to historical or projected future operating results ; significant changes in the manner or use of the assets or the strategy for the company 's overall business ; significant negative industry or economic trends ; significant decline in the company 's stock price for a story_separator_special_tag results of operations . results of operations overview icad , inc. is a global medical technology company providing innovative cancer detection and therapy solutions . the company reports in two segments : detection and therapy . in the detection segment , the company 's solutions include ( i ) advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier , and ( ii ) a comprehensive range of high-performance , artificial intelligence and computer-aided detection ( cad ) systems and workflow solutions for 2d and 3d mammography , magnetic resonance imaging ( mri ) and computed tomography ( ct ) . in the therapy segment , the company offers the xoft system , an isotope-free cancer treatment platform technology . the xoft system can be used for the treatment of early-stage breast cancer , endometrial cancer , cervical cancer and nonmelanoma skin cancer . on january 4 , 2018 , the company adopted a plan to discontinue offering radiation therapy professional services to practices that provide the company 's electronic brachytherapy solution for the treatment of nmsc under the subscription service model ( the skin subscription business ) within the therapy segment . as a result , the company no longer offers the subscription service model to customers . the company continues to offer its capital sales model for both skin cancer treatment and iort , which provides a brachytherapy system and related source and service agreements . the discontinuance of the skin subscription business reduced radiation therapy professional services delivery costs , decreased our cash burn , and re-focused the company on the higher margin capital product and service offerings . based on the decision to discontinue offering radiation therapy professional services within the therapy segment , the company revised its forecasts related to the therapy segment , which we deemed to be a triggering event . as a result , the company recorded a goodwill and long-lived asset impairment charge of approximately $ 2.0 million for the period ended december 31 , 2017 ( see note ( 1 ) h and note ( 1 ) i to the consolidated financial statements for additional discussion ) . in connection with the preparation of the financial statements for the third quarter ended september 30 , 2017 , the company evaluated the therapy reporting unit for both long-lived asset and goodwill impairment . as a result of this assessment , the company recorded a material impairment charge in the therapy reporting unit ( see note ( 1 ) h and note ( 1 ) i to the consolidated financial statements for additional discussion ) . on january 30 , 2017 , the company completed the sale of certain intellectual property relating to the versavue software and the dynacad product and related assets to invivo for $ 3,200,000 in cash with a holdback amount of $ 350,000. the company is currently involved in litigation with a third-party relating to this transaction , as further described in item 3 - legal proceedings. 49 the company 's headquarters are located in nashua , new hampshire , with a manufacturing facility in new hampshire and an operations , research , development , manufacturing and warehousing facility in san jose , california . critical accounting policies the company 's discussion and analysis of its financial condition , results of operations , and cash flows are based on its consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires the company 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 , the company evaluates these estimates , including those related to revenue recognition , allowance for doubtful accounts , inventory valuation and obsolescence , intangible assets , goodwill , income taxes , contingencies and litigation . additionally , the company uses assumptions and estimates in calculations to determine stock-based compensation , the fair value of convertible notes and the evaluation of litigation . the company 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 that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . as of january 1 , 2019 , the company adopted asc topic 842. refer to note 1 to the consolidated financial statements for disclosure of the changes related to this adoption . the company 's critical accounting policies include : revenue recognition ; allowance for doubtful accounts ; inventory ; valuation of long-lived and intangible assets ; goodwill ; stock based compensation ; and income taxes ; revenue recognition revenue recognition upon the adoption of asc 606 on january 1 , 2018 , the company adopted fasb asc topic 606 , revenue from contracts with customers and all the related amendments ( topic 606 ) using the modified retrospective method for all contracts not completed as of the date of adoption . the company recognized the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings at the adoption date . the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods . story_separator_special_tag in these cases , the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to the customer . upon the adoption of asc 842 , effective january 1 , 2019 , the lease components of certain fixed fee service contracts are no longer being separately accounted for under the lease guidance , and the entire contract is being accounted for under asc 606. upon the adoption of asc 606 , effective january 1 , 2018 , and until the adoption of asc 842 referred to above , these lease components were accounted for as a lease in accordance with asc 840 , leases ( asc 840 ) , and the remaining consideration was allocated to the other performance obligations identified in accordance with asc 606 . 52 taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction , that are collected by the company from a customer , are excluded from revenue . shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of revenue . the company also recognizes an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year , in accordance with asc topic 340-40 , other assets and deferred costs : contracts with customers. the company has determined that certain commissions programs meet the requirements to be capitalized . revenue recognition prior to the adoption of asc 606 prior to the adoption of topic 606 , revenue was recognized when delivery occurred , persuasive evidence of an arrangement existed , fees were fixed or determinable and collectability of the related receivable was probable , in accordance with topic 605. for product revenue , delivery was considered to occur upon shipment provided title and risk of loss had passed to the customer . services and supplies revenue was considered to be delivered as the services were performed or over the estimated life of the supply agreement . revenue from the sale of certain cad products was recognized in accordance with asc 840. for multiple element arrangements , revenue was allocated to all deliverables based on their relative selling prices . in such circumstances , a hierarchy was used to determine the selling price to be used for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) and ( iii ) best estimate of the selling price ( besp ) . vsoe generally existed only when the deliverable was sold separately and was the price actually charged for that deliverable . the process for determining besp for deliverables without vsoe or tpe considered multiple factors depending upon the unique facts and circumstances related to each deliverable including relative selling prices , competitive prices in the marketplace and management judgment . the company deferred revenue from the sale of certain service contracts and recognized the related revenue on a straight-line basis in accordance with asc topic 605-20 , services . see note 1 to the consolidated financial statements for details of the company 's accounting policies related to revenue recognition . allowance for doubtful accounts the company 's policy is to maintain allowances for estimated losses from the inability of its customers to make required payments . credit limits are established through a process of reviewing the financial results , stability and payment history of each customer . where appropriate , the company obtains credit rating reports and financial statements of customers when determining or modifying credit limits . the company 's senior management reviews accounts receivable on a periodic basis to determine if any receivables may potentially be uncollectible . the company includes any accounts receivable balances that it determines may likely be uncollectible , along with a general reserve for estimated probable losses based on historical experience , in its overall allowance for doubtful accounts . an amount would be written off against the allowance after all attempts to collect the receivable had failed . based on the information available to the company , it believes the allowance for doubtful accounts as of december 31 , 2019 is adequate . 53 inventory inventory is valued at the lower of cost or net realizable value , with cost determined by the first-in , first-out method . the company regularly reviews inventory quantities on hand and records a provision for excess and or obsolete inventory primarily based upon historical usage of its inventory as well as other factors . goodwill in accordance with fasb asc topic 350-20 , intangibles - goodwill and other , the company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the company is less than the carrying value of the company . factors the company considers important , which could trigger an impairment of such asset , include the following : significant underperformance relative to historical or projected future operating results ; significant changes in the manner or use of the assets or the strategy for the company 's overall business ; significant negative industry or economic trends ; significant decline in the company 's stock price for a sustained period ; and a decline in the company 's market capitalization below net book value . the company 's chief operating decision maker ( codm ) is the chief executive officer . the company determined that it has two reporting units and two reportable segments based on the information that is provided to the codm . the two segments and reporting units are detection and therapy . each reportable segment generates revenue from the sale of medical equipment and related services and or sale of supplies .
| discussion of operating results : year ended december 31 , 2019 compared to year ended december 31 , 2018 revenue . revenue for the year ended december 31 , 2019 was $ 31.3 million compared with revenue of $ 25.6 million for the year ended december 31 , 2018 , an increase of $ 5.7 million , or 22.3 % . detection revenue increased $ 5.4 million and therapy revenue increased $ 0.3 million . the table below presents the components of revenue for 2019 and 2018 ( in thousands ) : replace_table_token_3_th detection revenues increased 32.3 % , or $ 5.4 million , from $ 16.9 million for the year ended december 31 , 2018 to $ 22.3 million for the year ended december 31 , 2019. detection product revenue increased by $ 6.0 million and detection service revenue decreased $ 0.6 million . the $ 6.0 million increase in detection product revenue was due primarily to a $ 2.1 million increase in oem system sales and a $ 3.9 million increase in direct product sales . detection service and supplies revenue decreased $ 0.6 million , which was due primarily to a decrease of approximately $ 0.8 million primarily due to the conversion and upgrade cycle from secondlook digital to tomosynthesis 3d cad offset by an increase of $ 0.2 million of service related to our 3d products . therapy revenue increased 3.0 % , or $ 0.3 million , to $ 9.0 million for the year ended december 31 , 2019 from $ 8.7 million in the year ended december 31 , 2018. the increase in therapy revenue was due to an increase in therapy product revenue of $ 0.7 million offset by a decrease in therapy service revenue of $ 0.4 million .
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amortization expense for the next five years will be approximately $ 26,500 for the year ended december 31 , 2015 ; approximately $ 26,500 for the year ended december 31 , 2016 ; approximately $ 21,000 for the year ended december 31 , 2017 ; approximately $ 14,100 for the story_separator_special_tag the following discussion and analysis of the results of operations and financial condition for the fiscal years ended december 31 , 2014 and 2013 should be read in conjunction with our financial statements , and the notes to those financial statements that are included elsewhere in this report . overview we are a critical care focused immunotherapy company that uses blood purification to modulate inflammation with the goal of preventing or treating multiple organ failure in life-threatening illnesses . the technology is based upon biocompatible , highly porous polymer sorbent beads that are capable of extracting unwanted substances from blood and other bodily fluids . the technology is protected by 32 issued u.s. patents with multiple applications pending both in the u.s. and internationally . the company 's intellectual property consist of composition of matter , materials , methods of production , systems incorporating the technology and multiple medical uses with expiration dates ranging from 3 to 12 years . in march 2011 , the company received e.u . regulatory approval under the ce mark and medical devices directive for the company 's flagship product , cytosorb ® , as an extracorporeal cytokine filter indicated for use in clinical situations where cytokines are elevated . the goal of cytosorb® is to prevent or treat organ failure by reducing cytokine storm and the potentially deadly systemic inflammatory response syndrome in diseases such as sepsis , trauma , burn injury , acute respiratory distress syndrome , pancreatitis , liver failure , and many others . organ failure is the leading cause of death in the intensive care unit , and remains a major unmet medical need , with little more than supportive care therapy ( e.g . mechanical ventilation , dialysis , vasopressors , fluid support , etc . ) as treatment options . by potentially preventing or treating organ failure , cytosorb® may improve clinical outcome , including survival , while reducing the need for costly intensive care unit treatment , thereby potentially saving significant healthcare costs . our ce mark enables cytosorb ® to be sold throughout all 28 countries of the european union . in addition , many countries outside the e.u . accept ce mark approval for medical devices , but may also require registration with or without additional clinical studies . the broad approved indication enables cytosorb® to be used “ on-label ” in diseases where cytokines are elevated including , but not limited to , critical illnesses such as those mentioned above , autoimmune disease flares , cancer cachexia , and many other conditions where cytokine-induced inflammation plays a detrimental role . as part of the ce mark approval process , we completed our randomized , controlled , european sepsis trial amongst fourteen trial sites in germany in 2011 , with enrollment of 100 patients with sepsis and respiratory failure . the trial established that cytosorb® was safe in this critically-ill population , and that it was able to broadly reduce key cytokines . the company plans to conduct larger , prospective studies in septic patients in the future to confirm the european sepsis trial findings . in addition to ce mark approval , cytosorbents also achieved iso 13485:2003 full quality systems certification , an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design , develop , manufacture and distribute medical devices in the e.u . cytosorbents manufactures cytosorb® at its manufacturing facilities in new jersey for sale in the e.u . and for additional clinical studies . the company also established a reimbursement path for cytosorb® in germany and austria . from september 2011 through june 2012 , the company began a controlled market release of cytosorb® in select geographic territories in germany with the primary goal of preparing for commercialization of cytosorb® in germany in terms of manufacturing , reimbursement , logistics , infrastructure , marketing , contacts , and other key issues . 55 in late june 2012 , following the establishment of our european subsidiary , cytosorbents europe gmbh , cytosorbents began the commercial launch of cytosorb® in germany with the hiring of dr. christian steiner as vice president of sales and marketing and three additional sales representatives who joined the company and completed their sales training in q3 2012. the fourth quarter of 2012 represented the first full quarter of direct sales with the full sales team in place . during this period , we expanded our direct sales efforts to include both austria and switzerland . at the end of 2014 , we had more than 150 key opinion leaders ( kols ) in our direct sales territories and the u.k. in critical care , cardiac surgery , and blood purification who were either using cytosorb® or committed to using cytosorb® in the near future . as of march 1 , 2015 , our sales force includes seven direct sales people , two contract sales people and seven sales support staff . the company has complemented its direct sales efforts with sales to distributors and or corporate partners . in 2013 , we reached agreements with distributors in the united kingdom , ireland , turkey , russia , and the netherlands . in april 2014 , the company announced distribution of cytosorb® in the middle east , including saudi arabia , the united arab emirates , kuwait , qatar , bahrain , and oman ( the gulf cooperative council or gcc ) and yemen , iraq , and jordan through an exclusive agreement with techno orbits . story_separator_special_tag as with other critical care illnesses , multiple organ failure is the primary cause of death in sepsis . when used with standard of care therapy , that includes antibiotics , the goal of cytosorb ® in sepsis is to reduce excessive levels of cytokines and other inflammatory toxins , to help reduce the sirs response and either prevent or treat organ failure . in addition to the sepsis indication , we intend to continue to foster research in other critical care illnesses where cytosorb ® could be used , such as ards , trauma , severe burn injury and acute pancreatitis , or in other acute conditions that may benefit by the reduction of cytokines in the bloodstream . some examples include the prevention of post-operative complications of cardiac surgery ( cardiopulmonary bypass surgery ) and damage to organs donated for transplant prior to organ harvest . the company 's proprietary hemocompatible porous polymer bead technology forms the basis of a broad technology portfolio . some of our products include : · cytosorb® - an extracorporeal hemoperfusion cartridge approved in the e.u . for cytokine removal , with the goal of reducing sirs and preventing or treating organ failure · hemodefend – a development-stage blood purification technology designed to remove contaminants in blood transfusion products . goal is to reduce transfusion reactions and improve the safety of older blood · contrastsorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove iv contrast from the blood of high risk patients undergoing ct imaging with contrast , or interventional radiology procedures such as cardiac catheterization . the goal is to prevent contrast-induced nephropathy 57 · drugsorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove toxic chemicals from the blood ( e.g . drug overdose , high dose regional chemotherapy , etc ) · betasorb – a development-stage extracorporeal hemoperfusion cartridge designed to remove mid-molecular weight toxins , such as b 2-microglobulin , that standard high-flux dialysis can not remove effectively . the goal is to improve the efficacy of dialysis or hemofiltration the company has been successful in obtaining technology development contracts from agencies in the u.s. department of defense , including darpa , the u.s. army , and the u.s. air force . in september 2013 , the national heart , lung , and blood institute , or nhlbi , a division of the national institutes of health , or nih , awarded the company a phase i sbir ( small business innovation research ) contract valued at $ 231,351 to further advance its hemodefend blood purification technology for packed red blood cell ( “ prbc ” ) transfusions . the university of dartmouth collaborated with us as a subcontractor on the project , entitled “ elimination of blood contaminants from prbcs using hemodefend hemocompatible porous polymer beads. ” the overall goal of this program is to reduce the risk of potential side effects of blood transfusions , and help to extend the useful life of prbcs . we completed the phase i program and have been invited to apply for the phase ii sbir , which has now been submitted . in june 2013 , we announced that the u.s. air force will fund a 30 patient , single site , randomized controlled human pilot study in the united states amongst trauma patients with rhabdomyolysis . the primary endpoint is myoglobin removal . the fda approved our investigational device exemption , or ide , application for this study and we also received ethics committee approval , allowing the study to commence . however , because of the stringency of our inclusion criteria , and because of the patient mix seen at our single center , we have experienced difficulty in enrolling patients . we have subsequently modified one of the key inclusion criteria and have expanded the number of clinical trial sites to three in a revised protocol which has been submitted to the fda . in june 2013 , the company began work on its previously announced $ 1 million phase ii sbir u.s. army contract to further develop its technology for the treatment of burn injury and trauma in animal models . this work is supported by the u.s. army medical research and material command under an amendment to contract w81xwh-12-c-0038 and has now received committed funding of $ 1.15 million to date . in august 2012 , the company was awarded a $ 3.8 million , five-year contract by the defense advanced research projects agency ( “ darpa ” ) for its “ dialysis-like therapeutics ” program to treat sepsis . darpa has been instrumental in funding many of the major technological and medical advances since its inception in 1958 , including development of the internet , the global positioning system , or gps , and robotic surgery . the dlt program in sepsis seeks to develop a therapeutic blood purification device that is capable of identifying the cause of sepsis ( e.g. , cytokines , toxins , pathogens , activated cells ) and remove these substances in an intelligent , automated , and efficient manner . cytosorbents ' contract is for advanced technology development of its hemocompatible porous polymer technologies to remove cytokines and a number of pathogen and biowarfare toxins from blood . cytosorbents is in year 3 of the program and is currently working with the recently announced systems integrator , battelle laboratories , and its subcontractor nxstage medical , who are responsible for integrating the technology developed by cytosorbents and others into a final medical device design prototype , and evaluating this device in septic animals and eventually in human clinical trials in sepsis . cytosorbents ' work is supported by darpa and ssc pacific under contract no . n66001-12-c-4199 .
| results of operations our financial statements have been presented on the basis that it is a going concern , which contemplates the realization of revenues from our subscriber base and the satisfaction of liabilities in the normal course of business . we have incurred losses from inception . these factors raise substantial doubt about our ability to continue as a going concern . 58 comparison of the year ended december 31 , 2014 and 2013 revenues : for the year ended december 31 , 2014 , the company generated total revenue , that includes product revenue and grant income , of approximately $ 4,123,000 as compared to revenues of approximately $ 2,423,000 for the year ended december 31 , 2013 , an increase of 70 % . revenue from product sales was approximately $ 3,135,000 for the year ended december 31 , 2014 , as compared to approximately $ 822,000 in the year ended december 31 , 2013 , an increase of 281 % . this increase was largely driven by efforts of our direct sales force and the continued expansion of our distributor network . product gross margins were approximately 63 % for the year ended december 31 , 2014 , as compared to approximately 61 % for the year ended december 31 , 2013. grant income decreased from approximately $ 1,601,000 in 2013 to approximately $ 978,000 in 2014 as a result of the conclusion of several significant grants . cost of revenue : for the year ended december 31 , 2014 and 2013 cost of revenue was approximately $ 2,134,000 and $ 1,912,000 , respectively . the increase is due to increased sales and expenditures related to progress on grant objectives . research and development expenses : our research and development costs were , approximately $ 2,432,000 and $ 1,739,000 , for the years ended december 31 , 2014 and 2013 , respectively .
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as a result , all past due amounts related to the company 's financing receivables are included in trade accounts receivable in the accompanying balance sheets . the following is an analysis of the age of financing receivables amounts that have been reclassified to trade accounts receivable and are past due as of december 31 , 2012 and 2011 : replace_table_token_30_th from time to time , the company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms . in general , such alternative payment arrangements do not result in a re-aging of the related receivables . rather , payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received . because amounts are reclassified to trade accounts receivable when they become due , there are no past due amounts included within the financing receivables or 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 rural and 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 . our system currently is installed and operating in over 650 hospitals in 45 states and the district of columbia . our customers consist of rural and 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 10.8 % and 9.5 % , 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 january 2013 , we announced the formation of trubridge , llc ( trubridge ) , a wholly-owned subsidiary of cpsi . initially , trubridge will provide the business management , consulting and managed information technology services that have historically been provided by cpsi with the expectation of expanding both our service offerings and our footprint in this particular marketplace in the future . we expect this strategic initiative to allow us to more fully take advantage of the market opportunities in providing such services by facilitating the expansion of our target market to include the entire rural and community hospital market , no longer limiting the market for our services to hospitals where cpsi already serves as the primary information technology vendor . 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 38 index to financial statements 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 , continued economic uncertainty 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 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 . story_separator_special_tag deficit reduction/sequestration president obama signed legislation on august 2 , 2011 , the budget control act of 2011 , to increase the u.s. debt ceiling . this legislation mandates significant cuts in federal spending over the next decade , as the special bipartisan congressional committee appointed under the legislation failed to take any action on deficit reduction . although medicaid is specifically exempted from the federal spending cuts mandated by the legislation , it calls for a reduction of up to 2 % in federal medicare spending , all of which will be achieved by reduced reimbursements to healthcare providers . with the passage of the american taxpayer relief act of 2012 , the reduced reimbursements provided for under the budget control act took effect starting in march 2013. as our hospital customers rely heavily on reimbursements from medicare to fund their operations , the anticipated reduction in reimbursement rates , although capped at 2 % , could negatively affect the businesses of our customers and our business . 2012 financial overview our gross revenues increased 5.7 % , while our net income increased 16.0 % . the disproportionate increase in net income versus gross revenues is due to a 25 % decrease in income tax expense as , during 2012 , we recognized significant provision-to-return adjustments related to prior years ' domestic production activities deduction ( dpad ) amounts . despite the increase in net income , cash flow from operations decreased 4.0 % due primarily to significant increases in our financing receivables . we continued to experience increased levels of customers seeking financing arrangements for system installations during the year due to continued challenging economic conditions and unavailability of third-party credit . additionally , as our new system installation customer base 40 index to financial statements expects significant future cash inflows in the form of ehr incentive payments , we have experienced a significant demand for financing arrangements allowing new system installation customers to minimize the near-term impact on their current cash resources . as a result , we have experienced a significant increase in financing arrangements that allow customers to utilize anticipated cash inflows under the ehr incentive programs in satisfaction of their principal obligation in purchasing our ehr solution . these customers have opted for payment terms that result in the full satisfaction of principal within a timeframe consistent with that of our historical financing arrangements . we will continue to grant financing arrangements to customers on a case-by-case basis depending upon various aspects of the proposed contract and customer attributes . despite the decrease in cash flow from operations during the year , we paid a special , one-time dividend of approximately $ 11.1 million ( $ 1.00 per share ) during december 2012 in anticipation of a significant increase in tax rates on dividends beginning in 2013. this dividend , which was in addition to our standard quarterly dividend , was partially funded by the liquidation of $ 7.0 million of our investment portfolio . we have maintained a strong cash position that we believe is sufficient to meet our operating requirements . we believe that a strong cash position enables us to compete better in the marketplace and maintain the quality of our customer service and product offerings . at the beginning of 2012 , we began including language in certain of our customer license agreements that more evenly matches customers ' anticipated cash inflows under the ehr incentive program with the necessary cash outflows for purchasing our ehr solution ( extended meaningful use installment plans ) . under these arrangements , customers are required to remit to us incentive payments ( not to exceed the remaining balance under the arrangement ) received for adoption of qualifying ehrs upon receipt of such funds , with only nominal payments required until the customer 's receipt of such incentive payments . if no such incentive payments are received by the customer or if such payments are not sufficient to pay the remaining balance under the arrangement , payments continue at contracted nominal amounts until the balance of the contract price is paid in full . ehr incentive payments aside , these nominal payment amounts would result in the overall duration of the payment periods significantly exceeding that of our historical financing arrangements . as a result , revenue from these arrangements is recognized as the amounts become due . as of december 31 , 2012 , we have accumulated unrecognized revenue of $ 7.1 million to be recognized as the amounts become due under these contracts . of the customers contributing to the $ 7.1 million in accumulated unrecognized revenue as of december 31 , 2012 , more than half have attested to stage one of meaningful use as of march 8 , 2013 , with each of those customers attesting to stage one having already received related medicaid incentive payments . medicare payments , which are typically significantly larger than the related medicaid payments , are still pending for most of these customers . our experience suggests an average time from successful attestation in stage one to receipt of funds from medicare under the ehr incentive program of approximately six weeks . overall with respect to these contracts , we typically experience a timeframe of 6 to 12 months from the date of installation to receipt of funds under the ehr incentive program . the final new system installation under an extended meaningful use installment plan was performed during the fourth quarter of 2012 , and the company does not expect to offer such payment terms going forward . as a result , aside from the anticipated recognition of the $ 7.1 million of accumulated unrecognized revenue as of december 31 , 2012 , we do not expect extended meaningful use installment plans to have a significant impact on our future financial statements . although we do not expect to offer extended meaningful use installment plans going forward , we expect the trend towards increased financing arrangements to continue for the next few years .
| 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 , 2012 , expressed as a percentage of our total revenues for these periods ( dollar amounts in thousands ) : replace_table_token_4_th 2012 compared to 2011 revenues . total revenues increased by 5.7 % , or $ 9.8 million . this was largely attributable to an increase in support and maintenance revenues and business management services revenues due to a larger customer base and increased applications within that customer base requiring support and maintenance services , as well as increased demand and market acceptance of our it managed services . system sales revenues increased by 2.7 % , or $ 1.9 million . we completed financial and patient software system installations at 34 new hospital clients in 2012 ( 10 of which were under extended meaningful use installment plans ) , compared to 17 new hospital clients in 2011 ( none of which were under extended meaningful use installment plans ) . system sales to existing customers accounted for 64.1 % of our revenues during 2012 43 index to financial statements compared to 75.4 % in 2011. during 2012 , the company installed systems under extended meaningful use installment plans for which a substantial majority of the consideration will not be received or revenue recognized until the customers successfully achieve meaningful use designation and receive related stage one arra incentive payments , resulting in net unrecognized revenue of $ 7.1 million accumulated during 2012 to be recognized in future periods as the amounts become due and payable . the company recognized $ 3.6 million of revenue during 2012 for previously installed software as a service ( saas ) arrangements that were converted to perpetual license arrangements . support and maintenance revenues increased by 8.1 % , or $ 5.5 million .
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these forward-looking statements involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those discussed in part i , item 1a - “ risk factors ” in this annual report on form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's opinions only as of the date hereof . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements , except as required by law . readers should carefully review the risk factors and the risk factors set forth in other documents we file from time to time with the sec . overview j2 global , inc. , together with its subsidiaries ( “ j2 global ” , `` the company '' , “ our ” , “ us ” or “ we ” ) , is a leading provider of internet services . through our business cloud services division , we provide cloud services to businesses of all sizes , from individuals to enterprises , and license our intellectual property ( `` ip '' ) to third parties . our digital media division specializes in the technology and gaming markets , reaching in-market buyers and influencers in both the consumer and business-to-business space . our business cloud services division generates revenues primarily from customer subscription and usage fees and from ip licensing fees . our digital media division generates revenues primarily from advertising , performance marketing and licensing fees . in addition to growing our business organically , we use acquisitions to grow our customer bases , expand and diversify our service offerings , enhance our technology and acquire skilled personnel . our consolidated revenues are currently generated from three basic business models , each with different financial profiles and variability . our business cloud services division is driven primarily by subscription revenues that are relatively higher margin and stable and predictable from quarter-to-quarter with some seasonal weakness in the fourth quarter . the business cloud services division also includes the results of our ip licensing business , which can vary dramatically in both revenues and profitability from period-to-period . our digital media division is driven primarily by advertising revenues , has relatively higher sales and marketing expense and has seasonal strength in the fourth quarter . we continue to pursue additional acquisitions , which may include companies operating under business models that differ from those we operate under today . such acquisitions could impact our consolidated profit margins and the variability of our revenues . j2 global was incorporated in 2014 as a delaware corporation through the creation of a new holding company structure , and our business cloud services segment , operated by our wholly-owned subsidiary , j2 cloud services , inc , and its subsidiaries , was founded in 1995. we manage our operations through two business segments : business cloud services and digital media . information regarding revenue and operating income attributable to each of our reportable segments is included within note 16 - segment information of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k , which is incorporated herein by reference . - 31 - business cloud services segment performance metrics the following table sets forth certain key operating metrics for our business cloud services segment as of or for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands , except for percentages ) : replace_table_token_7_th ( 1 ) quarterly arpu is calculated using our standard convention of applying the average of the quarter 's beginning and ending base to the total revenue for the quarter . we believe arpu provides investors an understanding of the average monthly revenues we recognize associated with each cloud business customer . as arpu varies based on fixed subscription fee and variable usage components , we believe it can serve as a measure by which investors can evaluate trends in the types of services , levels of services and the usage levels of those services across our cloud business customer base . ( 2 ) cloud business customers is defined as paying direct inward dialing numbers ( `` dids '' ) for fax and voice services , and direct and resellers ' accounts for other services . ( 3 ) cancel rate is defined as cancels of small and medium business and individual cloud business customers with greater than four months of continuous service ( continuous service includes cloud business customers administratively canceled and reactivated within the same calendar month ) , and enterprise cloud business customers beginning with their first day of service . calculated monthly and expressed as an average over the three months of the quarter . digital media segment performance metrics the following table sets forth certain key operating metrics for our digital media segment for the years ended december 31 , 2014 , 2013 and 2012 ( in millions ) : replace_table_token_8_th sources : omniture ; google analytics critical accounting policies and estimates we prepare our consolidated financial statements and related disclosures in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) and our discussion and analysis of our financial condition and operating results require us to make judgments , assumptions and estimates that affect the amounts reported in our consolidated financial statements and - 32 - accompanying notes . see note 2 , `` basis of presentation and summary of significant accounting policies '' of the notes to consolidated financial statements in part ii , item 8 of this form 10-k which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities . story_separator_special_tag we assess whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions ( see note 4 of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k ) . share-based compensation expense we comply with the provisions of fasb asc topic no . 718 , compensation - stock compensation ( “ asc 718 ” ) . accordingly , we measure share-based compensation expense at the grant date , based on the fair value of the award , and recognize the expense over the employee 's requisite service period using the straight-line method . the measurement of share-based compensation expense is based on several criteria including , but not limited to , the valuation model used and associated input factors , such as expected term of the award , stock price volatility , risk free interest rate , dividend rate and award cancellation rate . these inputs are subjective and are determined using management 's judgment . if differences arise between the assumptions used in determining share-based compensation expense and the actual factors , which become known over time , we may change the input factors used in determining future share-based compensation expense . any such changes could materially impact our results of operations in the period in which the changes are made and in periods thereafter . we elected to adopt the alternative transition method for calculating the tax effects of share-based compensation . long-lived and intangible assets we account for long-lived assets in accordance with the provisions of fasb asc topic no . 360 , property , plant , and equipment ( “ asc 360 ” ) , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets . we assess the impairment of identifiable definite-lived intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could individually or in combination trigger an impairment review include the following : . significant underperformance relative to expected historical or projected future operating results ; . significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; . significant negative industry or economic trends ; . significant decline in our stock price for a sustained period ; and . our market capitalization relative to net book value . if we determined that the carrying value of definite-lived intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value . we have assessed whether events or changes in circumstances have occurred that potentially indicate the carrying value of definite-lived intangibles and long-lived assets may not be recoverable and noted no indicators of potential impairment for the years ended december 31 , 2014 , 2013 and 2012 . - 34 - goodwill and purchased intangible assets we evaluate our goodwill and indefinite-lived intangible assets for impairment pursuant to fasb asc topic no . 350 , intangibles - goodwill and other ( “ asc 350 ” ) , which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if circumstances indicate potential impairment . in connection with the annual impairment test for goodwill , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we determine that it was more likely than not that the fair value of the reporting unit is less than its carrying amount , then we perform the impairment test upon goodwill . the impairment test is comprised of two steps : ( 1 ) a reporting unit 's fair value is compared to its carrying value ; if the fair value is less than its carrying value , impairment is indicated ; and ( 2 ) if impairment is indicated in the first step , it is measured by comparing the implied fair value of goodwill and intangible assets to their carrying value at the reporting unit level . in connection with the annual impairment test for intangible assets , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of is less than its carrying amount , then we perform the impairment test upon intangible assets . we completed the required impairment review for the years ended december 31 , 2014 , 2013 , and 2012 and noted no impairment . consequently , no impairment charges were recorded . contingent consideration certain of our acquisition agreements include contingent earn-out arrangements , which are generally based on the achievement of future income thresholds . the contingent earn-out arrangements are based upon our valuations of the acquired companies and reduce the risk of overpaying for acquisitions if the projected financial results are not achieved . the fair values of these earn-out arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates . for each transaction , we estimate the fair value of contingent earn-out payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the consolidated balance sheets .
| segment results our business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance . our reportable business segments are : ( i ) business cloud services ; and ( ii ) digital media . we evaluate the performance of our operating segments based on segment revenues , including both external and intersegment net sales , and segment operating income . we account for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments . identifiable assets by segment are those assets used in the respective reportable segment 's operations . corporate assets consist of cash and cash equivalents , deferred income taxes and certain other assets . all significant intersegment amounts are eliminated to arrive at our consolidated financial results . business cloud services the following segment results are presented for fiscal year 2014 , 2013 and 2012 ( in thousands ) : replace_table_token_17_th segment net sales of $ 431.5 million in 2014 increased $ 41.4 million , or 10.6 % , from the prior comparable period primarily due to business acquisitions , partially offset by a decrease in patent and technology related licensing revenues associated with a $ 27 million license agreement of which $ 12.6 million from past damages was recognized in 2013. segment net sales of $ 390.1 million in 2013 increased $ 28.4 million , or 7.9 % , from 2012 primarily due to an increase in our subscriber base and an increase in patent and technology related licensing revenues . segment gross profit of $ 344.5 million in 2014 increased $ 24.3 million from 2013 primarily due to an increase in net sales between the periods . the gross profit as a percentage of revenues for 2014 decreased from the prior comparable period primarily due to acquisitions during the fiscal year which increased network operation costs and depreciation .
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the following is a summary of the transactions in , and earnings from , investments in affiliates for the year ended december 31 , 2020. replace_table_token_20_th the following is a summary of the transactions in , and earnings from , investments in affiliates for the year ended december 31 , 2019. value 12/31/2018 purchases at cost proceeds from sales change in unrealized appreciation ( depreciation ) realized gain ( loss ) value 12/31/2019 dividend income investments in affiliated money market funds : invesco premier u.s. government money portfolio , institutional class $ 3,829,452 $ 51,266,244 $ ( 50,660,726 ) $ — story_separator_special_tag financial condition and results of operations this information should be read in conjunction with the financial statements and notes included in item 8 of part ii of this report . the discussion and analysis which follows may contain trend analysis and other forward-looking statements . see “ cautionary statement concerning forward-looking information ” above . you should not place undue reliance on any forward-looking statements . except as expressly required by the federal securities laws , the fund and the managing owner undertake no obligation to publicly update or revise any forward-looking statements or the risks , uncertainties or other factors described in this report , as a result of new information , future events or changed circumstances or for any other reason after the date of this report . overview/introduction invesco capital management llc ( “ invesco ” ) has served as the managing owner ( the “ managing owner ” ) , commodity pool operator and commodity trading advisor of the trust and the fund since february 23 , 2015 . the managing owner is registered with the commodity futures trading commission ( the “ cftc ” ) as a commodity pool operator and a commodity trading advisor , and it is a member firm of the national futures association ( “ nfa ” ) . the fund seeks to track changes , whether positive or negative , in the level of the dbiq optimum yield silver index excess return ( the “ index ” ) over time , plus the excess , if any , of the sum of the fund 's interest income from its holdings of united states treasury obligations ( “ treasury income ” ) , dividends from its holdings in money market mutual funds ( affiliated or otherwise ) ( “ money market income ” ) and dividends or distributions of capital gains from its holdings of t-bill etfs ( as defined below ) ( “ t-bill etf income ” ) over the expenses of the fund . the fund invests in futures contracts in an attempt to track its index . the index is intended to reflect the change in market value of the silver sector . silver ( the “ index commodity ” ) is the single commodity comprising the index . the fund may invest directly in united states treasury obligations . the fund may also gain exposure to united states treasury obligations through investments in exchange-traded funds ( “ etfs ” ) ( affiliated or otherwise ) that track indexes that measure the performance of united states treasury obligations with a maximum remaining maturity of up to 12 months ( “ t-bill etfs ” ) . the fund holds as collateral united states treasury obligations , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , for margin and or cash management purposes . while the fund 's performance reflects the appreciation and depreciation of those holdings , the fund 's performance , whether positive or negative , is driven primarily by its strategy of trading futures contracts with the aim of seeking to track the index . the fund pursues its investment objective by investing in a portfolio of exchange-traded commodity futures contracts that expire in a specific month and trade on a specific exchange ( the “ index contracts ” ) . the fund also holds united states treasury obligations and t-bill etfs , if any , for deposit with morgan stanley & co. llc , the fund 's commodity broker ( the “ commodity broker ” ) as margin , to the extent permissible under cftc rules and united states treasury obligations , cash , money market mutual funds and t-bill etfs ( affiliated or otherwise ) , if any , on deposit with the bank of new york mellon ( the “ custodian ” ) , for cash management purposes . the aggregate notional value of the commodity futures contracts owned by the fund is expected to approximate the aggregate net asset value ( “ nav ” ) of the fund , as opposed to the aggregate index value . the cftc and certain futures exchanges impose position limits on futures contracts , including on index contracts . the managing owner may determine to invest in other futures contracts if at any time it is impractical or inefficient to gain full or partial exposure to the index commodity through the use of index contracts . these other futures contracts may or may not be based on the index commodity . when they are not , the managing owner may seek to select futures contracts that it reasonably believes tend to exhibit trading prices that correlate with an index contract . the shares are intended to provide investment results that generally correspond to the changes , positive or negative , in the levels of the index over time . the value of the shares is expected to fluctuate in relation to changes in the value of the fund 's portfolio . the market price of the shares may not be identical to the nav per share , but these two valuations are expected to be very close . margin calls “ initial ” or “ original ” margin is the minimum amount of funds that must be deposited by a futures trader with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts . story_separator_special_tag a significant portion of the nav is held in united states treasury obligations which may be used as margin for the fund 's trading in commodity futures contracts and united states treasury obligations , money market mutual funds , cash and t-bill etfs , if any , which may be used for cash management purposes . the percentage that united 21 states treasury obligations bear to the total net assets will vary from period to period as the market values of the fund 's commodity interests change . a portion of the fund 's united states treasury obligations is held for deposit with the commodity broker to meet margin requirements . all remaining cash , money market mutual funds , t-bill etfs , if any , and united states treasury obligations are on deposit with the custodian . interest earned on the fund 's interest-bearing funds and dividends from the fund 's holdings of money market mutual funds are paid to the fund . any dividends or distributions of capital gains received from the fund 's holdings of t-bill etfs , if any , are paid to the fund . the fund 's commodity futures contracts may be subject to periods of illiquidity because of market conditions , regulatory considerations or for other reasons . for example , u.s. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day . these limits are generally referred to as “ daily price fluctuation limits ” or “ daily limits , ” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “ limit price ” . once a limit price has been reached in a particular contract , it is usually the case that no trades may be made at a different price than specified in the limit . the duration of limit prices generally varies . limit prices may have the effect of precluding the fund from trading in a particular contract or requiring the fund to liquidate contracts at disadvantageous times or prices . either of those outcomes could adversely affect the fund 's ability to pursue its investment objective . because the fund trades futures contracts , its capital is at risk due to changes in the value of futures contracts ( market risk ) or the inability of counterparties ( including the commodity broker and or exchange clearinghouses ) to perform under the terms of the contracts ( credit risk ) . on any business day , an authorized participant may place an order with the transfer agent to redeem one or more blocks of 100,000 shares ( “ creation units ” ) . redemption orders must be placed by 10:00 a.m. , eastern time . the day on which the managing owner receives a valid redemption order is the redemption order date . the day on which a redemption order is settled is the redemption order settlement date . as provided below , the redemption order settlement date may occur up to two business days after the redemption order date . redemption orders are irrevocable . the redemption procedures allow authorized participants to redeem creation units . individual shareholders may not redeem directly from the fund . instead , individual shareholders may only redeem shares in integral multiples of 100,000 and only through an authorized participant . unless otherwise agreed to by the managing owner and the authorized participant as provided in the next sentence , by placing a redemption order , an authorized participant agrees to deliver the creation units to be redeemed through dtc 's book-entry system to the fund no later than the redemption order settlement date as of 2:45 p.m. , eastern time , on the business day immediately following the redemption order date . upon submission of a redemption order , the authorized participant may request the managing owner to agree to a redemption order settlement date up to two business days after the redemption order date . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order . redemption orders may be placed either ( i ) through the continuous net settlement ( “ cns ” ) clearing processes of the national securities clearing corporation ( the “ nscc ” ) ( the “ cns clearing process ” ) or ( ii ) if outside the cns clearing process , only through the facilities of the depository trust company ( “ dtc ” or the “ depository ” ) ( the “ dtc process ” ) , or a successor depository , and only in exchange for cash . by placing a redemption order , and prior to receipt of the redemption proceeds , an authorized participant 's dtc account is charged the non-refundable transaction fee due for the redemption order and such fee is not borne by the fund . capital resources the fund does not have any material commitments for capital expenditures as of the end of the latest fiscal period . the fund is unaware of any ( i ) anticipated known demands , commitments or capital expenditures ; ( ii ) material trends , favorable or unfavorable , in its capital resources ; or ( iii ) trends or uncertainties that will have a material effect on operations . cash flows a primary cash flow activity of the fund is to raise capital from authorized participants through the issuance of shares . this cash is used to invest in united states treasury obligations , money market mutual funds and t-bill etfs , if any , and to meet margin requirements as a result of the positions taken in futures contracts to match the fluctuations of the index .
| performance summary this report covers the years ended december 31 , 2020 and 2019. for performance discussion related to the year ended december 31 , 2018 , see the annual report for the year ended december 31 , 2018 available at http : //www.invesco.com/etfs . past performance of the fund is not necessarily indicative of future performance . the index is intended to reflect the change in market value of the index commodity . in turn , the index is intended to reflect the silver sector . the dbiq optimum yield silver index total return ( the “ dbiq-oy si tr ” ) consists of the index plus 3-month united states treasury obligations returns . past results of the index and the dbiq-oy si tr tm are not necessarily indicative of future changes , positive or negative . the section “ summary of the dbiq-oy si tr and underlying index commodity returns for the years ended december 31 , 2020 and 2019 ” below provides an overview of the changes in the closing levels of dbiq-oy si tr by disclosing the change in market value of the underlying component index commodity through a “ surrogate ” ( and analogous ) index plus 3-month united states treasury obligations returns . please note also that the fund 's objective is to track the index ( not the dbiq-oy si tr ) , and the fund does not attempt to outperform or underperform the index . the index employs the optimum yield roll method with the objective of mitigating the negative effects of contango , the condition in which distant delivery prices for futures exceed spot prices , and maximizing the positive effects of backwardation , a condition opposite of contango .
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as of december 31 , 2010 , the company owned interests in , managed or had under development approximately 76.3 million square feet of properties leased to more than 840 customers , including : 56.7 million consolidated square feet comprising 390 properties owned in our operating portfolio which was 88.9 % occupied ; 14.6 million square feet comprising 45 unconsolidated and managed properties and one managed property on behalf of three institutional capital management joint venture partners ; 1.0 million consolidated square feet comprising seven properties under development and one property in redevelopment ; 3.2 million unconsolidated square feet comprising seven properties under development ; and 0.8 million square feet comprising three operating properties in one of our unconsolidated joint ventures . our primary business objectives are to maximize long-term growth in funds from operations , or ffo , as defined on page 37 , and to maximize the value of our portfolio and the total return to our stockholders . in our pursuit of these long-term objectives , we seek to : maximize cash flows from existing properties ; deploy capital into high quality acquisitions or development opportunities which meet our asset location and financial criteria ; and recycle capital by selling assets that no longer fit our investment criteria and reinvesting in higher growth opportunities . outlook we seek long-term earnings growth and to maximize value primarily through increasing rents and operating income at existing properties and acquiring and developing high-quality properties in major distribution markets . following the return to growth in u.s. gross domestic product in the middle of 2009 and an overall improvement in the economy generally , fundamentals for industrial real estate improved during 2010. according to national statistics , net absorption , the net change in total occupied space , of industrial real estate turned positive in the second quarter of 2010 and continues to improve . our expectation for 2011 is for moderate economic growth to continue which will result in gradually improving demand for warehouse space as companies ' expand their distribution and production platforms . rental rates though are expected to remain at low levels as excess supply of available space in most markets will require landlords to remain competitive in order to renew existing leases and sign leases for new requirements . as positive net absorption of warehouse space continues and demand comes more into balance with supply , we expect rental rates to increase . nationally , rental rates are expected to moderately increase in 2011 , though growth is expected to be more robust in 2012 when vacancy rates are expected to drop below 10 % of available supply . further , we expect meaningful new development of warehouse space to remain abated until rental rates rise to a level to justify financial returns most developers would need to attain project financing or justify construction . for dct industrial , we experienced declining revenues and net operating income in 2010 compared to 2009 due to decreased occupancy and declining rental rates as new leases were signed at rates lower than those of expiring leases . we expect same store revenues and net operating income to continue to decline in 2011 although at a 39 slower pace than in 2010. the benefit of higher occupancy in 2011 is expected to be more than offset by the impact of continued negative releasing spreads as the rates on expiring leases were signed near the peak of market rents . during 2010 , we acquired $ 107.2 million of operating real estate , including the noncontrolling interests ' share of $ 14.0 million and acquisition costs of $ 0.4 million , and $ 4.7 million of land . we continue to pursue additional acquisitions as we believe that we can acquire well-located real estate at attractive prices and apply our leasing experience and market knowledge to generate attractive returns . we have $ 383.0 million of debt principal payments required in 2011 comprised of maturities of fixed-rate secured and unsecured debt , maturities of floating rate borrowings and principal payments . we anticipate refinancing these maturities with a mixture of new unsecured and secured debt which will extend their maturity . based on current interest rates , the new debt is expected to be at higher interest rates than on the existing borrowings . our interest expense is expected in increase in 2011 as a result of these new borrowings as well at the impact of financing activity completed in 2010. we anticipate having sufficient cash flow to fund our operating expenses , including costs to maintain our properties and distributions , though we may finance investments , including acquisitions , with the issuance of new shares or through additional borrowings . please see liquidity and capital resources for additional discussion . longer term , we believe that prospects remain promising . as the economy continues to grow and vacancy rates decline , rental rates will begin to rise . in most markets , we expect rental rates to recover 20 % to 30 % from the trough over the coming three to five years . with limited new supply over the next several years , we expect that the operating environment will become increasingly favorable for landlords with both rental rates and occupancies increasing substantially . inflation the u.s. economy has been experiencing relatively low inflation rates and inflation has not had a significant impact on our business . most of our leases require the tenants to pay their share of operating expenses , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , many of our leases expire within five years which enables us to replace existing leases with new leases at the then-existing market rate . significant transactions summary of the year ended december 31 , 2010 public offering on march 23 , 2010 , we registered a continuous equity offering program . story_separator_special_tag we have used approximately $ 95.0 million of the offering proceeds to repay amounts outstanding under our senior unsecured revolving credit facility and intend to use the remaining amount for general corporate purposes , including for future acquisitions . critical accounting policies general our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with united states generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an on-going basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the following discussion pertains to accounting policies management believes are most critical to the portrayal of our financial condition and results of operations that require management 's most difficult , subjective or complex judgments . principles of consolidation we hold interests in both consolidated and unconsolidated joint ventures . all joint ventures over which we have financial and operating control , and variable interest entities ( vie's ) in which we have determined that we are the primary beneficiary , are included in the consolidated financial statements . we use the equity method of accounting for joint ventures over which we do not have a controlling interest or where we do not exercise significant control over major operating and management decisions but where we exercise significant influence and include our share of earnings or losses of these joint ventures in our consolidated net loss . we analyze our joint ventures in accordance with gaap to determine whether they are vie 's and , if so , whether we are the primary beneficiary . our judgment with respect to our level of influence or control over an entity and whether we are the primary beneficiary of a vie involves consideration of various factors including the form of our ownership interest , our representation on the entity 's board of directors , the size of our investment ( including loans ) and our ability to participate in major decisions . our ability to correctly assess our influence or control over an entity affects the presentation of these investments in the consolidated financial statements and , consequently , our financial position and results of operations . capitalization of costs we capitalize costs directly related to the development , predevelopment , redevelopment or improvement of our investment in real estate , referred to as development projects and other activities included within this paragraph . costs associated with our development projects are capitalized as incurred . if the project is abandoned , these costs are expensed during the period in which the project is abandoned . costs considered for capitalization 42 include , but are not limited to , construction costs , interest , real estate taxes , insurance and leasing costs , if appropriate . we capitalize indirect costs such as personnel , office , and administrative expenses that are directly related to our development projects based on an estimate of the time spent on the development activities . interest is capitalized based on actual capital expenditures from the period when development or redevelopment commences until the asset is ready for its intended use , at the weighted average borrowing rates during the period . costs incurred for maintaining and repairing our properties , which do not extend their useful lives , are expensed as incurred . we also capitalize interest on qualified investments in unconsolidated joint ventures . interest is capitalized based on the average capital invested in a venture during the period when development or predevelopment begins until planned principle operations commence , at the weighted average borrowing rates during the period . fair value the financial accounting standards board ( fasb ) issued guidance related to accounting for fair value measurements which defines fair value , establishes a framework for measuring fair value and expands disclosures about fair value measurements . fair value is defined as the exit price or price at which an asset ( in its highest and best use ) would be sold or liability assumed by an informed market participant in a transaction that is not distressed and is executed in the most advantageous market . this guidance provides a framework of how to determine such measurements on reported balances which are required or permitted to be measured at fair value under existing accounting pronouncements and emphasizes that fair value is a market-based rather than an entity-specific measurement . therefore , our fair value measurement is determined based on the assumptions that market participants would use to price the asset or liability . as a basis for considering market participant assumptions in fair value measurements , this guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity ( observable inputs that are classified within levels 1 and 2 of the hierarchy ) and the reporting entity 's own assumptions about market participant assumptions based on the best information available in the circumstances ( unobservable inputs classified within level 3 of the hierarchy ) . level 1 inputs utilize quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are inputs other than quoted prices included in level 1 that are observable for the asset or liability , either directly or indirectly .
| results of operations summary of the year ended december 31 , 2010 compared to the year ended december 31 , 2009 dct industrial trust inc. is a leading industrial real estate company that owns , operates and develops high-quality bulk distribution and light industrial properties in high-volume distribution markets in the u.s. and mexico . the company owns or manages 76.3 million square feet of assets leased to more than 840 corporate customers , including 14.6 million square feet of unconsolidated and managed properties on behalf of three institutional capital management joint venture partners . as of december 31 , 2010 , we consolidated 390 operating properties , seven development properties and one redevelopment property . 47 comparison of the year ended december 31 , 2010 to the year ended december 31 , 2009 the following table illustrates the changes in rental revenues , rental expenses and real estate taxes , property net operating income , other revenue and other income and other expenses for the year ended december 31 , 2010 compared to the year ended december 31 , 2009. our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods for which the operations had been stabilized . non-same store operating properties include properties not meeting the same-store criteria and exclude development and redevelopment properties . the same store portfolio for the periods presented totaled 361 operating properties and was comprised of 50.5 million square feet . a discussion of these changes follows the table ( in thousands ) . replace_table_token_15_th ( 1 ) for a discussion as to why we view property net operating income to be an appropriate supplemental performance measure see page 37 , above .
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to the extent that the company determines specific invoices or customer accounts may be uncollectible , the company establishes an allowance for doubtful accounts against the accounts receivable on its consolidated balance sheets and records a charge on its consolidated statements of operations as a component of selling , general and administrative expenses . the company had one customer and two customers that accounted for more than 10 % of the company 's outstanding trade receivables at december 31 , 2014 and 2013 , respectively . these customers cumulatively represented approximately 36 % and 48 % of the story_separator_special_tag this discussion and analysis should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included in this annual report on form 10-k for the year ended december 31 , 2014. operating results for the year ended december 31 , 2014 are not necessarily indicative of results that may occur in future periods . overview since our inception in 1991 , we have devoted substantially all of our efforts and resources to the research , development , clinical testing and commercialization of the intercept blood system . the intercept blood system is designed for three blood components : platelets , plasma and red blood cells . the intercept blood system for platelets , or platelet system , and the intercept blood system for plasma , or plasma system , have received ce marks and are being marketed and sold in a number of countries around the world including those in europe , the commonwealth of independent states , or cis , the middle east and selected countries in other regions around the world . in december 2014 , we received approval of our premarket applications , or pmas from the united states food and drug administration , or fda , for the intercept blood system for platelet , and our intercept blood system for plasma . the platelet system is approved for ex vivo preparation of pathogen-reduced apheresis platelet components in order to reduce the risk of tti , including sepsis , and to potentially reduce the risk of transfusion-associated graft versus host disease or ta-gvhd . the plasma system is approved for ex vivo preparation of plasma in order to reduce the risk of tti when treating patients requiring therapeutic plasma transfusion . in addition to the pmas that we filed with the fda , we submitted and received approval from the fda for a phase i clinical study protocol under an investigational device exemption , or ide , to treat plasma derived from convalesced patients that were previously infected with the ebola virus and have recovered from the disease according to the criteria set by the centers for disease control and prevention . the transfusion of convalesced plasma from ebola survivors is believed to pass on antibodies to the disease from the survivor to the recipient of the plasma transfusion . intercept use under this ide is limited to pathogen reduction claims that rely on existing clinical data that we have regarding reduction of certain pathogens in donated plasma , and we do not have any clinical or commercial data on the efficacy of intercept to inactivate the ebola virus and therefore do not know the effectiveness of intercept to inactivate the ebola virus . in addition , we have submitted and received approval from the fda for a separate , expanded use ide , to conduct a study using intercept to treat platelet donations in areas of the u.s. that have outbreaks of the chikungunya and dengue viruses . both of these studies are ongoing . our red blood cell system is currently in development and has not been commercialized anywhere in the world . we completed our european phase iii clinical trial of our red blood cell system for acute anemia patients and have another european phase iii clinical trial of our red blood cell system for chronic anemia patients ongoing . although we plan to undertake additional development and cmc activities to support an anticipated ce mark submission planned for the second half of 2016 , such studies , including any additional studies required by the fda prior to its review of any proposed u.s. phase iii clinical trial protocol , could prolong development of the red blood cell system , and we do not expect to receive any regulatory approvals of our red blood cell system for a few years , if ever . we understand that while the acute anemia phase iii clinical trial in europe may be sufficient to receive ce mark approval in europe , a successful outcome with potentially more safety data in the ongoing phase iii chronic anemia clinical trial may also be required for our red blood cell system to achieve broad market acceptance . in addition , the trials may need to be supplemented by additional , successful phase iii clinical trials for approval in certain countries . if such additional phase iii clinical trials are required , they would likely need to demonstrate equivalency of intercept-treated red blood cells compared to conventional red blood cells and significantly lower lifespan for intercept-treated red blood cells compared to non-treated red blood cells may limit our ability to obtain regulatory approval for the product . as part of our development and 55 cmc activities , we will need to complete a number of in vitro studies , finalize development of the final commercial configuration of the red blood cell system and manufacture and validate sufficient quantities of the final red blood cell system prior to receiving any regulatory approvals in europe and may have to complete additional activities prior to receiving regulatory approvals in the u.s. many of these activities may require capital beyond that which we currently have , and we may be required to obtain additional capital in order to complete the development of and obtain any regulatory approvals for the red blood cell system . if we continue to experience delays in testing , conducting trials or approvals , our product development costs will increase . story_separator_special_tag in order to commercialize all of our products and product candidates , we will be required to conduct significant research , development , preclinical and clinical evaluation , commercialization and regulatory compliance activities for our product candidates , which , together with anticipated selling , general and administrative expenses , are expected to result in substantial losses . accordingly , we may never achieve a profitable level of operations in the future . on february 26 , 2015 , we announced our fourth quarter and year ended december 31 , 2014 financial results . in connection with the announcement , we reported product revenue of $ 9.7 million and $ 36.5 million for the fourth quarter and year ended december 31 , 2014 , respectively . subsequent to the announced results , we learned that collection from one of our customers in russia was at risk . as such , and in accordance with our policy on revenue recognition , we determined that product revenue from this customer should be lowered by the amount at risk , totaling $ 0.1 million . consequently , fourth quarter revenue was revised to $ 9.6 million and revenue for the year ended december 31 , 2014 was revised to $ 36.4 million . this revision of revenue , combined with a $ 0.1 million increase in research and development expenses and a $ 0.1 million decrease in selling , general and administrative expenses , netted to an increase in net loss of $ 0.2 million for both the fourth quarter and year ended december 31 , 2014 , or $ 0.01 per diluted share for both the fourth quarter and year ended december 31 , 2014. all necessary adjustments to our consolidated financial statements are reflected in the consolidated financial statements included in this annual report on form 10-k. fresenius we pay royalties to fresenius kabi ag , or fresenius on intercept blood system product sales under certain agreements that arose from the sale of the transfusion therapies division of baxter international inc. , or baxter , in 2007 to fenwal inc. , or fenwal ( fenwal was subsequently acquired by fresenius in 2012 ) , at rates that vary by product : 10 % of product sales for the platelet system and 3 % of product sales for the plasma system . fresenius has assumed fenwal 's rights and obligations under those agreements , including our manufacturing and supply agreement . in this report , references to fresenius include references to its predecessors-in-interest , fenwal and baxter . we also paid fresenius certain costs associated with the manufacture of our platelet and plasma system disposable kits pursuant to our amended manufacturing and supply agreement with fresenius prior to the november 2013 amendment to such agreement . in november 2013 , we amended our manufacturing and supply agreement with fresenius with the new terms effective january 1 , 2014. under the amended agreement , fresenius is obligated to sell , and we are obligated to purchase up to a certain specified annual volume of finished disposable kits for the platelet and plasma systems from fresenius for both clinical and commercial use . once the specified annual volume of disposable kits is purchased from fresenius , we are able to purchase additional quantities of disposable kits from other third-party manufacturers . the amended terms also provide for fixed pricing for finished kits with successive decreasing pricing tiers at various annual production volumes . at the current and expected near term production volumes , pricing is expected to be at the lowest tier . in addition , 57 the amendment requires us to purchase additional specified annual volumes of sets per annum if and when an additional fresenius manufacturing site is identified and qualified to make intercept disposable kits , subject to mutual agreement on pricing for disposable kits manufactured at the additional site . fresenius is also obligated to purchase and maintain specified inventory levels of our proprietary inactivation compounds and compound adsorption devices from us at fixed prices . the term of the amended manufacturing and supply agreement with fresenius extends through december 31 , 2018 , subject to termination by either party upon thirty months prior written notice , in the case of fresenius , or twenty-four months prior written notice , in our case . we and fresenius each have normal and customary termination rights , including termination for material breach . in october 2014 , fresenius announced plans to cease manufacturing certain of its non-cerus product lines and to significantly reduce its workforce at the manufacturing facility at which our products are made . we do not currently have plans to terminate our amended manufacturing and supply agreement with fresenius and understand that fresenius currently plans to continue operating under the amended agreement . however , in the event fresenius refuses or is unable to continue operating under the amended agreement , we may be unable to maintain inventory levels or otherwise meet customer demand , and our business and operating results would be materially and adversely affected . likewise , if we conclude that supply of the intercept blood system or components from fresenius and others is uncertain , we may choose to build and maintain inventories of raw materials , work-in-process components , or finished goods , which would consume capital resources faster than we anticipate and may cause our supply chain to be less efficient . equity and debt agreements cantor on march 21 , 2014 , we entered into amendment no . 1 to the controlled equity offering sm sales agreement , dated august 31 , 2012 , which we refer to as the amended cantor agreement , with cantor fitzgerald & co. or cantor , that provides for the issuance and sale of shares of its common stock over the term of the amended cantor agreement having an aggregate offering price of up to $ 70.0 million through cantor .
| results of operations years ended december 31 , 2014 , 2013 and 2012 revenue replace_table_token_7_th product revenue decreased by $ 3.2 million during the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 , primarily as a result of lower unit sales volume of our disposable platelet and plasma system kits and the deterioration in the euro relative to the u.s. dollar in the latter half of 2014 , partially offset by increased average selling prices for both our disposable platelet and plasma system kits and higher unit sales volume for our illuminator devices . in early 2014 , we transitioned certain markets in southern europe from an exclusive distributor to our direct sales force . this transition resulted in lower revenue in the territory as the distributor sold down its remaining inventory to end-user customers in the territory contributing to the year-over-year reduction in demand for intercept disposable kits by approximately 5 % . product revenue increased by $ 3.0 million during the year ended december 31 , 2013 , compared to the year ended december 31 , 2012 , primarily as a result of higher unit sales volume of our disposable plasma system kits and increased average selling prices for our disposable platelet system kits , partially offset by a slight decrease in unit sales volume of the platelet kits . also contributing to the increase in product revenue was higher unit sales volume for our illuminator devices partially offset by a slight decrease in the average illuminator selling price . we anticipate product revenue for both our platelet and plasma systems will increase in future periods as the intercept blood system gains market acceptance in geographies where commercialization efforts are underway , including anticipated contribution from u.s. sales . the historical results may not be indicative of intercept blood system revenue in the future .
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82 expected impacts to reported results the adoption of the standard related to the new revenue recognition is expected to impact our reported results as follows : fiscal year 2016 : replace_table_token_29_th fiscal year 2017 : replace_table_token_30_th 83 fiscal year 2016 : replace_table_token_31_th fiscal year 2017 : replace_table_token_32_th _ ( 1 ) impact of cumulative change in commissions expense ( 2 ) impact of cumulative change in revenue ( 3 ) impact of cumulative change in provision for income taxes 84 note 3. business combinations calm acquisition on august 22 , 2016 , the company completed the acquisition of all outstanding shares of calm , a company based in singapore which specializes in container and devops automation , for an aggregate purchase price of $ 7.7 million , net of cash acquired ( the “ calm acquisition ” ) . consideration consisted of 528,517 shares of the company 's common stock and $ 1.4 million of cash . the preliminary purchase price allocation includes $ 4.8 million of goodwill and $ 4.0 million of identifiable intangible assets , which primarily consist of developed technology , with an expected useful life of approximately 4.8 years story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this annual report on form 10-k. the last day of our fiscal year is july 31. our fiscal quarters end on october 31 , january 31 , april 30 and july 31. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under “ risk factors ” or in other parts of this annual report on form 10-k. overview we provide a leading next-generation enterprise cloud operating system that converges traditional silos of server , virtualization , storage and networking into one integrated solution and unifies private and public cloud into a single software fabric . our software delivers the agility , scalability and pay-as-you-grow economics of the public cloud , while addressing enterprise requirements of application mobility , security , data integrity and control . we provide our customers with the flexibility to selectively utilize the public cloud for suitable workloads and specific use cases by enabling increasing levels of application mobility across private and public clouds . we have combined advanced web-scale technologies with elegant consumer-grade design to deliver a powerful enterprise cloud operating system that elevates it organizations by enabling them to focus on the applications and services that power their businesses . our invisible infrastructure provides constant availability and low-touch management , enables application mobility across computing environments and reduces inefficiencies in it planning . our solution can be delivered either as an appliance that is configured to order or as software only . when end-customers purchase our operating system , they typically also purchase one or more years of support and maintenance in order to receive software upgrades , bug fixes and parts replacement . product revenue is generated primarily from the sales of our solution , and is generally recognized upon shipment . support and other services revenue is derived from the related support and maintenance contracts , and is recognized ratably over the term of the support contracts . we had a broad and diverse base of 7,051 end-customers as of july 31 , 2017 , including approximately 559 global 2000 enterprises . since shipping our first product in fiscal 2012 , our end-customer base has grown rapidly . the number of end-customers grew from 3,768 as of july 31 , 2016 to 7,051 as of july 31 , 2017 . our operating system is primarily sold through channel partners , including distributors and resellers , and delivered directly to our end-customers . a major part of our sales and marketing investment is to educate our end-customers about the benefits of our solution , particularly as we continue to pursue large enterprises and mission critical workloads . our solutions serve a broad range of workloads , including enterprise applications , databases , virtual desktop infrastructure , or vdi , unified communications and big data analytics and we have recently announced the capability to support both virtualized and non-virtualized applications . we have end-customers across a broad range of industries , such as automotive , consumer goods , education , energy , financial services , healthcare , manufacturing , media , public sector , retail , technology and telecommunications . we also sell to service providers , who utilize our operating system to provide a variety of cloud-based services to their customers . we have invested heavily in the growth of our business , including the development of our solutions , build-out of our global sales force and the acquisitions of calm.io pte . ltd. , or calm , and pernixdata , inc. , or pernixdata , during the first quarter of fiscal 2017. the number of our full-time employees increased from 1,980 as of july 31 , 2016 to 2,813 as of july 31 , 2017 . we have recruited an engineering team focused on distributed systems and it infrastructure technologies at our san jose , california headquarters and at our research and development centers in bangalore , india , durham , north carolina and seattle , washington . we have also expanded our international sales and marketing presence by continuing to build out our global teams . we intend to continue to invest in our global engineering team to enhance the functionality of our operating system , introduce new products and features and build upon our technology leadership , as well as continue to expand our global sales and marketing teams . 46 our total revenue was $ 444.9 million and $ 766.9 million for fiscal 2016 and fiscal 2017 , respectively , representing year-over-year growth of 72.4 % . story_separator_special_tag if we are unable to address these challenges , our business and operating results could be adversely affected . 49 investment in growth we plan to continue to invest in sales and marketing so that we can capitalize on our market opportunity , and as part of this , we intend to specifically expand our focus on opportunities with major accounts and large deals , which we define as transactions over $ 500,000 in committed value . we have significantly increased our sales and marketing personnel , which grew by 42 % from july 31 , 2016 to july 31 , 2017. we estimate , based on past experience , that sales team members typically become fully ramped around the time of the start of their fourth quarter of employment with us , and as our newer employees ramp up , we expect their increased productivity to contribute to our revenue growth . as of july 31 , 2017 , we considered 59 % of our global sales team members to be fully productive , while the remaining 41 % of our global sales team members are in the process of ramping up . as we shift the focus of some of our new and existing sales team members to major accounts and large deals , it may take longer for these sales team members to become fully productive , and there may also be an impact to the overall productivity of our sales team . we are focused on actively managing this realignment , and expect continuing improvement over the coming quarters . we intend to continue to grow our global sales and marketing team to acquire new end-customers and to increase sales to existing end-customers . we also intend to continue to grow our research and development and global engineering team to enhance our solutions , improve integration with new and existing ecosystem partners , and broaden the range of it infrastructure technologies that we converge into our operating system . we believe that these investments will contribute to our long-term growth , although they may adversely affect our profitability in the near term . market adoption of our products the public cloud has changed it buyer expectations about the simplicity , agility , scalability and pay-as-you-grow economics of it resources , which represent a major architectural shift and business model evolution . a key focus of our sales and marketing efforts is creating market awareness about the benefits of our operating system , both as compared to traditional data center architectures as well as the public cloud , particularly as we continue to pursue large enterprises and mission critical workloads . the broad nature of the technology shift that our operating system represents and the relationships our end-customers have with existing it vendors sometimes lead to unpredictable sales cycles , which we hope to compress and stabilize as market adoption increases , as we gain leverage with our channel partners and as our sales and marketing efforts expand . our business and operating results will be significantly affected by the degree to and speed with which organizations adopt our operating system . leveraging channel and oem partners we plan to continue to strengthen and expand our network of channel and oem partners to increase sales to both new and existing end-customers . we believe that increasing channel leverage by investing aggressively in sales enablement and co-marketing with our partners will extend and improve our engagement with a broad set of end-customers . our business and results of operations will be significantly affected by our success in leveraging and expanding our network of channel and oem partners . continued purchases and upgrades within existing customer base our end-customers typically deploy our technology for a specific workload initially . after a new end-customer 's initial order , which includes the product and associated maintenance , support and services , we focus on expanding our footprint by serving more workloads . we also generate recurring revenue from our support and maintenance renewals . we view continued purchases and upgrades as critical drivers of our success , as the sales cycles are typically shorter compared to new end-customer deployments and selling efforts are typically less . as of july 31 , 2017 , approximately 74 % of our end-customers who have been with us for 18 months or more have made a repeat purchase , which is defined as any purchase activity , including support and maintenance renewals , subsequent to the initial purchase . additionally , end-customers who have been with us for 18 months or more have total lifetime orders ( which includes the initial order ) to date in an amount that is more than 4.8x greater , on average , than their initial order . this number increases to approximately 8.1x , on average , for our 559 global 2000 end-customers and to more than 18.8x , on average , for our top 25 end-customers as of july 31 , 2017. the multiples exclude the effect of one end-customer who had a very large and irregular purchase pattern that we believe is not representative of the purchase patterns of all our other end-customers . our business and operating results will depend on our ability to sell additional products to our current existing and future base of end-customers . 50 changes in product mix and associated accounting impact shifts in the mix of whether our solutions are sold as an appliance or as software-only could result in fluctuations in our revenue and gross margins . software-only sales typically reflect higher gross margins and lower revenue in a given period , since the sale does not include the revenue or cost of the hardware components in an appliance .
| results of operations the following tables set forth our consolidated results of operations in dollars and as a percentage of total revenue for the years presented : replace_table_token_9_th 54 ( 1 ) includes stock-based compensation expense as follows : replace_table_token_10_th ( 2 ) includes amortization of intangible assets as follows : fiscal year ended july 31 , 2015 2016 2017 ( in thousands ) product cost of revenue $ — $ — $ 1,314 sales and marketing — — 915 total amortization of intangible assets $ — $ — $ 2,229 55 replace_table_token_11_th 56 revenue replace_table_token_12_th total revenue by bill-to-location was as follows : replace_table_token_13_th product revenue increased year-over-year for both fiscal 2016 and fiscal 2017. the increase in product revenue reflects increased domestic and international demand for our solution as we continue our penetration and expansion in global markets through increased sales and marketing activities . our total end-customer count increased from 1,799 as of july 31 , 2015 to 3,768 as of july 31 , 2016 and to 7,051 as of july 31 , 2017. support and other services revenue increased year-over-year for both fiscal 2016 and fiscal 2017 in conjunction with the growth of our established base of end-customers with support and software maintenance contracts . cost of revenue and gross margin replace_table_token_14_th 57 cost of product revenue the increase in cost of product revenue in fiscal 2016 compared to fiscal 2015 was primarily due to the corresponding year-over-year increase in product sales .
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as a result of the volume timing change , the estimated fair value of the contingent consideration was reduced to 1.0 million ( $ 1.4 million ) as of december 31 , 2013 with the change reflected within other income in the consolidated statement of operations . a change in a market participant view of risks could also impact the value of the contingent consideration . we also hold financial instruments consisting of cash , accounts receivable , and accounts payable . the carrying amounts of cash , accounts receivable and accounts payable approximate fair value due story_separator_special_tag ( in millions , except as noted and share and per share amounts ) management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this annual report . certain financial data may have been rounded . as a result of such rounding , the totals of data presented in this document may vary slightly from the actual arithmetical totals of such data . 11 general om group , inc. ( the “ company ” , “ we ” , “ our ” , “ us ” ) is a technology-driven industrial company serving attractive global markets , including automotive systems , electronic devices , aerospace and defense , industrial and renewable energy . we use innovative technologies to address customers ' complex applications and demanding requirements . our strategy is to grow organically through product and application innovation and new market and customer development , to grow strategically through synergistic acquisitions , and to maximize total stockholder return through a combination of business growth , financial discipline , optimal deployment of capital and continued operational excellence . our objective is to deliver sustainable , profitable growth and create long-term stockholder value . on march 29 , 2013 , we completed the divestiture of our cobalt-based advanced materials business . in connection with this transaction , we received net proceeds of $ 329 million . as required by the company 's senior secured credit agreement in place at the time , $ 302 million of net proceeds received at closing were used , together with cash on hand , to repay approximately $ 346 million of our term b debt . a loss of $ 112 million was recorded on the divestiture . the sale agreement for the downstream portion of the business also provides for potential future additional cash consideration of up to $ 110 million based on the business achieving certain revenue targets over a period of three years . using our projected trends of cobalt prices and volumes , it is not probable that the business will meet the revenue targets , and no value was assigned to the potential future cash consideration while calculating the loss on the divestiture or at december 31 , 2013. on may 31 , 2013 , we completed the divestiture of our ultra pure chemicals ( upc ) business for cash proceeds of $ 63 million . the results of operations of the upc business are reflected as discontinued operations in the accompanying unaudited condensed consolidated financial statements for all periods presented . a loss , net of tax , of $ 9.8 million was recorded on the divestiture , which included a $ 1.5 million gain on the sale of net assets offset by the realization of a loss in accumulated other comprehensive income of $ 8.8 million , a $ 1.5 million write-off of deferred financing fees related to the required debt pre-payment and transaction expenses of $ 1.0 million . we used the proceeds of the upc divestiture , along with cash on hand , to repay our remaining indebtedness . we operate three strategic business platforms : magnetic technologies , battery technologies , and specialty chemicals . we also have limited continuing involvement in the advanced materials business through transition agreements with the buyer as described below . further discussion of and financial information for these segments , including external sales , operating profit and total assets , is contained in note 17 to the accompanying consolidated financial statements of this annual report on form 10-k. magnetic technologies the magnetic technologies segment develops , manufactures and distributes differentiated , high-performance industrial-use magnetic materials and related products and systems with exceptional magnetic and or physical properties for a wide array of end markets , including automotive systems , electrical installation technology , industrial , retail and renewable energy . battery technologies the battery technologies segment develops , manufactures and distributes specialty batteries , battery management systems , battery-related research and energetic devices for the defense , space , medical , commercial and grid energy storage markets . specialty chemicals the specialty chemicals segment develops , produces and supplies chemicals for electronic applications , industrial applications including coatings , composites and tire ; and photomasks used by customers to produce semiconductors and related products . advanced materials ( divested ) as discussed above , on march 29 , 2013 , we exited this business . during 2012 and through the date of sale , this business manufactured inorganic products using unrefined cobalt and other metals , for the mobile energy storage , renewable energy , automotive systems , construction and mining , and industrial end markets . it also had a 55 % interest in gtl . story_separator_special_tag million impact ) and lower rare earth prices ( $ 113.3 million impact ) in our magnetic technologies business , which are generally passed-through to customers in the business ' selling prices . excluding these two items , net sales increased 0.8 % in 2013 compared to 2012 , including $ 16.0 million of translation benefit from a stronger euro . battery technologies sales grew 5.1 % due to higher sales into both defense and medical markets . excluding the rare earth price impact and the translation benefit , sales in magnetic technologies were slightly lower than a year ago , due to macroeconomic weakness in europe . specialty chemicals sales were down 1.6 % , as weaker conditions impacting our advanced organics and photomasks product lines more than offset higher demand for our memory disk product line . gross profit increased to $ 258.4 million in 2013 , compared with $ 243.6 million in 2012 . the largest factors affecting the $ 14.9 million increase in gross profit were higher sales volumes in battery technologies and savings from cost reductions actions net of related charges . gross profit in 2012 was negatively impacted by vac purchase accounting step-up charges that did not repeat in 2013. gross profit in 2012 benefited from the full year of advanced materials gross profit . selling , general and administrative expenses ( “ sg & a ” ) decreased to $ 217.3 million in 2013 compared with $ 251.2 million in 2012 due primarily to the advanced materials divestiture . the following table summarizes the components of other expense , net : replace_table_token_9_th the decrease in interest expense is due to lower debt outstanding in 2013 compared to 2012 , as we repaid our debt in the first half of 2013. the foreign exchange gain in 2013 is primarily related to movements in euro/u.s . dollar exchange rates and the resulting impact on the revaluation of non-functional currency cash and debt balances . other income in 2013 is primarily comprised of a $ 13 million reduction of the contingent consideration liability associated with the 2011 acquisition of rahu . other income in 2012 relates primarily to a receipt of $ 6 million from an escrow settlement related to the 2010 battery technologies acquisition . we recorded income tax expense of $ 10.7 million on pre-tax loss of $ 62.8 million for 2013. the effective tax rate was impacted by the loss on the divestiture of advanced materials , which had no income tax benefit , and other special items . excluding these special items , our effective income tax rate would have been 25.6 % . this rate is lower than the u.s. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the u.s. , and our financing structure , partially offset by losses and carry-forwards in certain jurisdictions ( including the u.s. ) 17 with no corresponding tax benefit . we recorded an income tax benefit of $ 3.2 million on pre-tax loss of $ 48.6 million for 2012. the effective tax rate was impacted by vac purchase accounting related inventory charges of $ 55.9 million , a tax expense of $ 10.4 million related to gtl which included a $ 5.6 million increase in the valuation allowance for prepaid tax asset and $ 6.6 million for other gtl permanent differences . excluding the impact of vac purchase accounting-related inventory charges and gtl discrete and permanent items , the effective tax rate for the year ended december 31 , 2012 would have been 32 % . this rate is lower than the u.s. statutory tax rate primarily due to income earned in tax jurisdictions with lower statutory rates than the u.s. , and our financing structure , partially offset by losses and carry-forwards in certain jurisdictions ( including the u.s. and germany ) with no corresponding tax benefit . the loss attributable to the noncontrolling interest was driven by losses at gtl in 2013 and 2012 resulting from the low cobalt price and electrical problems in the drc that negatively impacted production . 2012 compared with 2011 the following table identifies , by segment , the components of change in net sales in 2012 compared with 2011 : replace_table_token_10_th net sales increased $ 124.9 million , or 8.8 % , primarily due to the vac acquisition in august 2011 , for which 2012 includes a full twelve months of sales activity . sales in magnetic technologies were bolstered in 2012 by the positive effects of rare-earth pricing , which drove results higher . as rare-earth pricing retreated throughout 2012 , these pricing benefits trended downward and then were essentially absent by fourth quarter 2012. in battery technologies , the increase in sales in 2012 was due primarily to non-us defense sales , as well as higher volumes for medical applications . in specialty chemicals , sales were down primarily due to lower volumes , which were negatively impacted by the 2011 thailand floods , a weak consumer electronics market and a weak european economy . in advanced materials , sales were negatively impacted by lower cobalt and copper prices compared to the prior year , as well as lower volumes due to weak economic conditions in europe . gross profit increased slightly to $ 243.6 million in 2012 , compared with $ 240.9 million in 2011 . excluding vac inventory purchase accounting step-up charges , gross profit as a percentage of net sales was 19.4 % in 2012 compared with 24.5 % in 2011. the percentage is higher in 2011 due primarily to the rare-earth pricing benefits in 2011 and the lcm charges in 2012. selling , general and administrative expenses ( “ sg & a ” ) increased to $ 251.2 million in 2012 compared with $ 219.4 million in 2011 . the increase was primarily due to a full 12 months of vac results , partially offset by fees associated with acquisitions in 2011 of $ 17.8 million .
| cash flow summary our cash flows from operating , investing and financing activities for 2013 , 2012 and 2011 , as reflected in the statements of consolidated cash flows , are summarized and discussed in the following tables and related narrative : replace_table_token_22_th operating activities in 2013 , net cash flow from operating activities was $ 62.9 million million compared with a cash inflow of $ 209.5 million million in the prior year . the cash flows from operating activities can fluctuate significantly from period-to-period due to profitability , working capital changes and the timing of payments for items such as income taxes , pensions and other items which impact reported cash flows . the amount in 2012 benefited from declining commodity prices in the advanced materials business . in 2012 , net cash flow from operations was higher than 2011 , benefiting from improvements in the principal element of working capital ( inventory , accounts receivable , accounts payable ) that contributed positive cash flow of $ 70.9 million , and from the receipt of a $ 37.9 million tax refund in the fourth quarter of 2012. investing activities in 2013 , net cash provided by investing activities in 2013 included net proceeds of $ 392.0 million from the divestitures of the advanced materials and upc businesses , less capital expenditures of $ 53.1 million primarily to expand capacity ; to maintain and improve throughput ; for compliance with environmental , health and safety regulations ; and for other fixed asset additions at existing facilities . in august 2013 we remitted a payment of $ 23.0 million to the seller of vac . we remain in discussions with the seller regarding the remainder of the withheld consideration . in 2012 , net cash used in investing activities included capital expenditures of $ 67.6 million primarily to expand capacity , improve productivity , comply with regulations and sustain operations .
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of the cash consideration paid , $ 5,250 was held in escrow to secure indemnification obligations , which has not been released as of the filing date of this annual report on form 10-k. the company incurred $ 231 in acquisition-related costs which were recorded within operating expenses for the year ended december 31 , 2014. fair value of acquired assets and liabilities assumed the determination of the fair values of the assets acquired and liabilities assumed has been prepared on story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our `` selected consolidated financial data '' and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those forward-looking statements below . factors that could cause or contribute to those differences include , but are not limited to , those identified below and those discussed in the section entitled `` risk factors '' included elsewhere in this annual report on form 10-k. this annual report on form 10-k contains “ forward-looking statements ” within the meaning of section 21e of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . these statements are often identified by the use of words such as “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ estimate , ” or “ continue , ” and similar expressions or variations . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified herein , and those discussed in the section titled “ risk factors ” , set forth in part i , item 1a of this form 10-k. except as required by law , we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . overview proofpoint is a leading security-as-a-service ( `` saas '' ) provider that enables large and mid-sized organizations worldwide to defend , protect , archive and govern their most sensitive data . our saas platform is comprised of an integrated suite of on-demand data protection solutions , including threat management and incident response , regulatory compliance , archiving , data governance and ediscovery , and secure communication . we were founded in 2002 to provide a unified solution to help enterprises address their growing data security requirements . our first solution was commercially released in 2003 to combat the burgeoning problem of spam and viruses and their impact on corporate email systems . as the threat environment has continued to evolve , we have dedicated significant resources to meet the ongoing challenges that this highly dynamic environment creates for our customers such as investing significantly to expand the breadth of our data protection platform with $ 11.6 million and $ 7.1 million spent in 2014 and 2013 , respectively , on capital spending to support infrastructure expansion . these expenditures are primarily in connection with the replacement and upgrade of equipment to lower the cost of deployment as well as to improve the efficiency for our cloud-based architecture . since early 2013 , we have launched proofpoint essentials , a suite of saas security and compliance capabilities designed to meet the needs of managed service providers and dedicated security resellers , enabling these partners to offer their customers this full suite of cloud-based solutions . we also introduced proofpoint 's social platform for archiving , which provides our customers a quick path to regulatory compliance regarding their social media usage , enabling them to leverage a wide range of social media platforms such as yammer , chatter and facebook while adhering to strict compliance standards . additionally , we introduced proofpoint secure share which allows enterprises to securely exchange large files with ease in a cloud-based environment . 38 additionally , during 2014 , we have completed two acquisitions to complement our solutions offerings . both of our 2014 acquisitions are described in note 2 to our consolidated financial statements included in this report . with the nexgate inc. acquisition on october 31 , 2014 , we introduced a social media security and compliance solution which enables customers to effectively protect their online brand presence and social media communication infrastructure . nexgate technology automatically identifies and remediates fraudulent social media accounts , account hacks , and content that contains malware , spam and abusive language . in addition , the nexgate solution enables enterprises to enforce policies on authorized accounts and posts in order to comply with a wide-range of social media regulatory requirements including ftc , finra , ffiec , fda , hipaa , phi , sec and aba . our business is based on a recurring revenue model . our customers pay a subscription fee to license the various components of our saas platform for a contract term that is typically one to three years . at the end of the license term , customers may renew their subscription and in each year since the launch of our first solution in 2003 , we have retained over 90 % of our customers . we derive this retention rate by calculating the total annually recurring subscription revenue from customers currently using our saas platform and dividing it by the total annually recurring subscription revenue from both these current customers as well as all business lost through non-renewal . story_separator_special_tag to date , our customers have primarily used our solutions in conjunction with email messaging content . we have developed solutions to address the new and evolving messaging solutions such as social media and file sharing applications , but these solutions are relatively nascent . if customers increase their use of these new messaging solutions in the future , we anticipate that our growth in revenue associated with email messaging solutions may slow over time . although revenue associated with our social media and file sharing applications has not been material to date , we believe that our ability to provide security , archiving , governance and discovery for these new solutions will be viewed as valuable by our existing customers , enabling us to derive revenue from these new forms of messaging and communication . while the majority of our current and prospective customers run their email systems on premise , we believe that there is a trend for large and mid-sized enterprises to migrate these systems to the cloud . while our current revenue derived from customers using cloud-based email systems continues to grow as a percentage of our total revenue , many of these cloud-based email solutions offer some form of threat protection and governance services , potentially mitigating the need for customers to buy these capabilities from third parties such as ourselves . we believe that we can continue to provide security , archiving , governance , and discovery solutions that are differentiated from the services offered by cloud-based email providers , and as such our platform will continue to be viewed as valuable to enterprises once they have migrated their email services to the cloud , enabling us to continue to derive revenue from this new trend toward cloud-based email deployment models . with the majority of our business , we invoice our customers for the entire contract amount at the start of the term and these amounts are recorded as deferred revenue on our balance sheet , with the dollar weighted average duration of these contracts for any given period over the past three years typically ranging from 17 to 22 months . as a result , while our practice of invoicing customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow , the revenue is recognized ratably over the term of the contract , and hence contributions toward operating income are realized over an extended period . as such , our efforts to improve our profitability require us to invest far less in operating expenses than the cash flow generated by our business might otherwise allow . as we strive to invest in an effort to continue to increase the size and scale of our business , we expect that the level of investment afforded by our growth in revenue should be sufficient to fund the investments needed to drive revenue growth and broaden our product line . considering all of these factors , we do not expect to be profitable based on accounting principles generally accepted in the unites states of america , or gaap , basis in the near term and in order to achieve profitability we will need to grow revenue at a rate faster than our investments in operating expenses and cost of revenue . we intend to grow our revenue through acquiring new customers by investing in our sales and marketing activities . we believe that an increase in new customers in the near term will result in a larger base of renewal customers , which , over time we expect to be more profitable for us . sales and marketing is our largest expense and hence a significant contributing factor to our operating losses . given that our costs to acquire new revenue sources , either in the form of new customers or the sale of additional solutions to existing customers , often exceed the actual revenue recognized in the initial periods , we believe that our opportunity to improve our return on investment in sales and marketing costs relies primarily on our ongoing ability to cost-effectively renew our business with existing customers , thereby lowering our overall sales and marketing costs as a percentage of revenue as the mix of revenue derived from this more profitable renewal activity increases over time . therefore , we anticipate that our initial significant investments in sales and marketing activities will over time generate a larger base of more profitable customers . 40 cost of subscription revenue is also a significant expense for us , and we expect to continue to build on the improvements over the past three years , such as in replacing third-party technology with our proprietary technology and improving the utilization of our fixed investments in equipment and infrastructure , in order to provide the opportunity for improved subscription gross margins over time . although we plan to continue enhancing our solutions , we intend to lower our rate of investment in research and development as a percentage of revenue over time by deriving additional revenue from our existing platform of solutions rather than by adding entirely new categories of solutions . in addition , as personnel costs are one of the primary drivers of the increases in our operating expenses , we plan to reduce our historical rate of headcount growth over time . key metrics we regularly review a number of metrics , including the following key metrics presented in the unaudited table below , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . many of these key metrics , such as adjusted subscription gross profit , billings and adjusted ebitda , are non-gaap measures . this non-gaap information is not necessarily comparable to non-gaap information of other companies . non-gaap information should not be viewed as a substitute for , or superior to , net loss prepared in accordance with gaap as a measure of our profitability or liquidity .
| results of operations the following table is a summary of our consolidated statements of operations . replace_table_token_10_th the following table sets forth our consolidated results of operations for the specified periods as a percentage of our total revenue for those periods . 46 replace_table_token_11_th _ ( 1 ) includes stock-based compensation and amortization of intangible assets as follows : replace_table_token_12_th revenue replace_table_token_13_th 47 subscription revenue increased $ 55.5 million and $ 30.6 million , or 42 % and 30 % , respectively , for 2014 and 2013. these increases were primarily due to a $ 42.8 million and $ 25.9 million increase in revenue from the united states and , to a lesser extent , a $ 12.7 million and $ 4.7 million from international customers for 2014 and 2013 , respectively . the revenue increases were due to improved demand for our platform worldwide due to a shift in the overall threat landscape , the growth of business-to-business collaboration as well as the consumerization of it which led to the increase in demand for data protection and governance solutions . additionally , the revenue released from acquired deferred revenue related to the acquisitions made in 2014 and 2013 was $ 7.1 million and $ 2.8 million , respectively . hardware and services revenue increased $ 2.2 million , or 38 % , in 2014 primarily due to higher revenue from hardware units sold as we sold a higher number of hardware units with product mix . the number of units sold in 2014 increased 76 % as compared to 2013. in 2013 , hardware and service revenue increased $ 1.0 million , or 22 % , as compared to 2012 , primarily due to higher revenue from professional services as we almost doubled our personnel in the services department from 2012 and focused on meeting customer service needs . cost of revenue replace_table_token_14_th cost of subscription revenue increased $ 17.7
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the company paid a one month refundable deposit on the space that it maintains in new york , ny . on april 22 , 2014 , the company entered into a sublease agreement for office space located at 379 thornall street , edison , nj . this agreement expires on september 30 , 2016. the company issued a letter of credit for $ 34,733 to the existing tenant and maintained a $ 34,733 certified deposit as collateral for the letter of credit . future minimum obligations on the lease are : replace_table_token_15_th note 8 – equity on december 9 , 2013 , the company entered into an engagement agreement with its placement agent for the 2013 common stock offering , ( the “ 2013 offering ” ) the 2013 offering was completed in two tranches , on december 9 , 2013 and january 10 , 2014. f- 17 on december 27 , 2013 , the company completed the first sale of the 2013 offering pursuant to a unit purchase agreement , with certain accredited investors and pursuant to which : the investors agreed to purchase ( i ) an aggregate of 554,310 shares ( the “ shares ” ) of common stock at $ 6.00 per share and ( ii ) five-year warrants to purchase an aggregate of 138,577 shares of common stock at an exercise price of $ 9.00 per share . the company received $ 3,325,860 in gross proceeds from the sale of securities and $ 2,883,257 net proceeds after deducting the underwriting discount and the other offering expenses . the transaction date fair value of the warrants of $ 0.4 million was determined utilizing the black-scholes option pricing model utilizing the following assumptions : risk free interest rate – 0.07 % , expected volatility – 84.06 % , expected dividend yield - 0 % , and a contractual life of 5 years . in january 2014 , the company completed the final tranche of the 2013 offering and received approximately $ 3.3 million total gross proceeds from accredited investors ( “ 2014 closing ” ) . the company paid its placement agent total cash fees of approximately $ 395,000 and paid attorney fees of $ 40,000 for their services resulting in net proceeds of $ 2,873,557 . in the 2014 closing , the company sold 551,810 shares of common stock at $ 6.00 per share and granted 137,952 units of five-year warrants with an exercise price of $ 9.00 per share . the warrants are exercisable for a period of five years from the date of issuance . the transaction date fair value of the warrants of $ 0.6 million was determined utilizing the black-scholes option pricing model utilizing the following assumptions : risk free interest rate - 1.64 % , expected volatility - 88 % , expected dividend yield - 0 % , and a contractual life of 5 years . on march 24 , 2014 , the company filed a shelf registration statement on form s-3 ( the “ registration statement ” ) which was effective on april 17 , 2014. this registration statement contained two prospectuses : ( i ) a base prospectus which covers the offering , issuance and sale by the company of up to $ 200,000,000 of its common stock , preferred stock , warrants and or units ; and ( ii ) a sales agreement prospectus covering the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 75,000,000 of its common stock that may be issued and sold under a sales agreement ( the “ sales agreement ” ) with mlv & co. llc ( “ mlv ” ) dated march 24 , 2014. the company will pay mlv in cash , upon the sale of common stock pursuant to the sales agreement , an amount equal to 3.0 % of the gross proceeds from the sale of common stock . on april 28 , 2014 , the company issued 500 shares and received net proceeds of $ 6,000 under the sales agreement with mlv . during january 2014 , in connection with the offering , the company issued the placement agent warrants to purchase an aggregate of 68,976 shares of common stock with an exercise price of $ 9.00 per share . the transaction date fair value of the warrants of $ story_separator_special_tag the information and financial data discussed below is derived from the audited consolidated financial statements of actinium pharmaceuticals , inc. for its fiscal years ended december 31 , 2014 and 2013. the consolidated financial statements of actinium pharmaceuticals , inc. were prepared and presented in accordance with generally accepted accounting principles in the united states . the information and financial data discussed below is only a summary and should be read in conjunction with the historical financial statements and related notes of actinium pharmaceuticals , inc. contained elsewhere in this report . the financial statements contained elsewhere in this report fully represent actinium pharmaceuticals , inc. 's financial condition and operations ; however , they are not indicative of the company 's future performance . see “ cautionary note regarding forward looking statements ” above for a discussion of forward-looking statements and the significance of such statements in the context of this report . overview actinium is a biotechnology company committed to developing breakthrough therapies for life threatening diseases using its alpha particle immunotherapy ( apit ) platform and other related and similar technologies . story_separator_special_tag it is crucial for the success of our drug candidates to contain monoclonal antibodies that can successfully seek cancer cells and can kill them with the attached isotope while not harming nearby normal cells . we do not have technology and operational capabilities to develop and manufacture such monoclonal antibodies and we therefore rely on collaboration with third parties to gain access to such monoclonal antibodies . we have secured rights to two monoclonal antibodies , hum195 ( lintuzumab ) , in 2003 through a collaborative licensing agreement with abbivie biotherapeutics corp and bc8 in 2012 with the fred hutchinson cancer research center ( “ fhcrc ” ) . we expect to negotiate collaborative agreements with other potential partners that would provide us with access to additional monoclonal antibodies . establishing and maintaining such collaborative agreements is a key to our success as a company . under our own sponsorship as well as activity at fhcrc , we have four product candidates in active clinical trials : actimab-a ( hum195-ac-225 ) , iomab-b ( bc8-i-131 ) , bc8-y-90 and bc8-sa . at this time , the company is actively pursuing development of actimab-a and iomab-b while bc8-y-90 and bc8-sa are in physician sponsored clinical phase 1 trials at the fhcrc . actimab-a is a combination of the monoclonal antibody we have in-licensed , lintuzumab ( hum195 ) , and the alpha emitting isotope actinium 225. actimab-a has shown promising results throughout preclinical development and an ongoing clinical trial started in 2006 in aml in the elderly . we have expanded the number of patients and number of clinical centers by commencing a new aml clinical trial which we launched in 2012. this trial targets newly diagnosed aml patients over the age of 60. in order to conduct the trial we are engaged in funding , monitoring and quality assurance and control of the lintuzumab antibody ; procurement of actinium 225 isotope ; funding , monitoring and quality assurance and control of the drug candidate actimab-a manufacturing and organizing and monitoring clinical trials . we estimate that the direct costs to completion of both parts of the ongoing phase 1/2 trial will be approximately $ 7 million . iomab-b is a combination of the in-licensed monoclonal antibody bc8 and the beta emitting radioisotope iodine 131. this construct has been extensively tested in phase i and phase 2 clinical trials in approximately 250 patients with different blood cancer indications who were in need of hsct . iomab-b is used to condition the bone marrow of these patients by destroying blood cancer cells in their bone marrow and elsewhere thus allowing for a subsequent transplant containing healthy donor bone marrow stem cells . we have decided to develop this drug candidate by initially focusing on the patients over 50 with active acute myeloid leukemia in relapse and or refractory to existing treatments . our intention is to request the fda in 2015 to allow us to enter into a pivotal trial with iomab-b . we estimate the direct costs of such a trial to completion anticipated in 2017 will be approximately $ 25-30 million . 41 we have primarily management position employees and consultants who direct , organize and monitor the activities described above through contractors . much of the in vivo laboratory and clinical work contracted for by the company was conducted at mskcc in new york . we also made clinical trial arrangements with other well-known cancer centers . our actimab-a drug candidate and its components are contract manufactured and maintained under our supervision by specialized contract manufacturers and suppliers in the united states , including isotex diagnostics , oak ridge national laboratory , pacific gmp , fischer bioservices , bioreliance and others . we have never generated revenue . currently we do not have a recurring source of revenues to cover our operating costs . as of december 31 , 2014 and 2013 , our accumulated deficit was $ 91.2 million and $ 66.5 million , respectively . our net loss was $ 24.7 million , and $ 10.8 million for the years ended december 31 , 2014 and 2013 , respectively . as of december 31 , 2014 , our cash balance was $ 6.7 million . in february 2015 , we raised total net proceeds of approximately $ 18.5 million from the completion of an underwritten public offering of common stock and warrants . we believe that we have enough cash on hand to fund our operations through the next 12 months . opportunities , challenges and risks the market for drugs for cancer treatment is a large market in need of novel products , in which successful products can command multibillion dollars in annual sales . a number of large pharmaceutical and biotechnology company regularly acquire products in development , with preference given to products in phase 2 or later clinical trials . these deals are typically structured to include an upfront payment that ranges from several million dollars to tens of million dollars or more and additional milestone payments tied to regulatory submissions and approvals and sales milestones . our goal is to develop our product candidates through phase 2 clinical trials and enter into partnership agreements with one or more large pharmaceutical and or biotechnology companies . we believe our future success will be heavily dependent upon our ability to successfully conduct clinical trials and preclinical development of our drug candidates . this will in turn depend on our ability to continue our collaboration with mskcc and our clinical advisory board members . in addition , we plan to continue and expand other research and clinical trial collaborations . moreover , we will have to maintain sufficient supply of actinium 225 and successfully maintain and if and when needed replenish or obtain our reserves of monoclonal antibodies .
| general and administrative expenses overall , total general and administrative expenses increased by approximately $ 6.7 million to $ 10.2 million for the year ended december 31 , 2014 compared to approximately $ 3.5 million for the year ended december 31 , 2013. the increase was largely attributable to increases in stock-based compensation costs and salaries and benefits of approximately $ 4.9 million and $ 0.9 million , respectively . we expect to incur increased general and administrative costs in the future . other expense other expense was $ 2.2 million and $ 4.2 million for the years ended december 31 , 2014 and 2013 , respectively . the year over year change is mainly attributable to the fluctuation of the company 's stock price and its impact on the derivative value of certain warrants the company issued in connection with the december 2012 financing . net loss net loss increased by approximately $ 13.9 million to approximately $ 24.7 million for the year ended december 31 , 2014 compared to approximately $ 10.8 million for the year ended december 31 , 2013. the increase was primarily due to additional costs incurred by the company in research and development expenses , non-cash stock-based compensation costs and professional fees as discussed above which was partially offset by a decrease in the loss from change in fair value of the company 's derivative warrant liability . 43 liquidity and capital resources we have financed our operations primarily through sales of the company 's stock . we did not have any cash or cash equivalents held in financial institutions located outside of the united states as of december 31 , 2014 and 2013. we do not anticipate this practice will change in the future .
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