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original non-cancelable lease terms range from three to ten years , and store leases generally contain renewal options for additional story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this annual report on form 10-k. overview we were founded in 1990 as a beauty retailer at a time when prestige , mass and salon products were sold through distinct channels department stores for prestige products , drug stores and mass merchandisers for mass products and salons and authorized retail outlets for professional hair care products . we developed a unique specialty retail concept that offers all things beauty , all in one place tm , a compelling value proposition and a convenient and welcoming shopping environment . we believe our strategy provides us with the competitive advantages that have contributed to our financial performance . we are currently the largest beauty retailer in the united states and the premier beauty destination for cosmetics , fragrance , skin care products , hair care products and salon services . we focus on providing affordable indulgence to our guests by combining unmatched product breadth , value and convenience with a distinctive specialty retail environment and experience . key aspects of our business include : our ability to offer our guests a unique combination of more than 20,000 beauty products across the categories of prestige and mass cosmetics , fragrance , haircare , skincare , bath and body products and salon styling tools , as well as a full-service salon in every store featuring hair , skin and brow services ; our focus on delivering a compelling value proposition to our guests across all of our product categories ; and convenience , as our stores are predominantly located in convenient , high-traffic locations such as power centers . the continued growth of our business and any future increases in net sales , net income and cash flows is dependent on our ability to execute our strategic imperatives : 1 ) acquire new guests and deepen loyalty with existing guests , 2 ) differentiate by delivering a distinctive and personalized guest experience across all channels , 3 ) offer relevant , innovative and often exclusive products that excite our guests , 4 ) deliver exceptional services in three core areas : hair , skin health and brows , 5 ) grow stores and e-commerce to reach and serve more guests , 6 ) invest in infrastructure to support our guest experience and growth , and capture scale efficiencies and 7 ) attract 30 and retain talent that drives a winning culture . we believe that the expanding u.s. beauty products and salon services industry , the shift in distribution channel of prestige beauty products from department stores to specialty retail stores , coupled with ulta beauty 's competitive strengths , positions us to capture additional market share in the industry . comparable sales is a key metric that is monitored closely within the retail industry . our comparable sales have fluctuated in the past and we expect them to continue to fluctuate in the future . a variety of factors affect our comparable sales , including general u.s. economic conditions , changes in merchandise strategy or mix and timing and effectiveness of our marketing activities , among others . over the long-term , our growth strategy is to increase total net sales through increases in our comparable sales , by opening new stores and by increasing sales in our e-commerce channel . operating profit is expected to increase as a result of our ability to expand merchandise margin and leverage our fixed store costs with comparable sales increases and operating efficiencies offset by incremental investments in people , systems and supply chain required to support a 1,400 to 1,700 store chain with a successful e-commerce business and competitive omni-channel capabilities . basis of presentation we have determined the operating segments on the same basis that we use to internally evaluate performance . we have combined our three operating segments : retail stores , salon services and e-commerce , into one reportable segment because they have a similar class of consumers , economic characteristics , nature of products and distribution methods . net sales include store and e-commerce merchandise sales as well as salon service revenue . we recognize merchandise revenue at the point of sale in our retail stores and e-commerce sales are recorded based on delivery of merchandise to the guest . stores and e-commerce merchandise sales are recorded net of estimated returns . salon service revenue is recognized at the time the service is provided . gift card sales revenue is deferred until the guest redeems the gift card . company coupons and other incentives are recorded as a reduction of net sales . comparable sales reflect sales for stores beginning on the first day of the 14th month of operation . therefore , a store is included in our comparable store base on the first day of the period after one year of operations plus the initial one month grand opening period . non-comparable store sales include sales from new stores that have not yet completed their 13th month of operation and stores that were closed for part or all of the period in either year as a result of remodel activity . remodeled stores are included in comparable sales unless the store was closed for a portion of the current or prior period . comparable sales include the company 's e-commerce business . there may be variations in the way in which some of our competitors and other retailers calculate comparable or same store sales . measuring comparable sales allows us to evaluate the performance of our store base as well as several other aspects of our overall strategy . story_separator_special_tag gross profit gross profit increased $ 247.5 million , or 21.8 % , to $ 1,384.3 million in fiscal 2015 , compared to $ 1,136.8 million , in fiscal 2014. gross profit as a percentage of net sales increased 20 basis points to 35.3 % in fiscal 2015 compared to 35.1 % in fiscal 2014. the increase in gross profit margin was primarily due : 20 basis points improvement in merchandise margins driven by our marketing and merchandising strategies , including improvement in e-commerce profit contribution ; 30 basis points of leverage in fixed store costs attributed to the impact of higher sales volume , offset by ; 30 basis points of supply chain deleverage related to the addition of our new greenwood , indiana distribution center . selling , general and administrative expenses sg & a expenses increased $ 151.3 million , or 21.3 % , to $ 863.4 million in fiscal 2015 compared to $ 712.0 million in fiscal 2014. as a percentage of net sales , sg & a expense was 22.0 % in fiscal 2015 and fiscal 2014. compared to fiscal 2014 's sg & a expense , fiscal 2015 had 10 basis points of leverage in marketing expense attributed to strong sales growth , offset by 10 basis points of deleverage in corporate overhead expense primarily driven by higher consulting expense . pre-opening expenses pre-opening expenses increased $ 0.3 million , or 2.2 % , to $ 14.7 million in fiscal 2015 compared to $ 14.4 million in fiscal 2014. during fiscal 2015 , we opened 103 new stores , remodeled four stores and relocated five stores . during fiscal 2014 , we opened 100 new stores and remodeled nine stores and relocated two stores . interest income , net interest income , net was $ 1.1 million in fiscal 2015 , compared to $ 0.9 million in fiscal 2014. interest income results from short-term investments with maturities of twelve months or less from the date of purchase . interest expense represents various fees related to the credit facility . we did not utilize our credit facility during fiscal 2015 or 2014 . 35 income tax expense income tax expense of $ 187.4 million in fiscal 2015 represents an effective tax rate of 36.9 % , compared to fiscal 2014 tax expense of $ 154.2 million and an effective tax rate of 37.5 % . the lower tax rate in fiscal 2015 is primarily due to a decrease in state taxes and increase in federal income tax credits compared to fiscal 2014. net income net income increased $ 62.9 million , or 24.5 % , to $ 320.0 million in fiscal 2015 compared to $ 257.1 million in fiscal 2014. the increase in net income was primarily due to an increase in gross profit of $ 247.5 million , which was offset by a $ 151.3 million increase in sg & a expenses and a $ 33.3 million increase in income tax expense . liquidity and capital resources our primary cash needs are for capital expenditures for new , relocated and remodeled stores , increased merchandise inventories related to store expansion and new brand additions , in-store boutiques ( sets of custom designed fixtures configured to prominently display certain prestige brands within our stores ) , supply chain improvements , share repurchases and for continued improvement in our information technology systems . our primary sources of liquidity are cash on hand , short-term investments and cash flows from operations , including changes in working capital , and borrowings under our credit facility . the most significant component of our working capital is merchandise inventories reduced by related accounts payable and accrued expenses . our working capital needs are greatest from august through november each year as a result of our inventory build-up during this period for the approaching holiday season . this is also the time of year when we are at maximum investment levels in our new store class and may not have collected all of the landlord allowances due to us as part of our lease agreements . based on past performance and current expectations , we believe that cash on hand , short-term investments , cash generated from operations and borrowings under the credit facility will satisfy the company 's working capital needs , capital expenditure needs , commitments and other liquidity requirements through at least the next 12 months . the following table presents a summary of our cash flows for fiscal years 2016 , 2015 and 2014 : replace_table_token_12_th operating activities operating activities consist of net income adjusted for certain non-cash items , including depreciation and amortization , non-cash stock-based compensation , realized gains or losses on disposal of property and equipment and the effect of working capital changes . merchandise inventories were $ 944.0 million at january 28 , 2017 , compared to $ 761.8 million at january 30 , 2016 , representing an increase of $ 182.2 million or 23.9 % . average inventory per store increased 11.2 % compared to prior year . the increase in inventory is primarily due to the following : approximately $ 87 million due to the addition of 100 net new stores opened since january 30 , 2016 ; approximately $ 82 million due to the opening of the company 's fourth and fifth distribution centers in greenwood , indiana and dallas , texas ; and approximately $ 13 million due to increased sales , new brand additions and incremental inventory for in-store prestige brand boutiques . 36 deferred rent liabilities were $ 366.2 million at january 28 , 2017 , an increase of $ 44.4 million compared to $ 321.8 million at january 30 , 2016. deferred rent includes deferred construction allowances , future rental increases , free rent and rent holidays which are all recognized on a straight-line basis over their respective lease term . the increase is primarily due to the addition of 100 net new stores opened since january 30 , 2016 and corporate and supply chain expansion .
| results of operations our fiscal years are the 52 or 53 week periods ending on the saturday closest to january 31. the company 's fiscal years ended january 28 , 2017 , january 30 , 2016 and january 31 , 2015 were 52 week years and are hereafter referred to as fiscal 2016 , fiscal 2015 and fiscal 2014 . 32 as of january 28 , 2017 , we operated 974 stores across 48 states and the district of columbia . the following tables present the components of our consolidated results of operations for the periods indicated : replace_table_token_10_th replace_table_token_11_th fiscal year 2016 versus fiscal year 2015 net sales net sales increased $ 930.6 million , or 23.7 % , to $ 4,854.7 million in fiscal 2016 compared to $ 3,924.1 million in fiscal 2015. salon service sales increased $ 31.9 million , or 15.2 % to $ 241.1 million compared to $ 209.2 million in fiscal 2015. e-commerce sales increased $ 124.2 million , or 56.2 % , to $ 345.3 million compared to $ 221.1 million in fiscal 2015. the net sales increases are due to the opening of 100 net new stores in 2016 and a 15.8 % increase in comparable sales . non-comparable stores , which include stores opened in fiscal 2016 as well 33 as stores opened in fiscal 2015 , which have not yet turned comparable , contributed $ 320.9 million of the net sales increase , while comparable stores contributed $ 609.8 million of the total net sales increase . the 15.8 % comparable sales increase consisted of a 13.4 % increase at the company 's retail and salon stores and a 56.2 % increase in the company 's e-commerce business . the inclusion of the e-commerce business resulted in an increase of approximately 240 basis points to the company 's consolidated same store sales calculation for fiscal 2016 compared to 180 basis points for fiscal 2015. the total comparable sales increase included a 5.1 % increase in average ticket and a 10.7
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at december 28 , 2013 and december 29 , 2012 , the company 's domestic net deferred tax assets were fully reserved with a valuation allowance story_separator_special_tag of operations this annual report on form 10-k contains “ forward-looking statements ” that involve risks and uncertainties , as well as assumptions that , if they never materialize or prove incorrect , could cause our results to differ materially from those expressed or implied by such forward-looking statements . such forward-looking statements include any expectation of earnings , revenues , gross margins , expenses or other financial items ; any statements of the plans , strategies and objectives of management for future operations and personnel ; factors that may affect our operating results ; statements concerning new products or services , including future pic capacity and new product delivery and revenue dates ; statements related to capital expenditures ; statements related to the sufficiency of our current cash , cash equivalents and investments to meet our liquidity requirements ; statements related to future economic conditions , performance , market growth or our sales cycle ; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing . these statements are often identified by the use of words such as “ anticipate , ” “ believe , ” “ continue , ” “ could , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” or “ will , ” and similar expressions or variations . these statements are based on the beliefs and assumptions of our management based on information currently available to management . such forward-looking statements are subject to risks , uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included in item 1a of this annual report on form 10-k. you should review these risk factors for a more complete understanding of the risks associated with an investment in our securities . such forward-looking statements speak only as of the date of this report . we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements . the following discussion and analysis should be read in conjunction with our “ selected consolidated financial data ” and consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. background infinera was founded in december 2000 with a unique vision for optical networking . prior to infinera , communications service provider optical networks were built from fairly commoditized products , broadly known as wavelength division multiplexing ( “ wdm ” ) systems . recent growth in bandwidth demand has increased the need for the delivery of high-capacity low-cost bandwidth throughout the network . we believe that traditional point-to-point network architectures do not provide the required flexibility to meet this demand . it takes large amounts of low-cost bandwidth , pervasive optical transport network ( “ otn ” ) switching , and the intelligence of bandwidth management to manage these larger networks and deliver high-capacity services quickly and cost-effectively . infinera believes this can best be achieved with photonic integrated circuits ( “ pics ” ) and that only through photonic integration can network operators efficiently scale their network bandwidth without significant increases in space , power or operational workload . we call our solution for service providers the infinera intelligent transport network . the intelligent transport network is an architecture for service providers to address the increasing demand for cloud-based services and data center connectivity . the intelligent transport network helps service providers use time as a weapon to increase revenues with reliable , differentiated services while reducing operating costs through scale , multi-layer convergence and automation . the intelligent transport network is based on platforms built with infinera 's unique pics . traffic patterns in the optical network continue to grow to accommodate increased demands for transmission capacity prompted by increased use of high-speed internet access , mobile broadband , streaming high-definition video services , business ethernet services , cloud-based services and wholesale bandwidth services . we believe that infinera 's intelligent transport network architecture is uniquely enabled to deliver improvements in these areas compared to competitive wdm systems that still rely on discrete optical components rather than pics . we believe that our intelligent transport network architecture enables service providers to deploy reliable , high-capacity , efficient optical network solutions that are easy to use and improve the integration between the layers of service provider networks with the lowest total cost of ownership . infinera 's dtn platform currently supports 10 gigabits per second ( `` gbps '' ) and 40 gbps wdm transmission 38 capacity combined with integrated switching capabilities . infinera 's dtn-x platform supports 100 gbps wdm transmission capacity with 500 gbps super-channels and also integrates 5 terabits per second ( “ tbps ” ) of otn switching capacity in a single bay . the dtn-x platform leverages the unique capabilities of our 500 gbps pics to deliver high-capacity intelligent transport networks that reduce power , cooling , and space while simplifying transport network operations . the atn platform supports direct wavelength connectivity to dtn and dtn-x nodes , reducing equipment costs and providing unique network management capabilities across our intelligent transport network . 2013 financial and business performance our financial results for 2013 demonstrate strong market acceptance of infinera 's intelligent transport network and the dtn-x platform . revenues grew 24 % compared to 2012 , significantly faster than the overall dwdm market . we also experienced improved gross margins in 2013 and generated positive operating cash flow resulting in much improved financial performance on a year-over-year basis . story_separator_special_tag 42 operating expenses the following table summarizes our operating expenses for the periods presented ( in thousands , except % ) : replace_table_token_8_th replace_table_token_9_th the following table summarizes the stock-based compensation expense included in our operating expenses ( in thousands ) : replace_table_token_10_th research and development expenses 2013 compared to 2012. research and development expenses increased $ 7.6 million , or 6 % in 2013 from 2012. this increase was primarily due to increases in cash compensation and personnel related costs of $ 8.7 million and professional outside services and other costs of $ 1.3 million as we continued to add software engineering resources to support the development of our future products . these increases were offset by decreased stock-based compensation expenses of $ 2.4 million . 2012 compared to 2011. research and development expenses decreased $ 9.9 million , or 8 % in 2012 from 2011. this reduction was primarily due to $ 8.6 million of research and development resources redeployed to manufacturing in support of initial dtn-x production builds . in addition , prototype and other equipment spending decreased by $ 5.7 million in 2012 , following the release of the dtn-x platform . these decreases were partially offset by $ 2.6 million of increased depreciation , $ 0.6 million increase in professional and outside services and $ 0.6 million increase in facilities and other costs , as compared to 2011. total other personnel-related costs increased by $ 0.6 million . this increase was comprised of $ 2.3 million increase of cash compensation offset by $ 1.7 million decrease of stock-based compensation expense . 43 sales and marketing expenses 2013 compared to 2012. sales and marketing expenses decreased $ 3.1 million , or 4 % in 2013 from 2012 primarily due to decreased dtn-x related customer lab trial expenses of $ 4.9 million , stock-based compensation of $ 2.8 million , and outside services and related expenses of $ 2.1 million these reductions were offset by increased compensation and personnel-related expenses of $ 6.7 million related to increased sales commissions and incremental sales headcount . 2012 compared to 2011. sales and marketing expenses increased $ 11.1 million , or 17 % in 2012 from 2011 primarily due to $ 4.7 million related to increased expenses for customer lab trials , $ 3.7 million in compensation and personnel-related expenses due to increased headcount , $ 1.6 million of increased stock-based compensation expense , $ 0.7 million of increased travel and related expenses and $ 0.4 million of increased facilities and other costs . this increase in spending primarily reflects the ongoing impact of incremental sales resources to support the expansion of our addressable markets with the introduction of the dtn-x platform . general and administrative expenses 2013 compared to 2012 . general and administrative expenses decreased $ 2.2 million , or 5 % in 2013 from 2012 primarily due to decreased stock-based compensation expense of $ 3.6 million , and lower consulting services and other costs of $ 1.0 million , offset by increased compensation and personnel-related costs of $ 2.4 million . 2012 compared to 2011 . general and administrative expenses decreased $ 6.9 million , or 13 % in 2012 from 2011 primarily due to $ 9.0 million of decreased stock-based compensation expense , which included the impact of reduced management bonuses and other changes in equity grant activity , and $ 0.2 million decrease in facilities and other costs . these decreases were partially offset by increased professional services costs of $ 1.6 million primarily related to implementation of our new enterprise resource planning system and related increased depreciation costs of $ 0.7 million . restructuring and other costs in 2011 , we recorded a credit of $ 0.1 million due to a change in estimates associated with facility-related costs . we completed our restructuring actions associated with the closure of our maryland fab in 2010. other income ( expense ) , net replace_table_token_11_th 2013 compared to 2012. interest income increased by an insignificant amount in 2013 compared to 2012 mainly due to higher interest income earned on foreign cash balance partially offset by a lower return on domestic investments . interest expense for 2013 consisted of contractual interest expense and amortization of debt discount and debt issuance costs related to the notes issued in may 2013. see note 9 , `` convertible senior notes , '' to the notes to consolidated financial statements for more information . other gain ( loss ) , net for 2013 includes $ 1.4 million of unrealized and realized losses due to foreign currency exchange , partially offset by a gain of $ 0.2 million from auction rate securities ( `` ars '' ) sold . 2012 compared to 2011 . interest income decreased $ 0.1 million in 2012 from 2011 mainly due to lower average investment balances . other gain ( loss ) , net for 2012 includes $ 1.5 million of unrealized and realized losses due to foreign currency exchange , partially offset by a gain of $ 0.5 million from ars called at par value . income tax provision we recognized income tax expense of approximately $ 1.7 million , $ 2.2 million and $ 1.7 million in each of fiscal years 2013 , 2012 and 2011 , on pre-tax book losses of $ 30.5 million , $ 83.1 million and $ 80.1 million , respectively . the resulting effective tax rates of 5.4 % , 2.6 % and 2.1 % for 2013 , 2012 and 2011 , respectively , differs from the expected statutory rate of 35 % based upon unbenefited u.s. losses , non-deductible stock compensation 44 charges and foreign taxes provided on foreign subsidiary earnings . the decrease in 2013 tax expense compared to 2012 tax expense relates primarily to the release of tax reserves due to the lapsing of the statute of limitations . the increase in the 2012 tax expense compared to 2011 expense relates primarily to reductions of benefits from canadian research credits .
| results of operations revenue the following table sets forth , for periods presented , certain consolidated statements of operations information ( in thousands , except % ) : replace_table_token_4_th replace_table_token_5_th 40 the following table summarizes our revenue by geography and sales channel for the periods presented ( in thousands , except % ) : replace_table_token_6_th replace_table_token_7_th 2013 compared to 2012. total revenue increased $ 105.7 million , or 24 % in 2013 from 2012. revenues continued to be positively impacted by increased revenues from sales of our dtn-x platform . these revenues included sales to existing customers transitioning their higher-capacity network deployments to the dtn-x and new customers purchasing our intelligent transport network solutions for the first time . this increase in dtn-x revenue was somewhat offset by a reduction in sales of our dtn platform as demand for 100 gbps network deployments continued to increase . in 2013 , we added 20 new customers . international revenue increased to 36 % of total revenue in 2013 from 32 % of total revenue in 2012. the increases were primarily due to an increased proportion of our sales occurring in asia pacific which increased to 7 % in 2013 compared to 3 % in 2012. while we expect international revenues to continue to grow in absolute dollars on a long-term basis as we increase our sales activities in europe , asia pacific and other regions , this metric may fluctuate as a percentage of total revenue depending on the size and timing of deployments both internationally and in the united states . total product revenue increased $ 85.4 million , or 22 % in 2013 from 2012 reflecting increased sales of our dtn-x platform .
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( 5 ) includes 128,925 owned by montecito venture partners , llc . ( 6 ) includes 68,712 shares of our common stock issuable upon the exercise of warrants that are exercisable within 60 days held by alpha capital anstalt ( “ aca ” ) . does not include ( a ) 939,169 shares of our common stock issuable upon the exercise of warrants held by aca , which warrants contain a customary 9.9 % blocker provision and , thus , are not exercisable within 60 days , and ( b ) 1,701,716 shares of our common stock issuable upon the conversion of 1,242.17099 shares of our series b preferred stock held by aca , which preferred shares also contain a 9.9 % blocker and , thus , are not convertible within 60 days . based solely on a schedule 13g filed with the sec by aca on march 16 , 2015 , aca has sole voting power with respect to this common stock . konrad ackerman is the managing member of aca and as such has voting and investment power over the securities owned by selling stockholder . mr. ackerman disclaims beneficial ownership over these shares . item 13. certain relationships and related transactions , and director independence . we describe below transactions and series of similar transactions that have occurred during this fiscal year ended december 31 , 2015 to which we were a party or will be a party in which : · the amounts involved exceeds the lesser of $ 120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years ( $ 535,000 ) ; and · a director , executive officer , holder of more than 5 % of our common stock or any member of their immediate family had or will have a direct or indirect material interest . 49 director independence under the corporate governance requirements of companies whose shares are listed for trading on the nyse mkt , at least a majority of the members of the board of directors of each listed company must be “ independent . ” the enerjex board of directors has determined that three of the five current directors — james g. miller , richard menchaca , and lance w. helfert — are “ independent directors ” under the nyse mkt listing requirements . the nyse mkt listing requirements provide a non-exclusive list of persons who are not considered independent . for example , under these rules , a director who is , or during story_separator_special_tag . this management 's discussion and analysis of financial condition and results of operations section should read in conjunction with the other sections of this annual report on form 10-k , including “ items 1 and 2. business and properties ” and “ item 8 : financial statements and supplementary data ” . this section includes forward-looking statements within the meaning of section 27a of the securities act , and section 21e of the exchange act . forward-looking statements such as “ will ” , “ believe , ” “ are projected to be ” and similar expressions are statements regarding future events or our future performance , and include statements regarding projected operating results . these forward-looking statements are based on current expectations , beliefs , intentions , strategies , forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements . these risks include , but are not limited to : our ability to deploy capital in a manner that maximizes stockholder value ; the ability to identify suitable acquisition candidates or business and investments opportunities ; the ability to reduce our operating costs ; general economic conditions and our expected liquidity in future periods . these forward-looking statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the “ risk factors ” set forth in part i , item 1a of this annual report on form 10-k. as a result , our actual results may differ materially from those anticipated in these forward-looking statements . overview our principal strategy is to develop , acquire , explore and produce domestic onshore oil and gas properties . our business activities are currently focused in kansas , colorado , nebraska , and texas . story_separator_special_tag style= '' font-size : 8pt '' > oil natural gas oil crude oil liquids natural gas equivalents crude oil liquids natural gas equivalents pv 10 ( 1 ) proved reserves category bbl 's bbl 's mcf 's boe 's bbl 's bbl 's mcf 's boe 's ( before tax ) proved , developed 1,739,160 62,080 5,292,310 2,683,290 1,329,140 48,930 2,842,970 1,851,900 7,027,000 proved , undeveloped 196,860 - 4,176,000 892,860 152,610 - 3,422,170 722,970 1,743,000 total proved 1,936,020 62,080 9,468,310 3,576,150 1,481,740 48,930 6,265,140 2,574,860 8,770,000 in 2015 the company invested approximately $ 250,000 in its oil and gas properties . these reduced expenditures were primarily in response to extremely low commodity prices . the company has $ 7.4 million of current asset on hand , approximately $ 3.7 million of unrealized hedge gains and important infrastructure in colorado completed which will facilitate the exploitation and development of proved undeveloped reserves over the next five years . at year end the company 's review of proved undeveloped reserves revealed no instances of reserves that have not been developed within five years of their initial recording as a proved undeveloped reserve . in addition it believes it has the financial wherewithal to develop all it 's proved undeveloped reserves within the five year time frames required ; utilizing its balance sheet , it borrowed $ .5 million from its bank in january 2015 and has the ability to joint venture any of its assets . story_separator_special_tag the fourth amendment reflects the following changes : ( i ) the bank consented to the restructuring transactions related to the dissolution of rantoul partners , and ( ii ) the bank terminated a limited guaranty , as defined in the credit agreement , executed by rantoul partners in favor of the bank on april 16 , 2013 , the bank increased our borrowing base to $ 19.5 million . on september 30 , 2013 , we entered into a fifth amendment to the amended and restated credit agreement . the fifth amendment reflects the following changes : ( i ) expanded principal commitment amount of the bank to $ 100,000,000 ; ( ii ) increased the borrowing base to $ 38,000,000 ; ( iii ) added black raven energy , inc. to the credit agreement as borrower parties ; ( iv ) added certain collateral and security interests in favor of the bank ; and ( v ) reduced the company 's current interest rate to 3.30 % . on november 19 , 2013 , we entered into a sixth amendment to the amended and restated credit agreement . the sixth amendment reflects the following changes : ( i ) the addition of iberia bank as a participant in our credit facility , and ( ii ) a technical correction to our covenant calculations . on may 22 , 2014 , we entered into a seventh amendment to the amended and restated credit agreement . the seventh amendment reflects the bank 's consent to our issuance of up to 850,000 shares of our 10 % series a cumulative redeemable perpetual preferred stock . on august 15 , 2014 , we entered into an eighth amendment to the amended and restated credit agreement . the eighth amendment reflects the following changes : ( i ) the borrowing base was increased from $ 38 million to $ 40 million , and ( ii ) the maturity of the facility was extended by three years to october 3 , 2018. on april 29 , 2015 , we entered into a ninth amendment to the amended and restated credit agreement . in the ninth amendment , the banks ( i ) re-determined the borrowing base based upon the recent reserve report dated january 1 , 2015 , ( ii ) imposed affirmative obligations on the company to use a portion of proceeds received with regard to future sales of securities or certain assets to repay the loan , ( iii ) consented to non-compliance by the company with certain terms of the credit agreement , ( iv ) waived certain provisions of the credit agreement , and ( v ) agreed to certain other amendments to the credit agreement . on may 1 , 2015 , the borrowers and the banks entered into a letter agreement to clarify that up to $ 1,000,000 in proceeds from any potential future securities offering will be unencumbered by the banks ' liens as described in the credit agreement through november 1 , 2015 , and that , until november 1 , 2015 , such proceeds shall not be subject to certain provisions in the credit agreement prohibiting the company from declaring and paying dividends that may be due and payable to holders of securities issued in such potential offerings or issued prior to the letter agreement . on august 12 , 2015 , we entered into a tenth amendment to the amended and restated credit agreement . the tenth amendment reflects the following changes : ( i ) allow the company to sell certain oil assets in kansas , ( ii ) allow for approximately $ 1,300,000 of the proceeds from the sale to be reinvested in company owned oil and gas projects and ( iii ) apply not less than $ 1,500,000 from the proceed of the sale to outstanding loan balances . on november 13 , 2015 , the company entered into a eleventh amendment to the amended and restated credit agreement . the eleventh amendment reflects the following changes : ( i ) waived certain provisions of the credit agreement , ( ii ) suspend certain hedging requirements , and ( iii ) to make certain other amendments to the credit agreement . our current borrowing base is $ 18,600,000 , of which we had borrowed $ 18,600,000 as of december 31 , 2015. the interest rate on amounts borrowed under our credit facility during 2015 was approximately 4.3 % and for the year ended december 31 , 2014 , the interest rate on amounts borrowed was approximately 3.3 % . this facility expires on october 3 , 2018 . 37 satisfaction of our cash obligations for the next 12 months we intend to meet our near term cash obligations through the monetization of derivative contracts , assets sales and cash flow generated from operations . due to the declines in oil prices , the resulting decline in our reserves caused a corresponding reduction to our borrowing base , and recent issuances of equity securities from our “ shelf ” registration , it will be more difficult in 2016 to use our historical means to meet our cash obligations in the next twelve months . summary of product research and development that we will perform for the term of our plan we do not anticipate performing any significant product research and development under our plan of operation . expected purchase or sale of any significant equipment we anticipate that we will purchase the necessary production and field service equipment required to produce oil and gas during our normal course of operations over the next 12 months . significant changes in the number of employees we currently have 16 full-time employees including field personnel . as production and drilling activities increase or decrease , we will adjust our technical , operational and administrative personnel as appropriate .
| results of operations the following table presents selected information regarding our operating results from continuing operations . replace_table_token_9_th 34 ( 1 ) 2015 crude oil revenues decreased $ 8.7 million or 66 % to 4.5 million from $ 13.3 million in fiscal 2014. the decrease was due primarily to the dramatic decline in crude oil prices . realized oil prices dropped $ 40.16 or 48 % during 2015 from an average of $ 84.40 per bbl in 2014 to an average of $ 44.24 per bbl in 2015. declining prices accounted for $ 6.3 million of the $ 8.7 million drop in crude oil revenues . a decrease in production volumes in 2015 accounted for the remaining $ 2.4 million of the $ 8.7 million decrease in revenues . volumes decreased by approximately 54,800 bbls or 35 % to 102,289 bbls in 2015 compared to production of 157,089 bbls in 2014. approximately 66 % of the drop in production was related to the sale of our cherokee project asset in 2015 . 2015 natural gas revenues decreased $ .7 million to $ 354 thousand from $ 1.0 million in 2014. the decrease was due to primarily to lower natural gas prices in 2015. natural gas prices decreased $ 1.30 per mcf or 41 % from an average price of $ 3.18 in 2014 to an average price of $ 1.88 in 2015. the drop in prices contributed $ 400 thousand of the overall $ .7 million decrease in revenues and a decrease in production volumes accounted for the remaining $ 300 thousand decrease in revenues . natural gas volumes decreased approximately 137,500 mcf or 42 % in 2015 from 326,000 mcf in 2014 to 188,500 mcf in 2015 .
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the effect on deferred tax assets and liabilities of a change in tax rates story_separator_special_tag this discussion and analysis of the financial condition and results of our operations should be read in conjunction with “ item 6. selected financial and operating data ” and our consolidated financial statements and related notes of at home group inc. included in item 15 of this annual report on form 10-k. you should review “ item 1a . risk factors ” section of this filing for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statements contained in the following discussion and analysis . we operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the last saturday in january . in a 52-week fiscal year , each quarter contains 13 weeks of operations ; in a 53-week fiscal year , each of the first , second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations . references to a fiscal year mean the year in which that fiscal year ends . references herein to “ fiscal year 2018 ” relate to the 52 weeks ending january 27 , 2018 , references herein to “ fiscal year 2017 ” relate to the 52 weeks ending january 28 , 2017 and references herein to “ fiscal year 2016 ” relate to the 52 weeks ended january 30 , 2016. overview at home is the leading home décor superstore based on the number of our locations and our large format stores that we believe dedicate more space per store to home décor than any other player in the industry . we are focused on providing the broadest assortment of products for any room , in any style , for any budget . we utilize our space advantage to out-assort our competition , offering over 50,000 skus throughout our stores . our differentiated merchandising strategy allows us to identify on-trend products and then value engineer those products to provide desirable aesthetics at attractive price points for our customers . over 70 % of our products are unbranded , private label or specifically designed for us . we believe that our broad and comprehensive offering and compelling value proposition combine to create a leading destination for home décor with the opportunity to continue taking market share in a highly fragmented and growing industry . we were founded in 1979 in garden ridge , texas , a suburb of san antonio . after we were acquired in 2011 by a group of investors led by certain affiliates of aea and starr investments , we began a series of strategic investments in our business that we believe have laid the foundation for continued profitable growth . our strengthened management team , new brand identity , improved real estate capabilities , upgraded and automated distribution center and enhanced information systems continue to enable us to expand our store base while maintaining our industry-leading profitability . as of january 27 , 2018 , our store base is comprised of 149 large format stores across 34 states , averaging approximately 110,000 square feet per store . over the past five completed fiscal years we have opened 98 new stores and we believe there is significant whitespace opportunity to increase our store count in both existing and new markets . trends and other factors affecting our business various trends and other factors affect or have affected our operating results , including : overall economic trends . the overall economic environment and related changes in consumer behavior have a significant impact on our business . in general , positive conditions in the broader economy promote customer spending in our stores , while economic weakness results in a reduction of customer spending . macroeconomic factors that can affect customer spending patterns , and thereby our results of operations , include employment rates , business conditions , changes in the housing market , the availability of credit , interest rates , tax rates and fuel and energy costs . consumer preferences and demand . our ability to maintain our appeal to existing customers and attract new customers depends on our ability to originate , develop and offer a compelling product assortment responsive to customer 37 preferences and design trends . if we misjudge the market for our products , we may be faced with excess inventories for some products and may be required to become more promotional in our selling activities , which would impact our net sales and gross profit . new store openings . we expect new stores will be the key driver of the growth in our sales and operating profit in the future . our results of operations have been and will continue to be materially affected by the timing and number of new store openings . the performance of new stores may vary depending on various factors such as the store opening date , the time of year of a particular opening , the amount of store opening costs , the amount of store occupancy costs and the location of the new store , including whether it is located in a new or existing market . for example , we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs . in addition , in response to the interest and excitement generated when we open a new store , the new stores generally experience higher net sales during the initial period of one to three months after which the new store 's net sales will begin to normalize as it reaches maturity within six months of opening , as further discussed below . our planned store expansion will place increased demands on our operational , managerial , administrative and other resources . story_separator_special_tag the total number of new stores per year and the timing of store openings has , and will continue to have , an impact on our results as described above in “ —trends and other factors affecting our business ” . comparable store sales a store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store 's opening , which is when we believe comparability is achieved . when a store is being relocated or remodeled , we exclude sales from that store in the calculation of comparable store sales until the first day of the sixteenth full fiscal month after it reopens . in addition , when applicable , we adjust for the effect of the 53rd week . there may be variations in the way in which some of our competitors and other retailers calculate comparable or “ same store ” sales . as a result , data in this report regarding our comparable store sales may not be comparable to similar data made available by other retailers . comparable store sales allow us to evaluate how our store base is performing by measuring the change in period-over-period net sales in stores that have been open for the applicable period . various factors affect comparable store sales , including : · consumer preferences , buying trends and overall economic trends ; · our ability to identify and respond effectively to customer preferences and trends ; 39 · our ability to provide an assortment of high quality and trend-right product offerings that generate new and repeat visits to our stores ; · the customer experience we provide in our stores ; · our ability to source and receive products accurately and timely ; · changes in product pricing , including promotional activities ; · the number of items purchased per store visit ; · weather ; and · timing and length of holiday shopping periods . opening new stores is an important part of our growth strategy . as we continue to pursue our growth strategy , we anticipate that an increasing percentage of our net sales will come from stores not included in our comparable store sales calculation . accordingly , comparable store sales are only one measure we use to assess the success of our growth strategy . gross profit and gross margin gross profit is determined by subtracting cost of sales from our net sales . gross margin measures gross profit as a percentage of net sales . cost of sales consists of various expenses related to the cost of selling our merchandise . cost of sales consists of the following : ( 1 ) cost of merchandise , net of inventory shrinkage , damages and vendor allowances ; ( 2 ) inbound freight and internal transportation costs such as distribution center-to-store freight costs ; ( 3 ) costs of operating our distribution center , including labor , occupancy costs , supplies , and depreciation ; and ( 4 ) store occupancy costs including rent , insurance , taxes , common area maintenance , utilities , repairs and maintenance and depreciation . the components of our cost of sales expenses may not be comparable to other retailers . selling , general and administrative expenses selling , general and administrative expenses ( “ sg & a ” ) consist of various expenses related to supporting and facilitating the sale of merchandise in our stores . these costs include payroll , benefits and other personnel expenses for corporate and store employees , including stock-based compensation expense , consulting , legal and other professional services expenses , marketing and advertising expenses , occupancy costs for our corporate headquarters and various other expenses . sg & a includes both fixed and variable components and , therefore , is not directly correlated with net sales . in addition , the components of our sg & a expenses may not be comparable to those of other retailers . we expect that our sg & a expenses will increase in future periods due to our continuing store growth . in addition , any increase in future stock option or other stock-based grants or modifications will increase our stock-based compensation expense included in sg & a . in particular , the one-time bonus grant of stock options to certain members of our senior management in connection with our initial public offering will result in incremental non-cash stock-based compensation expense of approximately $ 20.0 million , which is being expensed over the derived service period beginning with the third quarter of fiscal 2017 and continuing into the third quarter of fiscal 2019. adjusted ebitda adjusted ebitda is a key metric used by management and our board of directors to assess our financial performance . adjusted ebitda is also the basis for performance evaluation under our current executive compensation programs . in addition , adjusted ebitda is frequently used by analysts , investors and other interested parties to evaluate 40 companies in our industry . in addition to covenant compliance and executive performance evaluations , we use adjusted ebitda to supplement generally accepted accounting principles in the united states of america ( “ gaap ” ) measures of performance to evaluate the effectiveness of our business strategies , to make budgeting decisions and to compare our performance against that of other peer companies using similar measures . adjusted ebitda is defined as net income before interest expense , net , loss from early extinguishment of debt , income tax ( benefit ) provision and depreciation and amortization , adjusted for the impact of certain other items as defined in our debt agreements , including certain legal settlements and consulting and other professional fees , relocation and employee recruiting incentives , management fees and expenses , stock-based compensation expense , impairment of our trade name and non-cash rent . for a reconciliation of adjusted ebitda to net income , the most directly comparable gaap measure , see “ —results of operations ” .
| summary of cash flows a summary of our cash flows from operating , investing and financing activities is presented in the following table ( in thousands ) : replace_table_token_9_th net cash provided by operating activities net cash provided by operating activities was $ 106.0 million for the fiscal year ended january 27 , 2018 compared to $ 43.5 million during the fiscal year ended january 28 , 2017. the $ 62.5 million increase in cash provided by operating activities was primarily due to a $ 41.4 million decrease in purchase of merchandise inventories and a $ 14.7 million increase in operating income which was partially offset by an increase in cash paid for income taxes of $ 12.2 million . net cash provided by operating activities was $ 43.5 million for the fiscal year ended january 28 , 2017 compared to $ 14.9 million during the fiscal year ended january 30 , 2016. the $ 28.6 million increase in cash provided by operating activities was primarily due to a decrease in payments for accounts payable of $ 30.6 million as well as a decrease in payments for accrued liabilities of $ 24.8 million , both related to the timing of payments , a decrease in cash paid for interest of $ 19.1 million and an increase in operating income of $ 10.5 million . these sources of cash were partially offset by an increase in purchases of merchandise inventories of $ 33.3 million and an increase in cash paid for income taxes of $ 29.7 million .
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in management 's discussion and analysis , we analyze and explain the annual changes in some specific line items in the consolidated financial statements for fiscal year 2012 compared to fiscal year 2011 and for fiscal year 2011 compared to fiscal year 2010 . key events and recent developments several key events have had or are expected to have a significant effect on our operations . you should keep in mind that : in july 2012 , we began construction on a new 1.0 million square foot distribution center in windsor , connecticut . we expect to begin shipping product from this building in 2013. on june 6 , 2012 , we entered into a five-year $ 750.0 million unsecured credit agreement ( the agreement ) . the agreement provides for a $ 750.0 million revolving line of credit , including up to $ 150.0 million in available letters of credit . the interest rate on the facility is based , at our option , on a libor rate , plus a margin , or an alternate base rate , plus a margin . our february 2008 , $ 550.0 million credit agreement was terminated concurrent with entering into this agreement . on october 7 , 2011 , our board of directors authorized the repurchase of an additional $ 1.5 billion of our common stock . at february 2 , 2013 , we had $ 859.8 million remaining under board authorizations . on october 7 , 2011 , we completed a 410,000 square foot expansion of our distribution center in savannah , georgia . the savannah distribution center is now a 1,014,000 square foot , fully automated facility . on november 15 , 2010 , we completed our acquisition of 86 dollar giant stores , located in the canadian provinces of british columbia , ontario , alberta and saskatchewan and we have since opened stores in manitoba . these stores offer a wide assortment of quality general merchandise , contemporary seasonal goods and everyday consumables , all priced at $ 1.25 ( cad ) or less . this is our first expansion of retail operations outside of the united states . we assign cost to store inventories using the retail inventory method , determined on a weighted average cost basis . from our inception and through fiscal 2009 , we used one inventory pool for this calculation . because of our investments over the years in our retail technology systems , we were able to refine our estimate of inventory cost under the retail method and on january 31 , 2010 , the first day of fiscal 2010 , we began using approximately 30 inventory pools in our retail inventory calculation . as a result of this change , we recorded a non-recurring , non-cash charge to gross profit and a corresponding reduction in inventory , at cost , of $ 26.3 million in the first quarter of 2010. this was a prospective change and did not have any effect on prior periods . on november 2 , 2009 , we purchased a new distribution center in san bernardino , california . this new distribution center replaced our salt lake city , utah leased facility whose lease ended in april 2010. overview our net sales are derived from the sale of merchandise . two major factors tend to affect our net sales trends . first is our success at opening new stores or adding new stores through acquisitions . second , sales vary at our existing stores from one year to the next . we refer to this change as a change in comparable store net sales , because we compare only those stores that are open throughout both of the periods being compared . we include sales from stores expanded during the year in the 19 calculation of comparable store net sales , which has the effect of increasing our comparable store net sales . the term 'expanded ' also includes stores that are relocated . at february 2 , 2013 , we operated 4,671 stores in 48 states and the district of columbia , as well as the canadian provinces of british columbia , ontario , alberta , saskatchewan and manitoba , with 40.5 million selling square feet compared to 4,351 stores with 37.6 million selling square feet at january 28 , 2012 . during fiscal 2012 , we opened 345 stores , expanded 87 stores and closed 25 stores , compared to 278 new stores opened , 91 stores expanded and 28 stores closed during fiscal 2011 . in the current year we increased our selling square footage by 7.7 % . of the 345 stores opened in fiscal 2012 , 25 were opened in january and five were expanded in january 2013. excluding these stores , our selling square footage increased by 7.1 % . of the 2.9 million selling square foot increase in 2012 , 0.3 million was added by expanding existing stores . the average size of our stores opened in 2012 was approximately 8,060 selling square feet ( or about 9,900 gross square feet ) . for 2013 , we continue to plan to open stores that are approximately 8,000 - 10,000 selling square feet ( or about 10,000 - 12,000 gross square feet ) . we believe that this store size is our optimal size operationally and that this size also gives our customers an ideal shopping environment that invites them to shop longer and buy more . fiscal 2012 ended on february 2 , 2013 and included 53 weeks , commensurate with the retail calendar . the 53rd week in 2012 added approximately $ 125 million in sales . fiscal 2011 and fiscal 2010 which ended on january 28 , 2012 , and january 29 , 2011 , respectively , each included 52 weeks . in fiscal 2012 , comparable store net sales increased by 3.4 % . this increase was based on the comparable 53 weeks for both years . story_separator_special_tag the $ 62.3 million in proceeds from the sale of the investment in ollie 's holdings , inc. provided cash for investing activities in 2012. net cash used in investing activities decreased $ 288.0 million in 2011 compared with 2010 primarily due to an additional $ 170.0 million of proceeds from the sale of short-term investments with minimal purchases of short-term investments compared to $ 157.8 million of purchases in 2010. the proceeds were used to fund the share repurchases in 2011. in addition , in 2010 we used $ 49.4 million to acquire dollar giant . these increased sources of cash were partially offset by a $ 71.4 million increase in capital expenditures in 2011 due to funds for new store projects and the expansion of our distribution center in savannah , georgia . in 2012 , net cash used in financing activities decreased $ 319.8 million as a result of reduced share repurchases in 2012. in 2011 , net cash used in financing activities increased $ 218.9 million as a result of increased share repurchases in 2011 compared with 2010. at february 2 , 2013 , our long-term borrowings were $ 271.3 million . we also have $ 110.0 million and $ 100.0 million letter of credit reimbursement and security agreements , under which approximately $ 147.0 million were committed to letters of credit issued for routine purchases of imported merchandise at february 2 , 2013 . in june 2012 , we entered into a five-year $ 750.0 million unsecured credit agreement ( the agreement ) . the agreement provides for a $ 750.0 million revolving line of credit , including up to $ 150.0 million in available letters of credit . the interest rate on the agreement is based , at our option , on a libor rate , plus a margin , or an alternate base rate , plus a margin . the agreement also bears a facilities fee , calculated as a percentage , as defined , of the amount available under the line of credit , payable quarterly . the agreement also bears an administrative fee payable annually . the agreement , among other things , requires the maintenance of certain specified financial ratios , restricts the payment of certain distributions and prohibits the incurrence of certain new indebtedness . our february 2008 , $ 550.0 million credit agreement was terminated concurrent with entering into this agreement . as of february 2 , 2013 , $ 250.0 million was outstanding under the $ 750.0 million revolving line of credit . we repurchased 8.1 million shares for $ 340.2 million in fiscal 2012 . we repurchased 8.7 million shares for $ 645.9 million in fiscal 2011 . we repurchased 9.3 million shares for $ 414.7 million in fiscal 2010 . at february 2 , 2013 , we have $ 859.8 million remaining under board authorization . funding requirements overview , including off-balance sheet arrangements we expect our cash needs for opening new stores and expanding existing stores in fiscal 2013 to total approximately $ 200.6 million , which includes capital expenditures , initial inventory and pre-opening costs . 23 our estimated capital expenditures for fiscal 2013 are between $ 320.0 and $ 330.0 million , including planned expenditures for our new and expanded stores , the addition of freezers and coolers to approximately 475 stores and approximately $ 61.2 million to expand our distribution center in marietta , oklahoma and complete construction on a new distribution center in windsor , connecticut . we believe that we can adequately fund our working capital requirements and planned capital expenditures for the next few years from net cash provided by operations and potential borrowings under our existing credit facility . the following tables summarize our material contractual obligations at february 2 , 2013 , including both on- and off-balance sheet arrangements , and our commitments , including interest on long-term borrowings ( in millions ) : replace_table_token_12_th replace_table_token_13_th lease financing operating lease obligations . our operating lease obligations are primarily for payments under noncancelable store leases . the commitment includes amounts for leases that were signed prior to february 2 , 2013 for stores that were not yet open on february 2 , 2013 . long-term borrowings credit agreement . in june 2012 , we entered into a five-year $ 750.0 million unsecured credit agreement ( the agreement ) . the agreement provides for a $ 750.0 million revolving line of credit , including up to $ 150.0 million in available letters of credit . the interest rate on the facility is based , at our option , on a libor rate , plus a margin , or an alternate base rate , plus a margin . the interest rate on the facility was 1.11 % at february 2 , 2013 . the revolving line of credit also bears a facilities fee , calculated as a percentage , as defined , of the amount available under the line of credit , payable quarterly . the agreement , among other things , requires the maintenance of certain specified financial ratios , restricts the payment of certain distributions and prohibits the incurrence of certain new indebtedness . as of february 2 , 2013 , $ 250.0 million was outstanding under the $ 750.0 million revolving line of credit . demand revenue bonds . in may 1998 , we entered into an agreement with the mississippi business finance corporation under which it issued $ 19.0 million of variable-rate demand revenue bonds . we used the proceeds from the bonds to finance the acquisition , construction and installation of land , buildings , machinery and equipment for our distribution facility in olive branch , mississippi . at february 2 , 2013 , the balance outstanding on the bonds was $ 14.3 million . these bonds are due to be fully repaid in june 2018. the bonds do not have a prepayment penalty as long as the interest rate remains variable . the bonds contain a demand provision and , therefore , outstanding amounts are classified as current liabilities .
| results of operations the following table expresses items from our consolidated statements of operations , as a percentage of net sales . on january 31 , 2010 , the first day of fiscal 2010 , we began using approximately 30 inventory pools in our retail inventory calculation , rather than one inventory pool as we had used since our inception . as a result of this change , we recorded a non-recurring , non-cash charge to gross profit and a corresponding reduction in inventory , at cost , of $ 26.3 million in the first quarter of 2010. replace_table_token_8_th fiscal year ended february 2 , 2013 compared to fiscal year ended january 28 , 2012 net sales . net sales increased 11.5 % , or $ 764.0 million , in 2012 compared to 2011 , resulting from sales in our new stores and the 53rd week in 2012 , which accounted for approximately $ 125 million of the increase . our sales increase was also impacted by a 3.4 % increase in comparable store net sales for the year . this increase is based on a 53-week comparison for both periods . comparable store net sales are positively affected by our expanded and relocated stores , which we include in the calculation , and , to a lesser extent , are negatively affected when we open new stores or expand stores near existing ones . the following table summarizes the components of the changes in our store count for fiscal years ended february 2 , 2013 and january 28 , 2012 . replace_table_token_9_th of the 345 new stores added in 2012 , 25 stores were opened in january 2013. of the 2.9 million selling square foot increase in 2012 approximately 0.3 million was added by expanding existing stores .
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74 iridium satellite may not prepay any borrowings prior to december 31 , 2015. if on that story_separator_special_tag you should read the following discussion along with our consolidated financial statements and the consolidated financial statements of iridium holdings llc ( our predecessor entity ) included in this form 10-k. background we were formed as ghl acquisition corp. , a special purpose acquisition company , on november 2 , 2007 , for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , reorganization or other similar business combination . we closed an initial public offering of our common stock on february 21 , 2008. all of our activity from november 2 , 2007 ( inception ) through february 21 , 2008 related to our formation and initial public offering . from february 21 , 2008 through september 29 , 2009 , our activities were limited to identifying prospective target businesses to acquire and completing a business combination , and we were considered to be in the development stage . on september 29 , 2009 , we acquired , directly and indirectly , all the outstanding equity of iridium holdings llc , or iridium holdings . we refer to this transaction as the acquisition . iridium holdings , its subsidiary iridium satellite llc , or iridium satellite , and iridium satellite 's subsidiary iridium constellation llc , or iridium constellation , were formed under the laws of delaware in 2000 and were organized as limited liability companies pursuant to the delaware limited liability company act . we refer to iridium holdings , together with its direct and indirect subsidiaries , as iridium . on december 11 , 2000 , 39 iridium acquired satellite communications assets from iridium llc , a non-affiliated debtor in possession . iridium and its affiliates held , and following the acquisition we hold , various licenses and authorizations from the u.s. federal communications commission , or fcc , and from foreign regulatory bodies that permit us to conduct our business , including the operation of our satellite constellation . pursuant to the terms of the acquisition , we purchased all of the outstanding equity of iridium holdings . total consideration included 29.4 million shares of our common stock and $ 102.6 million in cash , including payments totaling $ 25.5 million in cash we made in december 2009 and january 2010 to some of the former members of iridium holdings for tax benefits we received . upon the closing of the acquisition , we changed our name from ghl acquisition corp. to iridium communications inc. we accounted for our business combination with iridium holdings as a purchase business combination and recorded all assets acquired and liabilities assumed at their respective acquisition-date fair values . we were deemed the legal and accounting acquirer and iridium holdings the legal and accounting acquiree . iridium is considered our predecessor and , accordingly , its historical financial statements are deemed to be our predecessor financial statements . iridium 's historical financial statements are included in this form 10-k but are presented separately from our financial statements . as a result of the acquisition , we recorded the assets and liabilities we acquired from iridium at fair value , which resulted in a significant increase in the carrying value of our assets and liabilities . the impact of acquisition accounting on our carrying value of inventory , property and equipment , intangible assets and accruals , was an increase of approximately $ 19.8 million , $ 348.2 million , $ 95.5 million and $ 29.0 million , respectively , compared to iridium 's balance sheet as of september 29 , 2009. similarly , iridium 's deferred revenue decreased by $ 7.4 million . as a result of the effect of acquisition accounting , our cost of subscriber equipment sales increased in the fourth quarter of 2009 and first quarter of 2010 as compared to those costs and expenses of iridium in prior periods , and the decrease in the carrying value of deferred revenue caused a decrease in revenue , which we expect will continue through 2011. in addition , the increase in accruals had the effect of reducing cost of services ( exclusive of depreciation and amortization ) since the acquisition , which we expect will continue into future periods . the increase in property and equipment and intangible assets had the effect of increasing depreciation and amortization expense since the acquisition , which we expect will continue into future periods . overview of our business we are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites . we are the second largest provider of satellite-based mobile voice and data communications services based on revenue , and the only commercial provider of communications services offering 100 % global coverage . our satellite network provides communications services to regions of the world where existing wireless or wireline networks do not exist or are impaired , including extremely remote or rural land areas , airways , open ocean , the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters . we provide voice and data communications services to businesses , the u.s. and foreign governments , non-governmental organizations and consumers using our constellation of in-orbit satellites and related ground infrastructure , including a primary commercial gateway . we utilize an interlinked , mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks . this unique architecture minimizes the need for ground facilities to support the constellation , which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence . we sell our products and services to commercial end-users through a wholesale distribution network , encompassing approximately 71 service providers , 158 value-added resellers , or vars , and 53 value-added manufacturers , who either sell directly to the end-user or indirectly through other service providers , vars or dealers . story_separator_special_tag in addition , we are required to maintain minimum debt service reserve levels , which are estimated as follows : replace_table_token_10_th these levels may be higher once we begin repayments under the facility . there was no required minimum debt service reserve level at december 31 , 2010. iridium satellite 's obligations under the facility are guaranteed by us and our subsidiaries that are obligors under the facility and are secured on a senior basis by a lien on substantially all of our assets and those of iridium satellite and the other obligors . iridium satellite may not prepay any borrowings prior to december 31 , 2015. if on that date , a specified number of iridium next satellites have been successfully launched and we have adequate time and resources to complete the iridium next constellation on schedule , iridium satellite may prepay the borrowings without penalty . in addition , following the completion of the iridium next constellation , iridium satellite may prepay the borrowings without penalty . any amounts repaid may not be reborrowed . iridium satellite must repay the loans in full upon ( i ) a delisting of our common stock , ( ii ) a change in control of our company or our ceasing to own 100 % of any of the other obligors or ( iii ) the sale of all or substantially all of our assets . we must apply all or a portion of specified capital raising proceeds , insurance proceeds and condemnation proceeds to the prepayment of the loans . the facility includes customary representations , events of default , covenants and conditions precedent to drawing of funds . the financial covenants include : a minimum cash requirement ; a minimum debt to equity ratio level ; maximum capital expenditure levels ; minimum consolidated operational ebitda levels ; minimum cash flow requirements from customers who have hosted payloads on our satellites ; minimum debt service reserve levels ; a minimum debt service coverage ratio level ; and maximum leverage levels . the covenants also place limitations on our ability and that of our subsidiaries to carry out mergers and acquisitions , dispose of assets , grant security interests , declare , make or pay dividends , enter into transactions with affiliates , fund payments under the fsd from our own resources , incur debt , or make loans , guarantees or indemnities . we were in compliance with all covenants as of december 31 , 2010. as of december 31 , 2010 , we had borrowed $ 135.1 million under the facility . the unused portion of the facility as of december 31 , 2010 was approximately $ 1.7 billion . we recognized the semi-annual commitment fee on the undrawn portion of the facility of $ 2.4 million , which is included in other ( expense ) income in the consolidated statement of operations for the year ended december 31 , 2010. settlement of motorola litigation on october 1 , 2010 , we entered into a settlement agreement with motorola , inc. , or motorola , pursuant to which the parties settled the litigation previously filed by motorola against iridium satellite and iridium holdings in illinois . on the same date , the parties entered into a series of other agreements . pursuant to these several agreements , iridium satellite agreed to pay motorola an aggregate of $ 46.0 million to repay debt of $ 15.4 million otherwise due in 2010 , and $ 14.9 million in consideration of expanded intellectual property licenses , the conversion of existing intellectual property licenses from being royalty-based to prepaid , the transfer to us of ownership of certain intellectual property rights , and $ 15.7 million for the termination of motorola 's rights to distributions and payments based on the value of our company upon certain triggering events and mutual releases of claims . of the total $ 46.0 million , we paid $ 23.0 million contemporaneously with the execution of the settlement agreement and the remaining $ 23.0 million is reflected in a promissory note iridium satellite issued to motorola , which bears interest at the rate of 10 % per annum and matures on december 31 , 2011. the promissory note to motorola is secured by a security interest in iridium satellite 's accounts receivable and iridium satellite 's principal 42 operating account , and is guaranteed by iridium holdings and by us . as of december 31 , 2010 , we and motorola agreed that the $ 0.8 million we had on deposit with motorola pursuant to the provisions of the amended and restated transition services , products and asset agreement would be applied to the principal balance of the promissory note . additionally , pursuant to the settlement agreement with motorola , we are required to maintain a minimum cash balance beginning in september 2011. in conjunction with the execution of the settlement agreement , iridium satellite and motorola also terminated the senior subordinated term loan agreement dated december 11 , 2000 by and among them . material trends and uncertainties iridium 's industry and customer base has historically grown as a result of : demand for remote and reliable mobile communications services ; increased demand for communications services by the department of defense , or dod , disaster and relief agencies and emergency first responders ; a broad and expanding wholesale distribution network with access to diverse and geographically dispersed niche markets ; a growing number of new products and services and related applications ; improved data transmission speeds for mobile satellite service offerings ; regulatory mandates requiring the use of mobile satellite services , particularly among maritime end-users ; a general reduction in prices of mobile satellite services equipment ; and geographic market expansion through the receipt of licenses in additional countries .
| comparison of combined results of operations for comparison purposes , we have included the following discussion of our actual operating results for the year ended december 31 , 2010 , to those of iridium on a combined basis for the year ended december 31 , 2009 and those of iridium on an actual basis for the year ended december 31 , 2008. this presentation is intended to facilitate the evaluation and understanding of the financial performance of our business on a year-to-year basis . management believes this presentation is useful in providing the users of our financial information with an understanding of our results of operations because there were no material changes to the operations of iridium as a result of the acquisition and we had no material operating activities from the date of formation of ghl acquisition corp. until the acquisition . the combined presentation is a simple mathematical addition of the pre-acquisition results of operations of iridium for the period from january 1 , 2009 to september , 29 2009 and our results of operations for the year ended december 31 , 2009. there are no other adjustments made in the combined presentation . comparison of our results of operations for the year ended december 31 , 2010 and combined results of operations for the year ended december 31 , 2009 replace_table_token_11_th nm = not meaningful 47 revenue total revenue increased by 9.2 % to $ 348.2 million for the year ended december 31 , 2010 from $ 318.9 million for the combined year ended december 31 , 2009 , due principally to growth in billable subscribers , which drove growth in both commercial and government services revenue as well as increased sales of subscriber equipment , partially offset by a decrease in government engineering and support service revenue .
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we estimate that it is reasonably possible that the liability for uncertain tax positions will decrease no more than $ 1.5 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits , litigation and the expiration of the statute of limitations story_separator_special_tag n and results of operations ( dollars in thousands , except per share amounts or as otherwise indicated ) the objective of the following management 's discussion and analysis of consolidated results of operations and financial condition ( “ md & a ” ) is to help the reader understand the financial performance of aptargroup , inc. md & a is presented in eight sections : overview , results of operations , liquidity and capital resources , off‑balance sheet arrangements , overview of contractual obligations , recently issued accounting pronouncements , critical accounting estimates , operations outlook and forward‑looking statements . md & a should be read in conjunction with our consolidated financial statements and accompanying notes to consolidated financial statements contained elsewhere in this annual report on form 10‑k . in md & a , “ we , ” “ our , ” “ us , ” “ aptargroup , ” “ aptargroup , inc. ” , “ aptar ” and the “ company ” refer to aptargroup , inc. and its consolidated subsidiaries . overview general aptar is a leading global supplier of a broad range of innovative dispensing , sealing and active packaging solutions for the beauty , personal care , home care , prescription drug , consumer health care , injectables , food and beverage markets . we use insights , design , engineering and science to create innovative packaging technologies that build brand value for its customers , and , in turn , make a meaningful difference in the lives , looks , health and homes of people around the world . in addition to the information presented herein that conforms to u.s. gaap , we also present certain financial information that does not conform to u.s. gaap , which are referred to as non-u.s. gaap financial measures . management may assess our financial results both on a u.s. gaap basis and on a non-u.s. gaap basis . we believe it is useful to present these non-u.s.gaap financial measures because they allow for a better period over period comparison of operating results by removing the impact of items that , in management 's view , do not reflect aptar 's core operating performance . these non-u.s. gaap financial measures should not be considered in isolation or as a substitute for u.s. gaap financial results , but should be read in conjunction with the audited consolidated statements of income and other information presented herein . investors are cautioned against placing undue reliance on these non-u.s. gaap measures . further , investors are urged to review and consider carefully the adjustments made by management to the most directly comparable u.s. gaap financial measure to arrive at these non-u.s. gaap financial measures . see the reconciliation of non-u.s. gaap measures starting on page 23. for the year ended december 31 , 2018 , reported sales increased 12 % to $ 2.76 billion from $ 2.47 billion a year ago . core sales , excluding the positive impact from changes in currency exchange rates and acquisition effects , increased approximately 8 % . a reconciliation of core sales growth to reported net sales growth , the most directly comparable u.s. gaap measure , can be found on page 16. during 2018 , we achieved strong top line growth across each segment , each geographic regional and in all end markets other than beverage , which was slightly down on lower custom tooling sales . we continued to benefit from our commercial excellence and transformation initiatives , especially in our beauty + home segment . we also faced inflationary cost increases that had negative effects on our profitability and we are working diligently to increase prices to offset these headwinds . 2018 highlights · reported sales increased 12 % . core sales , excluding currency and acquisition effects , grew 8 % . · reported net income decreased 11 % . adjusted ebitda , excluding among other things restructuring expenses , acquisition costs and purchase accounting adjustments related to acquired inventory , increased 16 % and adjusted ebitda margin was 20 % compared to 19 % a year ago . · business transformation underway and we began to see the positive results on beauty + home segment 's top line growth ; margin improvements were offset by headwinds including the timing of raw material cost pass-throughs and isolated operational challenges . · acquired strategic technologies ( csp technologies and reboul ) . · 2018 was our 25th consecutive year of paying an increased dividend . 15/atr 2018 form 10-k story_separator_special_tag a business transformation plan to drive profitable sales growth , increase operational excellence , enhance our approach to innovation and improve organizational effectiveness . the primary focus of the plan is the beauty + home segment ; however , certain global general and administrative functions are also being addressed . during the 2018 , we recognized approximately $ 63.8 million of restructuring costs related to this plan with approximately $ 52.2 million , $ 3.6 million , $ 4.2 million and $ 3.8 million reported within the beauty + home segment , pharma segment , food + beverage segment and corporate & other , respectively . during 2017 , we reported restructuring costs of $ 2.2 million with approximately $ 0.5 million of these costs reported within the beauty + home segment and $ 1.7 million reported within the food + beverage segment . using current exchange rates , we estimate total implementation costs of approximately $ 90 million over three years . story_separator_special_tag we have elected to account for the tax on gilti as a period cost and not as a measure of deferred taxes in the current period . at december 31 , 2018 , as a result of the gilti tax provisions and the transition tax noted above , which subjected all of the previously untaxed foreign earnings as of december 31 , 2017 to u.s. taxation , we do not have a balance of foreign earnings that will be subject to u.s. taxation . we continually analyze our global working capital requirements and the potential tax liabilities that would be incurred if the non-u.s. subsidiaries made a distribution of their cash or distributable reserves . these liabilities would include local country withholding and income tax and potential u.s. state taxation . we have recorded a $ 2.2 million liability for distributions expected to be made to europe early in 2019. as of december 31 , 2018 , all other cash or distributable reserve amounts will continue to be reinvested indefinitely and would become subject to these additional taxes if they were remitted as dividends . we estimate the additional tax that would be payable on these earnings to be in the range of $ 20 million to $ 30 million . the reported effective tax rate on net income for 2017 and 2016 was 25.4 % and 26.7 % , respectively . the lower tax rate for 2017 reflects a benefit from the new accounting standard for employee share-based payments , which we adopted in 2017 ( -3.5 % ) . the 2017 rate also includes items attributable to the u.s. tax legislation as described above . the tax rate impact from the legislation includes a provisional tax charge related to the tax on unremitted earnings ( +10.7 % ) which is partially offset by a provisional deferred tax benefit related to the enacted lower u.s. corporate tax rate ( -2.3 % ) . the 2017 tax rate also includes a benefit from the resolution of a forward contract transaction ( -8.1 % ) . the comparable prior year reflects higher tax benefits from european investment incentives ( +1.4 % ) . net income attributable to aptargroup , inc. we reported net income of $ 194.7 million compared to $ 220.0 million reported in 2017 and $ 205.6 million reported in 2016. beauty + home segment replace_table_token_7_th ( 1 ) adjusted ebitda is calculated as earnings before net interest , taxes , depreciation , amortization , unallocated corporate expenses , restructuring , acquisition-related costs , and other special items . adjusted ebitda margins are calculated as adjusted ebitda divided by reported net sales . see the reconciliation of non-u.s. gaap measures starting on page 23 . 19/atr 2018 form 10-k reported net sales increased approximately 9 % in 2018 to $ 1.43 billion compared to $ 1.31 billion in 2017. our reboul acquisition positively impacted net sales by 1 % while changes in currency rates positively impacted net sales by 1 % . therefore , core sales increased 7 % in 2018 compared to the prior year . while the majority of this increase was due to higher products sales , we also benefitted from $ 9.9 million of additional revenue due to resin pass-throughs to our customers and $ 9.4 million of incremental tooling sales , especially within our personal care market . core sales were higher across all three markets as personal care , beauty and home care increased by 8 % , 7 % and 3 % , respectively . strong sales of our products used on baby care and body care applications along with higher tooling sales were responsible for the increase in personal care sales during 2018 compared to 2017. beauty sales benefitted from increased sales of our products used on color cosmetic and facial skin care applications while home care realized an increase in sales of our products used on household cleaner and automotive applications during 2018. replace_table_token_8_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . in 2017 , reported net sales increased approximately 4 % to $ 1.31 billion compared to $ 1.26 billion in 2016. the mega airless acquisition positively impacted net sales by 1 % in 2017 while changes in currency rates positively impacted net sales by 1 % . therefore , core sales increased 2 % in 2017 compared to 2016. the majority of this increase is due to higher product sales . tooling sales and the pass-through of higher resin prices to our customers also positively impacted sales by $ 4.0 million and $ 0.6 million , respectively . core sales to the personal care and beauty markets each increased 2 % while core sales to the home care market declined slightly during 2017 compared to 2016. the beauty market increased as strong sales of our products used on facial skin care applications and higher sampling and promotion sales more than offset lower sales of our products sold to our prestige fragrance market . the personal care markets also showed improvement over the prior year due to strong sales of our products used on body care and hair care applications . sales of our products to the home care market decreased 1 % as new product sales used on automotive applications were not able to completely offset lower sales of our products used on insecticide applications , predominately in north america and latin america related to the unusually high demand for these products in 2016. replace_table_token_9_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . adjusted ebitda for 2018 increased to $ 185.9 million from $ 173.2 million reported in 2017. our increase in sales along with operational improvements more than compensated for the increased resin and metal costs of approximately $ 10.4 million .
| results of operations the following table sets forth the consolidated statements of income and the related percentages of net sales for the periods indicated . certain previously reported amounts have been reclassified to conform to the current period presentation : replace_table_token_3_th ( 1 ) adjusted ebitda margin is calculated as adjusted ebitda divided by reported net sales . see the reconciliation of non-u.s. gaap measures starting on page 23. net sales for the year ended december 31 , 2018 , reported net sales increased 12 % to $ 2.76 billion from $ 2.47 billion a year ago . our most significant currency exposure is with the euro . during 2018 , the average u.s. dollar exchange rate weakened compared to the euro , and this was the primary reason currency translation effects contributed 2 % to our sales growth . sales were also positively impacted 2 % by the acquisitions of csp technologies and reboul . therefore , 2018 sales , excluding acquisitions and changes in foreign currency rates ( “ core sales ” ) , increased 8 % as all three segments reported growth over 2017. replace_table_token_4_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . in 2017 , reported net sales increased 6 % to $ 2.47 billion from $ 2.33 billion a year ago . the average u.s. dollar exchange rate weakened compared to the euro while the impact of the other major currencies related to our business was mixed . this resulted in a positive currency translation impact of 1 % . the 2016 acquisition of mega airless positively impacted sales by 1 % . therefore , core sales increased 4 % over the prior year . replace_table_token_5_th ( 1 ) currency effects are calculated by translating last year 's amounts at this year 's foreign exchange rates . 16/atr 2018 form 10-k foreign currency effects are approximations of the adjustment necessary to state the prior year net sales using current period exchange rates .
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management directors and executive officers our current and planned directors and executive officers are as follows : name age position d. duane gilliam 63 chairman of the board of directors mario e. rodriguez 41 chief executive officer and director william e. hantke 60 vice chairman of the board of directors and principal financial officer henry m. kuchta 51 director , president and chief operating officer maureen a. hendricks 56 director buford h. ortale 46 director randal k. quarles 50 director d. duane gilliam has been non-executive chairman of the board of directors of our company since its inception in june 2006 and is chairperson of the governance committee and a member of the compensation and audit committees . he served as executive vice president of corporate affairs of marathon ashland petroleum llc , a refining , marketing and transportation company from 2001 to 2003 , when he retired , and since that time has been on the boards of certain organizations and companies as described below . from 1998 to 2001 , he was executive vice president of marathon ashland petroleum llc , findlay , ohio . between 1993 and 1998 , mr. gilliam served first as executive vice president of petroleum operations at ashland petroleum company , also a refining , marketing and transportation company , and , thereafter , as senior vice president for ashland inc. and president of ashland petroleum company , where he had previously served as group vice president in 1992. he was a member and director of the american petroleum institute from 1996 to 2003. during that time , he also served on the api 's downstream committee . mr. gilliam served as chairman of the board of directors of the national petrochemical & refiners association , or npra , from 2002 to 2004 , after having served as vice chairman from 1999 to 2002. he was also a member of the npra 's executive committee and issues committee from 1999 to 2002. furthermore , he served as chairman of the owner representatives board of loop llc from 2001 to 2003. from 2000 to 2003 , he served on the board of directors of colonial pipeline company . since january 2005 , he has served on the board of directors of verasun energy . mario e. rodriguez has been a director of our company and chief executive officer since its inception in june 2006. from 2002 to 2006 , mr. rodriguez was managing director in the global energy group of the investment banking division at citigroup global markets , inc. in addition , mr. rodriguez was a member of the resource steering committee of citigroup 's investment banking division since 2005. from 2001 to 2002 , mr. rodriguez was director of the global energy group of citigroup 's investment banking division , where he had previously served as vice president from 1999 to 2000. from 1996 to 1999 , mr. rodriguez served as vice president of the natural resources and power group of the investment banking division of j.p. morgan & co. incorporated , after having been an associate in the same group since 1994. william e. hantke has been vice chairman of the board of directors and principal financial officer of our company since its inception in june 2006. mr. hantke served as executive vice president and chief financial officer of premcor , inc. , a growth refining company , from 2002 to may 2005 , at which time he retired from active employment , although he has since served on the boards of companies in the energy industry , as described below . mr. hantke was also corporate vice president of development of tosco corporation , a growth refining and marketing company , from 1999 until 2001 , where he had previously served as corporate controller from 1993 until 1999. prior to working at tosco , mr. hantke was senior manager , mergers and acquisitions at coopers & lybrand from 1989 to 1990. he also held various positions from 1975 to 1988 at amax , inc. , including corporate vice president , operations analysis and senior vice president , finance and administration , metals and mining . he has been a director of nrg energy since 2006 and non-executive chairman of process energy solutions since november 2006 . 71 henry m. kuchta has been a director of our company since september 2006 and our president and chief operating officer since december 2006. prior to that , he worked as an independent consultant in the refining industry after leaving premcor in 2005. mr. kuchta served as president of premcor inc. , a growth refining company , from 2003 until september 2005 and story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with `` selected consolidated financial data '' and our consolidated financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including , but not limited to , those presented under `` risks related to our business '' included in item 1a and elsewhere in this annual report on form 10-k. story_separator_special_tag proceeds in pursuit of an initial business combination that is not consummated . we may draw up to $ 3 million on the promissory note we entered into with occidental as described above in “ occidental investment ” . to date , we have drawn $ 1,625,000 on that note . there is no assurance that we will be able to successfully complete a business combination within the time frame discussed above . story_separator_special_tag in addition , these representations and warranties have been qualified by disclosures made to the other party and speak only as of the date of the stock purchase agreement or such other date as is specified therein . certain of the contractual representations made by the parties are subject to a standard of materiality that may be different from what investors or security holders view as material to their interests . representations may be used as a tool to allocate risks between the parties to the stock purchase agreement , including where the parties do not have complete knowledge of all of the facts . holders of our securities are not third-party beneficiaries under the stock purchase agreement and should not rely on the representations and covenants in the stock purchase agreement or any descriptions thereof as characterizations of the actual state of facts or condition of the parties , kern or any of their respective affiliates . each party to the stock purchase agreement has made customary covenants , including among other things covenants by casey to , and to cause kern to , continue to conduct kern 's business in the ordinary course and not take specified actions prior to closing , and not to , and to cause kern not to , solicit or pursue competing acquisition proposals from any other person . we have covenanted , among other things , to file a proxy statement with the sec to seek the required shareholder approval for the acquisition . pursuant to this covenant , as referenced above , a preliminary proxy statement was filed with the sec on december 17 , 2007 , and was revised on february 12 , 2008. the stock purchase agreement may be terminated and the acquisition abandoned by mutual written agreement of the parties , or for other customary reasons , including the failure of any condition to closing of either party that has not been waived , or if the closing shall not have occurred on or before the 45th day after our shareholder vote . casey will be entitled to receive the $ 1.5 million deposited on signing into an escrow account if we terminate the stock purchase agreement because our shareholders fail to approve the acquisition . casey and the company have each agreed to indemnify the other from losses incurred as a result of any breach by the other party of any representation , warranty , covenant , obligation or agreement made in the stock purchase agreement , provided that casey will have no obligation to indemnify us unless and until the aggregate amount of losses incurred by us equals one percent of the purchase price payable upon closing . in addition , casey 's maximum aggregate liability is capped at 10 % of the closing purchase price . we will have recourse to the escrow account described above for indemnifiable losses of up to three percent of the closing purchase price for a period of 18 months following the closing . as discussed above in “ occidental investment , ” on november 2 , 2007 , we entered into the series a purchase agreement , under which occidental will purchase , upon closing of the acquisition , shares of the new convertible stock , to be issued to it by us for the aggregate consideration of $ 35 million , plus the amount of any advances to us up to $ 3 million together with any accrued interest thereon . any advances to the company will be made to fund operating expenses and expenses related to the acquisition prior to closing . we have issued a promissory note to occidental for the full amount of any advances , plus interest to accrue at an annual rate of 9 % , payable quarterly . the note will mature on the earlier of ( i ) november 1 , 2008 , and ( ii ) closing of the sale to occidental of the convertible stock . occidental has waived any claims against amounts in the trust account . a copy of the series a purchase agreement can be found at annex e to our revised preliminary proxy statement filed with the sec on february 12 , 2008 ( file no . 001-33279 ) . if we do not close the acquisition but do consummate a replacement transaction , occidental will have the option to purchase up to three percent of the capital stock of the surviving entity of the replacement transaction in consideration for any advances . 50 impact of recently issued accounting pronouncements reference is made to note 2 of our financial statements for a discussion of recently issued accounting pronouncements that could potentially impact us . in september 2006 , the financial accounting standards board ( `` fasb '' ) issued sfas no . 155 accounting for certain hybrid financial instruments , which permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation . management does not believe that sfas no . 155 will have a material effect on the company 's consolidated financial statements . in september 2006 , the fasb issued sfas no . 157 , fair value measurements , which defines fair value , establishes a framework for measuring fair value in generally accepted accounting principles , and expands disclosures about fair value measurements . sfas 157 is effective in fiscal years beginning after november 15 , 2007. management is currently evaluating the impact that the adoption of this statement may have on the company 's consolidated financial statements . in june 2006 , the fasb issued interpretation no . ( `` fin '' ) 48 , accounting for uncertainty in income taxes , an interpretation of fasb statement no . 109. fin 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements in accordance with sfas 109 and prescribes a recognition threshold and measurement attribute for the financial
| overview we were formed on june 2 , 2006 for the purpose of effecting a merger , capital stock exchange , asset acquisition or other similar business combination with one or more businesses , or assets in the energy industry , with a particular focus on businesses or assets involved in the refining , distribution and marketing of petroleum products in north america . our initial public offering , in which we sold 24,000,000 units , was completed on february 5 , 2007. on february 22 , 2007 , we completed the closing of an additional 557,205 units that were subject to the underwriter 's over-allotment option . each unit consists of one share of our common stock and one warrant entitling the holder to purchase one share of our common stock at a price of $ 7.50. the public offering price of each unit was $ 10.00 , and we generated gross proceeds of $ 245.57 million in the initial public offering ( including proceeds from the exercise of the over-allotment option and excluding the proceeds from the offering of $ 3.35 million founders ' warrants received upon consummation of our initial public offering ) . of the gross proceeds : ( i ) we deposited $ 234,274,168 into the trust account , which included $ 7.37 million of deferred underwriting fees ; ( ii ) the underwriters received $ 9.82 million as underwriting fees ( excluding the deferred underwriting fees ) ; ( iii ) we retained $ 975,000 for offering expenses ; and ( iv ) we also retained $ 500,000 for initial working capital .
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this asu removes disclosures that are no longer considered cost beneficial story_separator_special_tag ( dollar and share amounts in millions except percentages and per share amounts , except where noted otherwise ) the following discussion and analysis of our financial condition and results of operations contains forward-looking statements and should be read in conjunction with item 1a : risk factors , item 6 : selected financial data , our consolidated financial statements and related notes thereto , as well as other cautionary statements and risks described elsewhere in this annual report on form 10-k , before deciding to purchase , hold or sell shares of our common stock . overview nordstrom is a leading fashion retailer offering an extensive selection of high-quality brand-name and private label apparel , shoes , cosmetics and accessories for women , men , young adults and children . we serve customers through two businesses — full-price and off-price . with customers increasingly engaging with nordstrom in multiple ways , we focus on providing a seamless experience across stores and online . our operations currently consist of our nordstrom u.s. and canada full-line stores , u.s. and canada nordstrom rack stores , jeffrey boutiques , last chance clearance stores , trunk club clubhouses and nordstrom local . additionally , customers are served online through nordstrom.com , nordstromrack.com , hautelook and trunkclub.com . our unique business model is a key point of difference in serving customers in multiple ways — through stores , online , full-price and off-price — with meaningful synergies across nordstrom . we are focused on leveraging our digital and physical assets to provide customers with a best-in-class experience . in 2018 , net earnings were $ 564 , or $ 3.32 per diluted share , which included a $ 0.05 favorable income tax benefit related to prior periods and an estimated non-recurring credit-related charge of $ 0.28 ( see note 1 : nature of operations and summary of significant accounting policies ) . our net sales grew 2.3 % , or approximately 3.8 % excluding approximately $ 220 related to the 53rd week in 2017. we maintained a strong financial position , generating annual operating cash flow of more than $ 1 billion for the 10th consecutive year and returning nearly $ 1 billion to shareholders in 2018. in 2018 , we achieved the following milestones in executing our customer strategy through our three strategic pillars : providing a compelling product offering , delivering exceptional services and experiences and leveraging the strength of the nordstrom brand : we continue to see positive customer trends . we had over 35 million customers , an increase of 6 % from last year . one-third of our customers shopped across our multiple channels , resulting in incremental customer spend . our early investments to build a robust digital business gives us a competitive advantage . digital sales increased 16 % and made up 30 % of net sales . additionally , nordstrom.com has achieved scale , with the profitability of full-price digital sales at parity with store sales . generational investments continued to scale , contributing approximately $ 2 billion in sales and improvement in profitability . nordstromrack.com/hautelook became our fastest business to reach $ 1 billion in sales . trunk club delivered sales growth of 35 % . we opened our men 's store in new york city and furthered our expansion into canada with the introduction of six nordstrom rack stores . in 2019 , we have two key priorities to drive sales and market share gains . the first key priority is our local market strategy , which launched in 2018 and drove outsized market share gains in los angeles . we are focused on scaling in this top market by giving customers greater access to merchandise selection and faster delivery . in addition , we are implementing aspects of our local market strategy in other markets . we will further leverage inventory through our supply chain investments . this includes an omni-channel hub in the los angeles area to accelerate inventory efficiencies , as well as a one-million square foot omni-channel center in riverside , california that will enable faster delivery to the west coast , which represents 40 % of our customer base , at a lower cost to us . while we 're launching this local market strategy in los angeles first , we anticipate expanding it to our top markets in the future . we expect to expand our presence in new york city with the planned opening of our nordstrom nyc women 's store in october . we expect that our nyc flagship , coupled with our digital presence , will contribute a meaningful sales lift in that market . our second key priority to drive sales and market share gains is our loyalty program . in 2018 , our loyalty customers grew 16 % to 11 million and contributed 56 % of our sales . in october 2018 , we launched our enhanced program , the nordy club . cardmembers now earn three points for every dollar spent , up from two points . in addition , we added experiential elements , such as exclusive access to services and experiences . going forward , we plan to pursue additional opportunities to further personalize the customer experience and drive increased spend . we remain focused on driving higher shareholder returns through three key deliverables : growing market share , improving profitability and shareholder returns and continuing our disciplined capital allocation approach . we are well-positioned to execute against our long-term plans and deliver a differentiated customer experience . 20 story_separator_special_tag credit card portfolio to td . story_separator_special_tag income tax expense ( 2017 vs. 2016 ) the decrease in the effective tax rate for 2017 compared with 2016 was primarily due to the non-deductible goodwill impairment charge of $ 197 related to trunk club in the third quarter of 2016 ( see note 9 : fair value measurements in item 8 ) . excluding the impact of the trunk club goodwill impairment , our effective tax rate for 2017 would have increased approximately 700 basis points compared with 2016 primarily as a result of the tax act . net earnings in 2017 included $ 42 related to the tax act , which includes a provisional , one-time tax charge of $ 51 related to the revaluation of net deferred tax assets , partially offset by cash savings from a lower federal tax rate . 24 earnings per share earnings per share ( “ eps ” ) is as follows : replace_table_token_13_th earnings per share ( 2018 vs. 2017 ) the increase in diluted eps of $ 0.73 was primarily due to a lower tax rate , partially offset by the estimated non-recurring charge of $ 0.28 ( see note 1 : nature of operations and summary of significant accounting policies in item 8 ) . earnings per share ( 2017 vs. 2016 ) for 2017 , diluted eps of $ 2.59 included impacts associated with the tax act consisting of a $ 0.25 per share reduction related to our income tax provision and a $ 0.06 per share decrease for a one-time investment in our employees . the impact of the trunk club goodwill impairment charge of $ 197 in 2016 was approximately $ 1.12 per share . excluding the impact of these items , diluted eps decreased in 2017 compared with 2016 due to planned increases in supply chain and technology costs associated with our growth initiatives , partially offset by an increase in net sales . fiscal year 2019 outlook we are committed to achieving long-term financial targets , which support three strategic objectives in driving shareholder returns : continuing market share gains , improving profitability and returns , and maintaining disciplined capital allocation . our expectations for fiscal 2019 are as follows : net sales growth 1 percent to 2 percent credit card revenues , net mid to high single-digit growth ebit $ 915 to $ 970 million ebit margin 5.9 percent to 6.1 percent earnings per diluted share ( excluding the impact of any potential future share repurchase ) $ 3.65 to $ 3.90 our guidance also incorporates the following assumptions : we measure our performance through market share , customers and net sales metrics . as comparable sales growth is expected to approximate net sales growth in 2019 , we will only report net sales growth . the effective tax rate is expected to be approximately 26 % . estimated outstanding shares are expected to be approximately 162 , which excludes the impact of any potential future share repurchases . nordstrom , inc. and subsidiaries 25 adjusted roic ( non-gaap financial measure ) we believe that adjusted roic is a useful financial measure for investors in evaluating the efficiency and effectiveness of the capital we have invested in our business to generate returns . adjusted roic adjusts our operating leases as if they met the criteria for capital leases or we had purchased the properties . this provides additional supplemental information that reflects the investment in our off-balance sheet operating leases , controls for differences in capital structure between us and our competitors and provides investors and credit agencies with another way to comparably evaluate the efficiency and effectiveness of our capital investments over time . in addition , we incorporate adjusted roic into our executive incentive measures and it is an important indicator of shareholders ' return over the long term . we define adjusted roic as our adjusted net operating profit after tax divided by our average invested capital using the trailing 12-month average . adjusted roic is not a measure of financial performance under generally accepted accounting principles ( “ gaap ” ) and should be considered in addition to , and not as a substitute for , return on assets , net earnings , total assets or other financial measures prepared in accordance with gaap . our method of determining non-gaap financial measures may differ from other companies ' methods and therefore may not be comparable to those used by other companies . estimated depreciation on capitalized operating leases and average estimated asset base of capitalized operating leases are not calculated in accordance with , or an alternative for , gaap and should not be considered in isolation or as a substitution of our results as reported under gaap . the financial measure calculated under gaap which is most directly comparable to adjusted roic is return on assets . the following is a reconciliation of the components of adjusted roic and return on assets : replace_table_token_14_th 1 capitalized operating leases is our best estimate of the asset base we would record for our leases that are classified as operating if they had met the criteria for a capital lease or we had purchased the property . the asset base is calculated based upon the trailing 12-month average of the monthly asset base . the asset base for each month is calculated as the trailing 12 months of rent expense multiplied by eight . the multiple of eight times rent expense is a commonly used method of estimating the asset base we would record for our capitalized operating leases . we do not expect the adoption of the new lease standard to have a material impact on our adjusted roic ( see note 1 : nature of operations and summary of significant accounting policies in item 8 ) . 2 balances associated with our deferred rent liability have been classified as long-term liabilities as of january 28 , 2017 .
| results of operations in our ongoing effort to enhance the customer experience , we are focused on providing customers with a seamless experience across our channels . we invested early in our omni-channel capabilities , integrating our operations , merchandising and technology across our stores and online , in both our full-price and off-price businesses . while our customers may engage with us through multiple channels , we know they value the overall nordstrom brand experience and view us simply as nordstrom , which is ultimately how we view our business . we have one reportable segment in 2018 , retail , and analyze our results on a total company basis . similar to other retailers , nordstrom follows the retail 4-5-4 reporting calendar , which included an extra week in the fourth quarter of 2017 ( the “ 53rd week ” ) . references to 2018 and all years except 2017 within this document are based on a 52-week fiscal year , while 2017 is based on a 53-week fiscal year . however , the 53rd week is not included in the comparable sales calculations . we may not calculate certain metrics used to evaluate our business in a consistent manner among industry peers . provided below are definitions of metrics we present within our analysis : comparable sales – sales from stores that have been open at least one full year at the beginning of the year . in 2019 , we expect net sales growth to approximate comparable sales . as a result , we will only report net sales growth comparable sales include digital sales and actual returns . our estimate for sales return allowance is not included in the comparable sales calculations .
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vf is highly diversified across brands , product categories , channels of distribution , geographies and consumer demographics . we own a broad portfolio of brands in the outerwear , footwear , jeanswear , backpacks , luggage , sportswear , occupational and performance apparel categories . these products are marketed to consumers shopping in specialty stores , upscale and traditional department stores , national chains , mass merchants and our own direct-to-consumer operations . vf is organized by groupings of businesses called coalitions . the five coalitions are outdoor & action sports , jeanswear , imagewear , sportswear and contemporary brands . these coalitions are our segments for financial reporting purposes . highlights of 2013 all per share amounts are presented on a diluted basis and reflect the four-for-one stock split in december 2013 : revenues grew to a record $ 11.4 billion , a 5 % increase over 2012. international revenues rose 8 % and accounted for 38 % of vf 's total revenues in 2013. direct-to-consumer revenues increased 13 % over 2012 and accounted for 22 % of vf 's total revenues in 2013. vf opened 164 retail stores in 2013. gross margin increased 160 basis points to 48.1 % in 2013. cash flow from operations exceeded $ 1.5 billion in 2013. earnings per share increased 12 % to $ 2.71 in 2013 from $ 2.43 in 2012. in addition , vf made a discretionary contribution of $ 100.0 million to its u.s. qualified defined benefit pension plan , repaid $ 400.0 million of floating rate debt and increased the quarterly dividend rate by 21 % , marking the 41 st consecutive year of increase in the rate of dividends paid per share . 28 story_separator_special_tag style= '' color : # 999999 '' width= '' 100 % '' / > capital and operating loss carryforwards ( net $ 33.0 million tax benefit ) and unrecognized tax benefits and interest ( net $ 2.0 million tax expense ) . these discrete items collectively lowered the 2012 annual tax rate by 2.2 % , compared with 1.4 % in 2011. without discrete items , the effective tax rate during 2012 increased by approximately 0.8 % primarily due to tax law changes in the u.s. , partially offset by a higher percentage of income in lower tax rate jurisdictions compared with 2011. the 2011 income tax rate included a net $ 16.3 in discrete tax benefits primarily related to changes in valuation allowances for operating loss carryforwards ( net $ 12.1 million benefit ) and unrecognized tax benefits and interest ( net $ 4.2 million benefit ) , which together lowered the 2011 annual tax rate by 1.4 % . the american tax relief act of 2012 , signed into law in january 2013 , retroactively extended certain tax credits and incentives through tax year 2013. the impact of this tax law change to the 2012 tax year was considered a discrete tax benefit when recorded in the first quarter of 2013. the change in tax law also provided tax credits and incentives applicable to the 2013 tax year which were not considered discrete items . these tax incentives do not extend beyond 2013 and therefore have been excluded from future tax rates . vf expects the 2014 annual tax rate to approximate 23.5 % to 24 % . net income attributable to vf corporation in 2013 increased to $ 1.2 billion ( $ 2.71 per share ) , compared with $ 1.1 billion ( $ 2.43 per share ) in 2012. the increase in earnings per share in 2013 resulted primarily from improved operating performance , as discussed in the information by business segment section below as well as the other factors described above . in addition , earnings per share in 2013 compared with 2012 benefited by $ 0.04 per share due to lower timberland acquisition-related expenses . net income attributable to vf corporation in 2012 increased to $ 1.1 billion ( $ 2.43 per share ) , compared with $ 888.1 million ( $ 2.00 per share ) in 2011. the increase in earnings per share in 2012 resulted primarily from improved operating performance , as discussed in the information by business segment section below as well as the other factors described above . in addition , earnings per share in 2012 compared with 2011 benefited by a $ 0.12 per share incremental contribution from timberland ( net of acquisition-related expenses ) and an $ 0.08 per share gain on the sale of john varvatos . information by business segment management at each of the coalitions has direct control over and responsibility for its revenues and operating income , hereinafter termed coalition revenues and coalition profit , respectively . vf management evaluates operating performance and makes investment and other decisions based on available opportunities and analysis of coalition revenues and coalition profit . common costs such as information systems processing , retirement benefits and insurance are allocated to the coalitions based on appropriate metrics such as sales , usage or number of employees . 31 the following tables present a summary of the changes in coalition revenues and coalition profit during the last two years : replace_table_token_6_th the following section discusses changes in revenues and profitability by coalition : outdoor & action sports : replace_table_token_7_th the outdoor & action sports coalition includes the following brands : the north face ® , vans ® , timberland ® , kipling ® ( outside of north america ) , napapijri ® , reef ® , eastpak ® , jansport ® , smartwool ® , lucy ® and eagle creek ® . 32 the outdoor & action sports coalition revenues increased 9 % in 2013 over 2012 primarily due to an increase in unit volume . the north face ® , vans ® , and timberland ® brands achieved global revenue growth of 7 % , 17 % and 5 % , respectively . u.s. revenues increased 7 % in 2013 and international revenues increased 10 % with balanced growth in europe and asia pacific . story_separator_special_tag new store openings , comp store growth and higher e-commerce revenues contributed to a 19 % increase in the coalition 's direct-to consumer business . coalition revenues rose 6 % in 2012 compared with 2011 , reflecting 5 % and 17 % growth in the nautica ® and kipling ® brands , respectively . these revenue increases are primarily attributable to double-digit growth in the direct-to-consumer businesses of both brands . operating margin improved 150 basis points in 2013 over 2012 due to a continuing shift in the business mix toward higher margin direct-to-consumer businesses , improvements in the profitability of the wholesale and direct-to-consumer businesses , as well as the leverage of operating expenses on higher revenues . operating margin increased in 2012 compared with 2011 due to improved performance in both the wholesale and direct-to-consumer businesses . contemporary brands : replace_table_token_11_th the contemporary brands coalition consists of the 7 for all mankind ® brand of premium denim jeanswear and related apparel and the splendid ® and ella moss ® apparel brands . the john varvatos ® luxury apparel collection for men was in this coalition until it was sold on april 30 , 2012. excluding the impact of the sale of the john varvatos brand in 2012 , coalition revenues decreased 2 % in 2013 compared with 2012 due to unit volume decreases in the wholesale business , partially offset by higher direct-to-consumer revenues from new stores and e-commerce . revenues for the 7 for all mankind ® brand in the u.s. decreased 6 % due to contraction in demand for premium denim in the wholesale business , partially offset by higher direct-to-consumer revenues . revenues for the 7 for all mankind ® brand in europe increased 10 % , with balanced growth in the wholesale and direct-to-consumer businesses . splendid ® and ella moss ® brand revenues in the u.s. , on a combined basis , declined 1 % in 2013 compared with 2012 , as declines in wholesale were partially offset by an increase in the direct-to-consumer business . adjusting for the sale of john varvatos , coalition revenues increased 5 % in 2012 compared with 2011. the revenue increase was driven by growth in the splendid ® and ella moss ® brands , on a combined basis , of 18 % . u.s. revenues for the 7 for all mankind ® brand increased 4 % in 2012. revenues for the 7 for all mankind ® brand in europe decreased 6 % ( net of an 8 % negative impact from foreign currency translation ) . this 2 % net increase is due to growth in the direct-to-consumer businesses . revenues from the direct-to-consumer businesses in this coalition , adjusted for the sale of john varvatos , expanded by 15 % in 2012 due to new stores , comp store revenue growth and higher e-commerce revenues . operating margin decreased in 2013 compared with 2012 , primarily due to lower cost absorption resulting from a decline in sales volume , as well as increased investments in marketing and the direct-to-consumer businesses . operating margin increased in 2012 compared with 2011 , primarily due to a reduction in the sales of excess inventories , which are lower in profitability , for the 7 for all mankind ® brand and a greater percentage of revenues from the higher margin direct-to-consumer businesses . 35 other : replace_table_token_12_th vf outlet ® stores in the u.s. sell vf , as well as other branded products , at prices that are generally higher than what could be realized through external wholesale channels . revenues and profits of vf products sold in these stores are reported as part of the operating results of the applicable coalition , while revenues and profits of non-vf products are reported in the other category . reconciliation of coalition profit to consolidated income before income taxes : there are two types of costs necessary to reconcile total coalition profit to consolidated income before income taxes . these costs are ( i ) interest expense , net , which is excluded from coalition profit because substantially all financing costs are managed at the corporate office and are not under the control of coalition management and ( ii ) corporate and other expenses which are excluded from coalition profit to the extent they are not allocated to the operating coalitions . these expenses are summarized as follows : replace_table_token_13_th information systems and shared services these costs include management information systems and the centralized finance , supply chain , human resources , direct-to-consumer and customer management functions that support worldwide operations . operating costs of information systems and shared services are charged to the coalitions based on utilization of those services . costs to develop new computer applications are generally not allocated to the coalitions . the increase in information systems and shared services costs in 2013 and 2012 resulted from the overall growth of the businesses and costs associated with expanded software implementations and upgrades . information systems and shared services costs in 2012 also included increased information systems spending related to the integration of timberland . corporate headquarters ' costs headquarters ' costs include compensation and benefits of corporate management and staff , legal and professional fees and general and administrative expenses that have not been allocated to the coalitions . the increase in corporate headquarters ' costs in 2013 over 2012 was primarily due to an increase in charitable contributions . the increase in corporate headquarters ' costs in 2012 over 2011 was driven by increases in compensation , incremental costs related to the integration of timberland and investments in strategy and innovation . 36 other this category includes ( i ) costs of corporate programs or corporate-managed decisions that are not allocated to the coalitions , ( ii ) costs of registering , maintaining and enforcing certain of vf 's trademarks and ( iii ) miscellaneous consolidated costs , the most significant of which is related to the expense of vf 's centrally-managed u.s. defined benefit pension plans .
| analysis of results of operations consolidated statements of income the following table presents a summary of the changes in total revenues during the last two years : replace_table_token_4_th vf reported revenue growth of 5 % in 2013 driven by an increase in unit volume , with particular strength in the outdoor & action sports and sportswear coalitions . our international and direct-to-consumer businesses continued to expand , growing revenues by 8 % and 13 % , respectively . the increase in 2012 revenues compared with 2011 is primarily due to the outdoor & action sports coalition , driven by the acquisition of the timberland company ( timberland ) and organic growth . additional details on revenues are provided in the section titled information by business segment . vf 's foreign currency exposure primarily relates to businesses conducted in euro-based countries . the weighted average translation rates for the euro were $ 1.33 , $ 1.28 and $ 1.39 per euro for 2013 , 2012 and 2011 , respectively . in addition , vf has foreign currency exposure related to businesses in developed and emerging markets around the world . changes in foreign currency translation rates for all currencies positively impacted revenue comparisons by $ 45.8 million in 2013 and negatively impacted revenue comparisons by $ 169.8 million in 2012. the following table presents the percentage relationship to total revenues for components of the consolidated statements of income : replace_table_token_5_th gross margin increased 160 basis points to 48.1 % in 2013 compared with 46.5 % in 2012 , with improvements in nearly every coalition . the increase in gross margin reflects lower product costs and the continued shift in the revenue mix towards higher margin businesses , including outdoor & action sports , international and direct-to-consumer .
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“ selected financial data ” and our consolidated financial statements and related notes included in part iv , item 15 ( a ) of this annual report on form 10-k. as a result of our deemed controlling financial interests in the consolidated vies in accordance with u.s. gaap , we consolidate the financial position , results of operations and cash flows of these consolidated vies as if they were wholly-owned entities . we believe this presentation is meaningful for understanding our financial performance . refer to note 2 to our consolidated financial statements for a discussion of our determination that we are required to consolidate these entities ' financial position , results of operations and cash flows under the authoritative guidance for variable interest entities . therefore , the following discussion of our financial position and results of operations includes the consolidated vies ' financial position and results of operations . executive summary 2014 highlights ● net revenue during 2014 increased by $ 129.0 million , or 25.7 % compared to the same period in 2013. the increase in net revenue was primarily due to acquisitions completed in 2014 and 2013 , an increase in retransmission compensation on our legacy stations and an increase in advertising revenue on our legacy stations as 2014 was a political year . the incremental revenue from our newly acquired entities , net of a terminated outsourcing agreement of one station , was approximately $ 49.8 million in 2014 . ● during 2014 , our board of directors declared quarterly dividends of $ 0.15 per share of nexstar 's outstanding common stock , or total dividend payments of $ 18.4 million . acquisitions ● on march 13 , 2014 , we completed our acquisitions of the assets of kcau , the abc affiliate serving the sioux city , iowa market and whbf , the cbs affiliate serving the quad cities , iowa market , and the outstanding equity of woi , the abc affiliate serving the des moines , iowa market , from citadel . the total purchase price of these acquisitions amounted to $ 87.9 million , of which $ 65.9 million was paid in 2013 , funded by a combination of borrowings under our senior secured credit facility and cash on hand , and the remaining $ 22.0 million was paid in march 2014 , funded by cash on hand . ● effective april 1 , 2014 , we acquired the assets of ibs , a digital publishing platform and digital agency services provider , for a total purchase price of $ 18.8 million , funded by cash on hand . on may 15 , 2014 , we acquired the outstanding equity of etg , a digital content management firm that offers solutions for media companies to build a presence on the web and in the mobile content sector , for a total purchase price of $ 7.2 million , funded by cash on hand . these acquisitions broaden our digital media portfolio with technologies and offerings that are complementary to our existing digital businesses and multi-screen strategies . ● effective june 13 , 2014 , we completed the acquisition of 3 television stations and 2 satellite stations from gray tv for $ 34.5 million in cash , funded by a combination of proceeds from borrowings under our term loan a and cash on hand . the acquired stations along with their network affiliations are : wmbb , the abc affiliate in the panama city , florida market , krex/kreg/krey , the cbs affiliates and kgjt , the mynetworktv affiliate , all in the grand junction , colorado market . ● on june 13 , 2014 , pursuant to an amended purchase agreement , mission paid a $ 3.2 million deposit to acquire parker , the owner of television station kfqx , the fox affiliate in the grand junction , colorado market . mission expects to fund the remaining purchase price of $ 0.8 million through cash generated from operations prior to closing , which mission expects to occur during 2015. as discussed in note 2 to our consolidated financial statements , we are the primary beneficiary of a variable interest in parker . thus , we have included this station in our consolidated financial statements as of june 13 , 2014 . 39 ● on december 1 , 2014 , we completed the acquisition of the outstanding equity of privately-held grant , the owner of 7 television stations in 4 markets , for $ 92.4 million in cash , from the estate of milton grant . we paid a deposit of $ 8.5 million in november 2013 and the remaining purchase price was funded at closing by a combination of cash on hand and borrowings under our existing credit facility . the stations , along with their respective network affiliation agreements , are wfxr , the fox affiliate and wwcw , the cw affiliate , both serving the roanoke , virginia market , wzdx , the fox affiliate in the huntsville , alabama market , kgcw , the cw affiliate and kljb , the fox affiliate , both in the quad cities , iowa market and wlax/weux , the fox affiliates , in the la crosse , wisconsin market . weux operates as a satellite station of wlax . simultaneous with the grant acquisition , we sold the assets of kljb to marshall for $ 15.3 million in cash and we entered into local service agreements with marshall to perform certain sales and other services for this station . marshall funded the payment of the purchase price to us through borrowings under its credit facility which we guarantee . ● effective january 1 , 2015 , we completed the acquisition of the outstanding equity of privately-held cca as well as cca 's rights and obligations with respect to certain operating agreements cca has with white knight for a total consideration of $ 270.0 million in cash , subject to adjustments for working capital , from sp comcorp , nexpoint and highland . cca and white knight , collectively , owned 19 television stations in 10 markets . story_separator_special_tag ● in january and february 2015 , we borrowed a net amount of $ 40.0 million under our revolving credit facility to partially fund the acquisitions in january and february 2015. overview of operations as of december 31 , 2014 , we owned , operated , programmed or provided sales and other services to 87 television stations and 26 digital multicast channels , including those owned by mission , marshall and other vies , in 49 markets in the states of illinois , indiana , maryland , missouri , montana , tennessee , texas , pennsylvania , louisiana , arkansas , alabama , new york , florida , wisconsin , michigan , utah , vermont , california , iowa , colorado and virginia . the stations we serve are affiliates of abc ( 20 stations ) , nbc ( 16 stations ) , fox ( 19 stations ) , cbs ( 16 stations ) , the cw ( 8 stations and 2 digital multicast channels ) , mynetworktv ( 7 stations and 2 digital multicast channels ) , telemundo ( one station and one digital multicast channel ) , bounce tv ( 9 digital multicast channels ) , me-tv ( 8 digital multicast channels ) , latv ( one digital multicast channel ) , weather nation utah ( one digital multicast channel ) , this tv ( one digital multicast channel ) and movies ! ( one digital multicast channel ) . through various local service agreements , we provided sales , programming and other services to 23 stations and 3 digital multicast channels owned and or operated by independent third parties , including stations owned by mission and marshall . see note 2 to our consolidated financial statements in this form 10-k for a discussion of the local service agreements we have with these entities . the following table summarizes the various local service agreements we had in effect as of december 31 , 2014 with mission , marshall and parker : service agreements owner stations tba only ( 1 ) mission wfxp and khmt parker kfqx ssa & jsa ( 2 ) mission kjtl , kjbo-lp , klrt , kasn , kolr , kcit , kcpn-lp , kamc , krbc , ksan , wutr , wawv , wyou , kode , wtvo , ktve , wtvw and wvny marshall kljb ( 1 ) we have a time brokerage agreement ( “ tba ” ) with each of these stations which allows us to program most of each station 's broadcast time , sell each station 's advertising time and retain the advertising revenue generated in exchange for monthly payments to mission or parker , as applicable . ( 2 ) we have both a shared services agreement ( “ ssa ” ) and a joint sales agreement ( “ jsa ” ) with each of these stations . each ssa allows our station in the market to provide services including news production , technical maintenance and security , in exchange for our right to receive certain payments from mission or marshall , as applicable , as described in the ssas . each jsa permits us to sell a percentage of the station 's advertising time and retain a percentage of the station 's net advertising revenue , as described in the jsas . our ability to receive cash from mission , marshall and parker is governed by these local service agreements . under the local service agreements , we have received substantially all of mission 's and marshall 's available cash , after satisfaction of their operating costs and debt obligations . we anticipate we will continue to receive substantially all of mission 's and marshall 's available cash , after satisfaction of their operating costs and debt obligations . 41 we also guarantee all obligations incurred under mission 's and marshall 's senior secured credit facilities . similarly , mission and marshall are guarantors of our senior secured credit facility . mission is also a guarantor of our 6.875 % notes and 6.125 % notes but marshall is not a guarantor of these notes . in consideration of our guarantee of mission 's senior secured credit facility , mission has granted us purchase options to acquire the assets and assume the liabilities of each mission station , subject to fcc consent , for an amount equal to the greater of ( 1 ) seven times the station 's cash flow , as defined in the option agreement , less the amount of its indebtedness as defined in the option agreement , or ( 2 ) the amount of its indebtedness . additionally , on november 29 , 2011 , mission 's shareholders granted us an option to purchase any or all of mission 's stock , subject to fcc consent , for a price equal to the pro rata portion of the greater of ( 1 ) five times the stations ' cash flow , as defined in the agreement , reduced by the amount of indebtedness , as defined in the agreement , or ( 2 ) $ 100,000. these option agreements expire on various dates between 2017 and 2024 and are freely exercisable or assignable without the consent of mission or its shareholders . we expect these option agreements to be renewed upon expiration . we do not own mission , marshall and parker or their television stations .
| results of operations the following table sets forth a summary of the company 's operations ( in thousands ) and each component of operating expense as a percentage of net revenue : replace_table_token_16_th year ended december 31 , 2014 compared to year ended december 31 , 2013 the period-to-period comparability of our consolidated operating results is affected by acquisitions . we refer to stations that we owned or provided services to since january 1 , 2013 as legacy stations . the analysis of legacy stations helps us to differentiate between growth that comes from new acquisitions and growth that we achieve as a result of improved management and operations at our existing stations . 44 revenue gross local advertising revenue was $ 279.2 million for the year ended december 31 , 2014 , compared to $ 265.4 million for the same period in 2013 , an increase of $ 13.8 million , or 5.2 % . gross national advertising revenue was $ 109.9 million for the year ended december 31 , 2014 , compared to $ 113.4 million for the same period in 2013 , a decrease of $ 3.5 million , or 3.1 % . the net increase in local and national advertising revenue was primarily attributable to incremental revenue from our newly acquired stations of $ 12.7 million , net of a terminated outsourcing agreement of one station . during 2014 , our legacy stations ' local and national advertising revenue decreased by $ 2.4 million compared to the same period in 2013 , which reflected the changes in the mix between our legacy stations ' local , national and political advertising revenue , partially offset by increases in advertising revenue from the olympics in our nbc affiliate stations during the first quarter of 2014. our largest advertiser category , automotive , represented 24.7 % and 24.2 % of our legacy stations ' local and national advertising revenue for the years ended december 31 , 2014 and 2013 , respectively .
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this summary is not intended to be exhaustive , nor is it intended to be a substitute for the detailed discussion and analysis provided elsewhere in this form 10-k , including in the “ business ” section and the “ risk factors ” above , the remainder of this “ management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) ” , and the consolidated financial statements and related notes . about electronic arts we develop , market , publish and distribute game software content and services that can be played by consumers on a variety of platforms , including video game consoles ( such as the playstation 3 and 4 from sony , and the xbox 360 and xbox one from microsoft ) , pcs , mobile phones and tablets . we deliver our games and services to our players across multiple platforms , through multiple distribution channels , and directly ( online and wirelessly ) . some of our games are based on our wholly-owned intellectual property ( e.g . , battlefield , mass effect , need for speed , dragon age , the sims , simcity , bejeweled , and plants vs. zombies ) , and some of our games leverage content that we license from others ( e.g . , fifa , madden nfl and star wars ) . we also publish and distribute games developed by third parties ( e.g . , titanfall ) . our goal is to develop our intellectual properties into year-round businesses available on a range of platforms . our products and services may be purchased through physical and online retailers , platform providers such as console manufacturers , providers of free-to-download pc games played on the internet , mobile carriers via streaming and digital downloads and directly through origin , our own digital distribution platform . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > recent developments stock repurchase program . in may 2015 , our board of directors authorized a new program to repurchase up to $ 1 billion of our common stock . this new stock repurchase program , which expires on may 31 , 2017 , supersedes and replaces the stock repurchase authorization approved in may 2014 under which we repurchased approximately 8.3 million shares for approximately $ 337 million during fiscal year 2015. under the new program , we may purchase stock in the open market or through privately-negotiated transactions in accordance with applicable securities laws , including pursuant to pre-arranged stock trading plans . the timing and actual amount of the stock repurchases will depend on several factors including price , capital availability , regulatory requirements , alternative investment opportunities and other market conditions . we are not obligated to repurchase any specific number of shares under this program and it may be modified , suspended or discontinued at any time . we continue to actively repurchase shares . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , contingent assets and liabilities , and revenue and expenses during the reporting periods . the policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations , but also because application and interpretation of these policies requires both management judgment and estimates of matters that are inherently uncertain and unknown . as a result , actual results may differ materially from our estimates . revenue recognition , sales returns and allowances , and bad debt reserves we derive revenue principally from sales of interactive software games , and related content ( e.g. , micro-transactions ) and services on ( 1 ) video game consoles ( such as the playstation 3 and 4 from sony , and the xbox 360 and xbox one from microsoft ) and pcs , and ( 2 ) mobile phones and tablets . we evaluate revenue recognition based on the criteria set forth in fasb accounting standards codification ( “ asc ” ) 605 , revenue recognition and asc 985-605 , software : revenue recognition . we classify our revenue as either product revenue or service and other revenue . product revenue . our product revenue includes revenue associated with the sale of software games or related content , whether delivered via a physical disc ( e . g . , packaged goods ) or delivered digitally via the internet ( e.g. , full-game downloads , extra-content ) , and licensing of game software to third-parties . product revenue also includes revenue from mobile full-game downloads that do not require our hosting support ( e.g . , premium mobile games ) , and sales of tangible products such as hardware , peripherals , or collectors ' items . service and other revenue . our service revenue includes revenue recognized from time-based subscriptions and games or related content that requires our hosting support in order to utilize the game or related content ( i.e . , can only be played with an internet connection ) . this includes ( 1 ) entitlements to content that are accessed through hosting services ( e.g. , micro-transactions for internet-based , social network and free-to-download mobile games ) , ( 2 ) massively multi-player online ( “ mmo ” ) games ( both software game and subscription sales ) , ( 3 ) subscriptions for our battlefield premium , ea access and pogo-branded online game services , and ( 4 ) allocated service revenue from sales of software games with an online service element ( i.e. , “ matchmaking ” service ) . our other revenue includes advertising and non-software licensing revenue . story_separator_special_tag while we consistently apply this methodology , inherent assumptions used in this methodology include which online-enabled games to sample , whether to use only units that have registered online , whether to weight the number of days for each game , whether to weight the days based on the units sold of each game , determining the period of time between the date of sale to reseller and the date of sale to the consumer and assessing online gameplay trends . 27 prior to july 1 , 2013 , for most sales , we estimated the offering period to be six months and recognized revenue over this period in the month after delivery . during the three months ended september 30 , 2013 , we completed our fiscal 2014 annual evaluation of the estimated offering period and noted that generally , consumers were playing our games online over a longer period of time . based on this , we concluded that for physical software sales made after june 30 , 2013 , the estimated offering period should be increased to nine months , resulting in revenue being recognized over a longer period of time . this change in estimate resulted in an estimated decrease to net revenue and net income of $ 474 million and a decrease of $ 1.50 of diluted earnings per share for fiscal year 2014. during the fiscal year ended march 31 , 2015 , this change in estimate resulted in an estimated increase to net revenue and net income of $ 474 million and an increase of $ 1.46 of diluted earnings per share . the estimated offering period for digitally distributed games did not change and is six months . we completed our fiscal 2015 annual evaluation during the second quarter and determined that the estimated offering period for physical software sales and digital sales continues to be nine months and six months , respectively . other multiple-element arrangements in some of our multiple-element arrangements , we sell tangible products with software and or software-related offerings . these tangible products are generally either peripherals or ancillary collectors ' items , such as figurines and comic books . revenue for these arrangements is allocated to each separate unit of accounting for each deliverable using the relative selling prices of each deliverable in the arrangement based on the selling price hierarchy described below . if the arrangement contains more than one software deliverable , the arrangement consideration is allocated to the software deliverables as a group and then allocated to each software deliverable in accordance with asc 985-605. we determine the selling price for a tangible product deliverable based on the following selling price hierarchy : vsoe ( i.e . , the price we charge when the tangible product is sold separately ) if available , third-party evidence ( “ tpe ” ) of fair value ( i.e . , the price charged by others for similar tangible products ) if vsoe is not available , or our best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . determining the besp is a subjective process that is based on multiple factors including , but not limited to , recent selling prices and related discounts , market conditions , customer classes , sales channels and other factors . in accordance with asc 605 , provided the other three revenue recognition criteria other than delivery have been met , we recognize revenue upon delivery to the customer as we have no further obligations . we must make assumptions and judgments in order to ( 1 ) determine whether and when each element is delivered , ( 2 ) determine whether vsoe exists for each undelivered element , and ( 3 ) allocate the total price among the various elements , as applicable . changes to any of these assumptions and judgments , or changes to the elements in the arrangement , could cause a material increase or decrease in the amount of revenue that we report in a particular period . principal agent considerations in accordance with asc 605-45 , revenue recognition : principal agent considerations , we evaluate sales of our interactive software games via third party storefronts , including digital storefronts such as xbox live marketplace , sony psn , apple app store , and google play , in order to determine whether or not we are acting as the principal or as an agent , which we consider in determining if revenue should be reported gross or net of fees retained by the storefront . key indicators that we evaluate in determining gross versus net treatment include but are not limited to the following : the party responsible for delivery/fulfillment of the product or service to the end consumer the party responsible for the billing , collection of fees and refunds to the consumer the storefront and terms of sale that govern the consumer 's purchase of the product or service the party that sets the pricing with the consumer and has credit risk based on the evaluation of the above indicators , we have determined that we are generally acting as an agent and are not considered the primary obligor to consumers for our interactive software games distributed through third party digital storefronts . we therefore recognize revenue related to these arrangements on a net basis . sales returns and allowances and bad debt reserves we reduce revenue primarily for estimated future returns and price protection which may occur with our distributors and retailers ( “ channel partners ” ) . price protection represents our practice to provide our channel partners with a credit allowance to lower their wholesale price on a particular product in the channel . the amount of the price protection is generally the difference between the old wholesale price and the new reduced wholesale price . in certain countries for our pc and console packaged goods software products , we also have a practice of allowing channel partners to return older software products in the channel in exchange for a credit allowance .
| financial results total net revenue for the fiscal year ended march 31 , 2015 was $ 4,515 million , an increase of $ 940 million , or 26 percent , as compared to the fiscal year ended march 31 , 2014 . net revenue for the fiscal year ended march 31 , 2015 was driven by fifa 14 , fifa 15 , and battlefield 4. at march 31 , 2015 , deferred net revenue associated with sales of online-enabled games decreased by $ 207 million as compared to march 31 , 2014 , directly increasing the amount of reported net revenue during the fiscal year ended march 31 , 2015 . at march 31 , 2014 , deferred net revenue associated with sales of online-enabled games increased by $ 446 million as compared to march 31 , 2013 , directly decreasing the amount of reported net revenue during the fiscal year ended march 31 , 2014 . disregarding the impact of the deferred net revenue of $ 287 million and $ 11 million of unrecognized cash flow hedging net gains , reported net revenue would have increased by approximately $ 298 million , or 7 percent , during the fiscal year ended march 31 , 2015 as compared to the fiscal year ended march 31 , 2014 . net income for the fiscal year ended march 31 , 2015 was $ 875 million as compared to $ 8 million for the fiscal year ended march 31 , 2014 . diluted earnings per share for the fiscal year ended march 31 , 2015 was $ 2.69 as compared to a diluted earnings per share of $ 0.03 for the fiscal year ended march 31 , 2014 .
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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 80 percent of the fortune 100—use verint solutions . our portfolio of enterprise intelligence solutions and security intelligence solutions helps organizations make big data actionable through the ability to capture , analyze , and act on large volumes of rich , complex , and often underused information sources—such as voice , video , and unstructured text . in the enterprise intelligence market , our customer-centric workforce optimization and voice of the customer solutions help organizations improve 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 , analyze and take action based on 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 , facilitating compliance , and enhancing products and services . for the years ended january 31 , 2013 , 2012 , and 2011 , this segment represented approximately 59 % , 56 % , and 57 % of our total revenue , respectively . in our video intelligence segment , we are a leading provider of video intelligence solutions and a provider of situation intelligence solutions designed to optimize security and enhance operations . our video intelligence solutions portfolio includes ip video management software and services ; edge devices for capturing , digitizing , and transmitting video over networks ; video 30 analytics ; networked video recorders ; and psim . for the years ended january 31 , 2013 , 2012 , and 2011 , this segment represented approximately 14 % , 18 % , and 18 % of our total revenue , respectively . in our communications intelligence segment , we are a leading provider of communications intelligence solutions and a developer of cyber security 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 , 2013 , 2012 , and 2011 , this segment represented approximately 27 % , 26 % , and 25 % 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 revolving 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 . we are in an early stage market where the value of certain aspects of our products and solutions is still in the process of market acceptance . we believe that our future growth depends in part on the continued and increasing acceptance and realization of the value of our data analytics across our product offerings . technological change . our success depends in part on our ability to keep pace with technological changes and evolving industry standards in our product offerings and to successfully develop , launch , and drive demand for new and enhanced , innovative , high-quality solutions that meet or exceed customer needs . information technology spending . our growth and results depend in part on general economic conditions and the pace of information technology spending by both commercial and governmental customers . see also `` risk factors '' under item 1a for a more complete description of these and other risks that may impact future revenue and profitability . recent developments on august 12 , 2012 , we entered into the cti merger agreement providing for the cti merger , upon the terms and subject to the conditions set forth in the cti merger agreement . story_separator_special_tag also in october 2009 , the fasb amended the requirements for establishing separate units of accounting in a multiple-deliverable arrangement to require the allocation of arrangement consideration to each deliverable to be based on the relative selling price . the selling price used for each deliverable will be based on vendor-specific objective evidence ( `` vsoe '' ) if available , third-party evidence ( `` tpe '' ) if vsoe is not available , or estimated selling price ( `` esp '' ) if neither vsoe nor tpe is available . 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 . 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 multiple-deliverable 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 32 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 . the manner in which we account for multiple-element arrangements that contain only software and software-related elements was not affected by the amended multiple-deliverable guidance . we allocate a portion of the total purchase price to the undelivered elements , primarily installation services , pcs , consulting , 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 . we have established processes to update esp for each element , when appropriate , to ensure that it reflects recent pricing experience . pcs revenue is derived from providing technical software support services and unspecified software updates and upgrades to customers on a when-and-if-available basis . pcs revenue is recognized ratably over the term of the maintenance period which , in most cases , is one year . when pcs is included within a multiple-element arrangement , we utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish vsoe of the pcs , depending upon the business operating segment , geographical region , or product line . under the substantive renewal rate approach , we believe it is necessary to evaluate whether both the support renewal rate and term are substantive , and whether the renewal rate is being consistently applied to subsequent renewals for a particular customer .
| overview of operating results the following table sets forth a summary of certain key financial information for the years ended january 31 , 2013 , 2012 , and 2011 : replace_table_token_5_th year ended january 31 , 2013 compared to year ended january 31 , 2012 . our revenue increased approximately $ 56.9 million , or 7 % , to $ 839.5 million in the year ended january 31 , 2013 from $ 782.6 million in the year ended january 31 , 2012 . in our enterprise intelligence segment , revenue increased approximately $ 52.5 million , or 12 % , to $ 490.5 million in the year ended january 31 , 2013 from $ 438.0 million in the year ended january 31 , 2012 . the increase consisted of a $ 40.2 million increase in service and support revenue , and a $ 12.3 million increase in product revenue . in our communications intelligence segment , revenue increased approximately $ 23.0 million , or 11 % , from $ 206.6 million in the year ended january 31 , 2012 to $ 229.6 million in the year ended january 31 , 2013 . the increase consisted of a $ 16.3 million increase in service and support revenue and a $ 6.7 million increase in product revenue . in our video intelligence segment , revenue decreased approximately $ 18.5 million , or 13 % , from $ 138.0 million in the year ended january 31 , 2012 to $ 119.5 million in the year ended january 31 , 2013 , primarily due to a decrease in product revenue . for additional details on our revenue by segment , see `` —revenue by operating segment '' .
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8 million of story_separator_special_tag of operations the following discussion and analysis of the results of operations and financial condition should be read in conjunction with the selected financial data and the company 's consolidated financial statements and notes thereto included in this form 10-k. overview all operating metrics discussed in this section as of and for the year s ended december 31 , 2015 , 2014 and 2013 exclude sold assets . management believes excluding the results of such assets provides the most relevant perspective on the ongoing operations of the company . p l ease refer to “ item 1 5 , “ exhibits and financial statements schedules ” ” for financial metrics that include results from sold assets . the company focuses on increasing profitability and cash flow aimed at maximizing shareholder value . the company strives to maintain high occupancy levels while increasing rental rates and minimizing capital expenditures when market conditions allow , although the company may decrease rental rates in markets where conditions require . the company also acquires properties it believes will create long-term value , and from time to time dispose s of properties which no longer fit within the company 's strategic objectives . operating results are driven primarily by income from rental operations and are therefore substantially influenced by d emand for rental space within our properties and our markets , which impacts occupancy , rental rates and capital requirements . during 2015 , the company executed leases comprising 9.5 million square feet of space including 5.9 million square feet of renewals of existing leases and 3.6 million square feet of new leases . overall , the change in rental rates for the company continued to improve . see further discussion of operating results below . critical accounting policies and estimates : our accounting policies are described in note 2 to the consolidated financial statements included in this form 10-k. we believe our most critical accounting policies relate to revenue recognition , property acquisitions , allowance for doubtful accounts , impairment of long-lived assets , depreciation , accruals of operating expenses and accruals for contingencies , each of which we discuss below . revenue recognition : the company must meet four basic criteria before revenue can be recognized : persuasive evidence of an arrangement exists ; the delivery has occurred or services have been rendered ; the fee is fixed or determinable ; and collectability is reasonably assured . all leases are classified as operating leases . rental income is recognized on a straight-line basis over the terms of the leases . straight-line rent is recognized for all tenants with contractual fixed increases in rent that are not included on the company 's credit watch list . deferred rent receivable represents rental revenue recognized on a straight-line basis in excess of billed rents . reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as rental income in the period the applicable costs are incurred . property management fees are recognized in the period earned . property acquisitions : the purchase price of acquired properties is recorded to land , buildings and improvements ( including tenant improvements , unamortized lease commissions , acquired in-place lease values , and tenant relationships , if any ) and intangible assets and liabilities associated with the value of above-market and below-market leases based on their respective estimated fair values . acquisition related costs are expensed as incurred . in determining the fair value of the tangible assets of the acquired properties , management considers the value of the properties as if vacant as of the acquisition date . management must make significant assumptions in determining the value of assets acquired and liabilities assumed . using different assumptions in the recording of the purchase cost of the acquired properties would affect the timing of recognition of the related revenue and expenses . amounts recorded to land are derived from comparable sales of land within the same region . amounts recorded to buildings and improvements , tenant improvements and unamortized lease commissions are based on current market replacement costs and other market information . 23 the value recorded to the above-market or below-market in-place lease values of acquired properties is determined based upon the present value ( using a discount rate which reflects the risks associated with the acquired leases ) of the difference between ( i ) the contractual rents to be paid pursuant to the in-place leases , and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over a period equal to the remaining non-cancelable term of the lease . the amounts recorded to above-market or below-market leases are included in other assets or other liabilities in the accompanying consolidated balance sheets and are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases . allowance for doubtful accounts : rental revenue from our tenants is our principal source of revenue . tenant receivables consist primarily of amounts due for contractual lease payments , reimbursements of common area maintenance expenses , property taxes and other expenses recoverable from tenants . deferred rent receivable represents the amount that the cumulative straight-line rental income recorded to date exceeds cash rents billed to date under the lease agreement . we monitor the collectability of our receivable balances including the deferred rent receivable on an ongoing basis . based on these reviews , we maintain an allowance for doubtful accounts for estimated losses resulting from the possible inability of our tenants to make required rent payments to us . tenant receivabl es and deferred rent receivable are carried net of the allowances for uncollectible tenant receivables and deferred rent . story_separator_special_tag each of the eight regions in which the company owns assets is subject to its own unique market influences . see “ supplemental property data and trends ” below for more information on regional operating data . effect of acquisitions , development and dispositions of properties on the company 's operations : the company is focused on growing its operations by looking for opportunities to expand its presence in existing and new markets through strategic acquisitions that meet the company 's focus on multi-tenant flex , industrial and office parks in markets where it has or may obtain a substantial market presence . the company may also from time to time dispose of assets based on market conditions . 25 the company made no acquisitions in 2015 . as of december 31 , 2015 , the blended occupancy rate of the nine assets comprising 2.2 million square feet acquired during 2013 and 2014 , non-same park ( defined below ) was 93.9 % compared to a blended occupancy rate of 66.1 % at the time of acquisition . as of december 31 , 2015 , the company had 135 ,000 square feet of vacant space spread over these acquisitions , which we believe provides the company with the opportunity to generate additional rental income given that the company 's same park assets in these same submarkets have a weighted average occupancy of 95.5 % at december 31 , 2015 . the table below contains the assets acquired from 2013 to 2014 ( dollars and square feet in thousands ) : replace_table_token_10_th during 2015 , the company sold four business parks aggregating 492,000 square feet in non-strategic markets for net proceeds of $ 41.2 m illion , which resulted in a gain of $ 23.4 million . additionally , as part of an eminent domain process , the company sold five buildings , aggregating 82,000 square feet , at the company 's overlake business park located in redmond , washington , for $ 13.9 million , which resulted in a gain of $ 4.8 million . with these sales the company has completed its stated objective of exiting non-strategic markets in sacramento , california , oregon and arizona . during 2014 , the company sold five business parks aggregating 1.9 million square feet and 11.5 acres of land in non-strategic markets , including portland , oregon and phoenix , arizona , for net proceeds of $ 212.2 million , which resulted in a gain of $ 92.4 million . in 2013 , the company entered into a joint venture , in which it will maintain a 95.0 % economic interest , with an unrelated real estate development company for the purpose of developing a 395-unit multi-family building , to be known as highgate , located within the company 's westpark business park in tysons , virginia . the company contributed a five-acre site on which the multi-family project will be developed , along with capitalized improvements , to the joint venture on october 5 , 2015. subsequent to the contribution date , demolition , site preparation and construction commenced and is expected to be completed in late 2017. the total development costs for the joint venture , including a land value of $ 27.0 million , are estimated to be $ 117.2 million . as of december 31 , 2015 , the company 's investment in unconsolidated joint venture was $ 26 . 7 million . scheduled lease expirations : in addition to the 1.4 million square feet , or 5.2 % , of space available in our total portfolio as of december 31 , 2015 , 2,186 leases representing 22.0 % of the leased square footage of our total portfolio , or 21.3 % of annualized rental income , are scheduled to expire in 2016 . our ability to re-lease available space will depend upon market conditions in the specific submarkets in which our properties are located . as a result , w e can not predict with certainty the rate at which expiring leases will be re-leased . impact of inflation : although inflation has not been significant in recent years , it remains a potential factor in our economy , and the company continues to seek ways to mitigate its potential impact . a substantial portion of the company 's leases require tenants to pay operating expenses , including real estate taxes , utilities , and insurance , as well as increases in common area expenses , partially reducing the company 's exposure to inflation . 26 concentration of portfolio by region : the table below reflects the company 's square footage based on regional concentration as of december 31 , 2015 . as part of the table below , we have reconciled total noi to net income ( in thousands ) : replace_table_token_11_th 27 concentration of credit risk by industry : the information below depicts the industry concentration of our tenant base as of december 31 , 2015 . the company analyzes this concentration to minimize significant industry exposure risk . replace_table_token_12_th the information below depicts the company 's top 10 customers by annualized rental income as of december 31 , 2015 ( in thousands ) : replace_table_token_13_th ( 1 ) for leases exp iring prior to december 31 , 2016 , annualized rental income represents income to be received under exis ting leas es from january 1 , 2016 through the date of expiration . comparison of 2015 to 2014 story_separator_special_tag increase in occupancy and the acquisition of additional parks during the latter half of 2014 . including the sold assets , rental income was $ 373.1 million and $ 376.3 million for the years ended december 31 , 201 5 and 2014 , respectively . facility management fees : facility management fees , derived from ps , account for a small portion of the company 's revenues . during the year ended december 31 , 2015 , $ 540,000 of revenue was recognized from facility management fees compared to $ 660,000 for the year ended december 31 , 2014 .
| results of operations : net income for the year ended december 31 , 2015 was $ 149.0 million compared to $ 204.7 million for the year ended december 31 , 2014 . net income allocable to common shareholders for the year ended december 31 , 2015 was $ 68.3 million compared to $ 113.2 million for the year ended december 31 , 2014 . net income per common share on a diluted basis was $ 2.52 for the year ended december 31 , 2015 compared to $ 4.19 for the year ended december 31 , 2014 ( based on weighted average diluted common shares outstanding of 27,051,000 and 27,000,000 , respectively ) . the de crease in net income allocable to common shareholders was primarily due to higher gain on sale of assets reported in 2014 ( gain on sale of real estate facilities was $ 28.2 million in 2015 compared to $ 92.4 million in 2014 ) . 28 effective march , 2014 , the company entered into a performance-based restricted stock unit program , the senior management long-term equity incentive program for 2014-2017 ( “ 2014 lteip ” ) , with certain employees of the company . net compensation expense of $ 8.2 million and $ 7.4 million related to the 2014 lteip was recognized for the year s ended december 31 , 2015 and 2014 , respectively . to presen t comparative results , the amortization of 2014 lteip reported in either cost of operations ( for operations leadership ) or general and administrative expenses ( for executive management ) have been reflected as adjustments in the tables below . in order to evaluate the performance of the company 's portfolio over comparable periods , management analyzes the operating performance of properties owned and operated throughout both periods ( herein referred to as “ same park ” ) . the same park portfolio include s all operating properties a cquired prior to january 1 , 201 3 .
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kilroy realty corporation by heidi r. roth heidi r. roth executive vice president and chief accounting officer power of attorney know all persons by these presents , that we , the undersigned directors and officers of kilroy realty corporation , do hereby severally constitute and appoint john kilroy , jeffrey c. hawken , tyler h. rose and heidi r. roth , and each of them , as our true and lawful attorneys-in-fact and agents , each with full powers of substitution , to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below , which said attorneys-in-fact and agents , or any of them , may deem necessary or advisable to enable kilroy realty corporation to comply with the securities exchange act story_separator_special_tag the following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report . the results of operations discussion are combined for the company and the operating partnership because there are no material differences in the results of operations between the two reporting entities . forward-looking statements statements contained in this “ item 7. management 's discussion and analysis of financial condition and results of operations ” that are not historical facts may be forward-looking statements . forward-looking statements include , among other things , statements or information concerning our plans , objectives , capital resources , portfolio performance , results of operations , projected future occupancy and rental rates , lease expirations , debt maturities , potential investments , strategies such as capital recycling , development and redevelopment activity , projected construction costs , projected construction commencement and completion dates , projected square footage of space that could be constructed on undeveloped land that we own , projected rentable square footage of or number of units in properties under construction or in the development pipeline , anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions , projected increases in the value of properties , dispositions , future executive incentive compensation , pending , potential or proposed acquisitions , plans to grow our net operating income and ffo , our ability to re-lease properties at or above current market rates , anticipated market conditions and demographics and other forward-looking financial data , as well as the discussion in “ —factors that may influence future results of operations ” , “ —liquidity and capital resource of the company ” , and “ —liquidity and capital resources of the operating partnership. ” forward-looking statements can be identified by the use of words such as “ believes , ” “ expects , ” “ projects , ” “ may , ” “ will , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ pro forma , ” “ estimates ” or “ anticipates ” and the negative of these words and phrases and similar expressions that do not relate to historical matters . forward-looking statements are based on our current expectations , beliefs and assumptions , and are not guarantees of future performance . forward-looking statements are inherently subject to uncertainties , risks , changes in circumstances , trends and factors that are difficult to predict , many of which are outside of our control . accordingly , actual performance , results and events may vary materially from those indicated in the forward-looking statements , and you should not rely on the forward-looking statements as predictions of future performance , results or events . numerous factors could cause actual future performance , results and events to differ materially from those indicated in the forward-looking statements , including , among others : global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants ; adverse economic or real estate conditions generally , and specifically , in the states of california and washington ; risks associated with our investment in real estate assets , which are illiquid , and with trends in the real estate industry ; defaults on or non-renewal of leases by tenants ; any significant downturn in tenants ' businesses ; our ability to re-lease property at or above current market rates ; costs to comply with government regulations , including environmental remediations ; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations ; increases in interest rates and our ability to manage interest rate exposure ; 51 the availability of financing on attractive terms or at all , which may adversely impact our future interest expense and our ability to pursue development , redevelopment and acquisition opportunities and refinance existing debt ; a decline in real estate asset valuations , which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing , and which may result in write-offs or impairment charges ; significant competition , which may decrease the occupancy and rental rates of properties ; potential losses that may not be covered by insurance ; the ability to successfully complete acquisitions and dispositions on announced terms ; the ability to successfully operate acquired , developed and redeveloped properties ; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts ; delays or refusals in obtaining all necessary zoning , land use and other required entitlements , governmental permits and authorizations for our development and redevelopment properties ; increases in anticipated capital expenditures , tenant improvement and or leasing costs ; defaults on leases for land on which some of our properties are located ; adverse changes to , or implementations of , applicable laws , regulations or legislation , as well as business and consumer reactions to such changes ; risks associated with joint venture investments , including our lack of sole decision-making authority , our story_separator_special_tag in addition , we also record the cost of certain tenant improvements paid for or reimbursed by tenants when we conclude that we are the owner of such tenant improvements using the factors discussed above . for these tenant-funded tenant improvements , we record the amount funded or reimbursed by tenants as deferred revenue , which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises . during the years ended december 31 , 2017 , 2016 , and 2015 , we capitalized $ 22.0 million , $ 22.3 million and $ 22.8 million , respectively , of tenant-funded tenant improvements . the amount of tenant-funded tenant improvements recorded in any given year varies based upon the mix of specific leases executed and or commenced during the reporting period . for the years ended december 31 , 2017 , 2016 , and 2015 , we recognized $ 16.8 million , $ 13.2 million and $ 13.3 million , respectively , of non-cash rental revenue related to the amortization of deferred revenue recorded in connection with tenant-funded tenant improvements . when we conclude that we are not the owner and the tenant is the owner of certain tenant improvements for accounting purposes , we record our contribution towards those improvements as a lease incentive , which is amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease , and rental revenue recognition begins when the tenant takes possession of or controls the space . our determination as to whether we are or the tenant is the owner of tenant improvements for accounting purposes is made on a lease-by-lease basis and has a significant impact on the amount of non-cash rental revenue that we record related to the amortization of deferred revenue for tenant-funded tenant improvements , and also has a significant effect on the timing of commencement of revenue recognition . for residential properties , we commence revenue recognition upon occupancy of the premises by the tenant . residential rental revenue is recognized on a straight-line basis over the term of the related lease , net of any concessions . 55 tenant reimbursement revenue reimbursements from tenants consist of amounts due from tenants for common area maintenance , real estate taxes , and other recoverable costs , including capital expenditures . calculating tenant reimbursement revenue requires an in-depth analysis of the complex terms of each underlying lease . examples of judgments and estimates used when determining the amounts recoverable include : estimating the final expenses , net of accruals , that are recoverable ; estimating the fixed and variable components of operating expenses for each building ; conforming recoverable expense pools to those used in establishing the base year or base allowance for the applicable underlying lease ; and concluding whether an expense or capital expenditure is recoverable pursuant to the terms of the underlying lease . during the year , we accrue estimated tenant reimbursement revenue in the period in which the tenant reimbursable costs are incurred based on our best estimate of the amounts to be recovered . throughout the year , we perform analyses to properly match tenant reimbursement revenue with reimbursable costs incurred to date . additionally , during the fourth quarter of each year , we perform preliminary reconciliations and accrue additional tenant reimbursement revenue or refunds . subsequent to year end , we perform final detailed reconciliations and analyses on a lease-by-lease basis and bill or refund each tenant for any cumulative annual adjustments in the first and second quarters of each year for the previous year 's activity . our historical experience for the years ended december 31 , 2016 and 2015 has been that our final reconciliation and billing process resulted in final amounts that approximated the total annual tenant reimbursement revenues recognized . allowances for uncollectible current tenant receivables and deferred rent receivables tenant receivables and deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and deferred rent receivables . current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses , property taxes , and other costs recoverable from tenants . deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement . as of december 31 , 2017 and 2016 , current receivables were carried net of an allowance for uncollectible tenant receivables of $ 2.3 million and $ 1.7 million , respectively , for each period and deferred rent receivables were carried net of an allowance for deferred rent of $ 3.2 million and $ 1.5 million , respectively . management 's determination of the adequacy of the allowance for uncollectible tenant receivables and the allowance for deferred rent receivables is performed using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment . this determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made , including the creditworthiness of specific tenants , specific industry trends and conditions , and general economic trends and conditions . since these factors are beyond our control , actual results can differ from our estimates , and such differences could be material . with respect to the allowance for uncollectible tenant receivables , the specific identification methodology analysis relies on factors such as the age and nature of the receivables , the payment history and financial condition of the tenant , our assessment of the tenant 's ability to meet its lease obligations , and the status of negotiations of any disputes with the tenant .
| operating and development highlights 2017 was another strong year of performance for the company . we delivered strong results across all areas of our business and continued to create value in our operating and development platforms that we believe will drive future earnings and dividend growth . leasing . during 2017 , we executed new and renewal leases totaling 2.0 million square feet within our stabilized portfolio with an increase in gaap rents of 25.0 % and an increase in cash rents of 11.2 % . the occupancy of our stabilized office portfolio was 95.2 % as of december 31 , 2017 . we also signed approximately 0.9 million square feet of leases in our development portfolio , securing long-term , high quality tenants for 62 % of our three currently under construction office projects . development . we continued to execute on our development program during 2017 , delivering one project , commencing construction on a new development project and acquiring a new future development site . in january 2017 , we stabilized our columbia square phase 2 - office development project in hollywood , california , with a total estimated investment of $ 230.0 million totaling 365,359 square feet of office space that is 100 % leased . also during 2017 , we commenced construction on 333 dexter located in the south lake union district of seattle , washington , one of the strongest performing markets in the country . this project encompasses approximately 650,000 gross rentable square feet of office space at a total estimated investment of $ 380.0 million . including 333 dexter , as of december 31 , 2017 , the company had four development projects under construction comprised of approximately 1.8 million square feet of office space , 237 residential units , and 96,000 square feet of retail space , representing a total estimated investment of approximately $ 1.5 billion .
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the amendments apply to all other inventory , which includes inventory that is measured using first-in , first-out ( fifo ) or average cost . the pronouncement is effective for annual periods beginning after december 15 , 2016 , and interim periods within those fiscal years , and early adoption is permitted . we are currently evaluating the impact of adopting this guidance on our consolidated financial statements and disclosures included within notes to the consolidated financial statements . in april 2015 , the fasb issued asu no . 2015-03 , which provides guidance to simplify the presentation of debt issuance costs . these amendments require that 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 the audited consolidated financial statements and notes to consolidated financial statements included elsewhere in this annual report on form 10-k and the information included in our other filings with the sec . this discussion includes forward-looking statements within the meaning of section 27a of the securities act and section 21e of the exchange act . see “ cautionary note regarding forward-looking statements ” above . overview everi is dedicated to providing video and mechanical reel gaming content and technology solutions , integrated gaming payments solutions and compliance and efficiency software . everi games provides : ( a ) comprehensive content , electronic gaming units and systems for native american and commercial casinos , including the award winning tournevent® slot tournament solution ; and ( b ) the central determinant system for the vlts installed at racetracks in the state of new york . everi payments provides : ( a ) access to cash at gaming facilities via atm cash withdrawals , credit card cash access transactions , pos debit card transactions , and check verification and warranty services ; ( b ) fully integrated gaming industry kiosks that provide cash access and related services ; ( c ) products and services that improve credit decision making , automate cashier operations and enhance patron marketing activities for gaming establishments ; ( d ) compliance , audit and data solutions ; and ( e ) online payment processing solutions for gaming operators in states that offer intrastate , internet-based gaming and lottery activities . significant trends and developments impacting our business merger with everi games in december 2014 , holdings completed its acquisition of everi games holding inc. ( formerly known as multimedia games holding company , inc. ) ( “ everi games holding ” ) . pursuant to the terms of the merger agreement , merger sub merged with and into everi games holding , with everi games holding continuing as the surviving corporation . in the merger , everi games holding became a wholly owned subsidiary of holdings . also , as a result of the merger , each outstanding share of common stock , par value $ 0.01 per share , of everi games holding , other than shares held by holdings , everi games holding , merger sub or their respective subsidiaries , was cancelled and converted into the right to receive $ 36.50 in cash , without interest , together with consideration paid in connection with the acceleration and full vesting of certain everi games holding equity awards . we completed the merger and paid the total merger consideration of approximately $ 1.1 billion in cash . to fund the merger , we entered into a credit facility consisting of a $ 500.0 million , six year senior secured term loan facility that matures in 2020 ( the “ term loan ” ) , and a $ 50.0 million , five year senior secured revolving credit facility that matures in 2019 ( “ revolving credit facility , ” and together with the term loan , the “ credit facilities ” ) and issued $ 350.0 million aggregate principal amount of 7.75 % senior secured notes due 2021 ( the “ secured notes ” ) , and $ 350.0 million aggregate principal amount of 10.00 % senior unsecured notes due 2022 ( the “ unsecured notes , ” and , together with the secured notes or the refinanced secured notes ( defined below ) , as applicable , the “ notes ” ) . the secured notes were subsequently refinanced , as discussed below . the revolving credit facility remained undrawn at the closing of the merger . in relation to the merger , we incurred expenses of approximately $ 52.6 million associated with debt issuance costs and original issue discounts . these amounts were capitalized and are being amortized to interest expense based upon the related debt agreements using the straight-line method . we expensed approximately $ 2.7 million and $ 10.7 million of costs incurred related to the acquisition of everi games holding for financial advisory services , financing related fees , accounting and legal fees and other transaction-related expenses for the years ended december 31 , 2015 and 2014 , respectively . these expenses are included in the consolidated statements of ( loss ) income and comprehensive ( loss ) income within operating expenses . these expenses do not include any costs related to additional site consolidation or rationalization that we might consider in the future . gain contingency settlement in january 2014 , we filed a complaint against certain third party defendants alleging conspiracy in restraint of competition regarding interchange fees , monopolization by defendants in the relevant market , and attempted monopolization of the 42 defendants in the relevant market . we demanded a trial by jury of all issues so triable . the defendants filed a motion to dismiss on march 13 , 2014. a settlement agreement was made as of january 16 , 2015 , and , on january 22 , 2015 , the settlement agreement was executed and delivered in connection with respect to which we received $ 14.4 million in cash and recorded the settlement proceeds in the first quarter of 2015 . story_separator_special_tag this increased competition has resulted in pricing pressure for both our games and payments businesses . · there is increasing governmental oversight related to the cost of transaction processing and related fees to the consumer . we expect the financial services and payments industry to respond to these legislative acts by changing other fees and costs , which may negatively impact the payments business in the future . · casino operators continue to try to broaden their appeal by focusing on investments in the addition of non-gaming amenities to their facilities , which could impact casino operator 's capital allocation . · the credit markets in the united states and around the world are volatile and unpredictable . factors affecting comparability our consolidated financial statements included in this report that present our financial condition and results of operations reflect the following transactions and events : · in october 2015 , we conducted our annual impairment test for our reporting units during the fourth quarter of 2015. a portion of our goodwill was impaired by approximately $ 75.0 million for the year ended december 31 , 2015 based upon the results of our testing . · in august 2015 , we acquired certain assets of resort advantage , llc ( “ resort advantage ” ) , a supplier of comprehensive and integrated solutions for complete financial crimes enforcement network ( “ fincen ” ) and irs regulatory compliance to the gaming industry . the resort advantage acquisition did not have a material impact on our results of operations or financial condition . 44 · in april 2015 , we redeemed , in full , the secured notes and issued the refinanced secured notes . the refinanced secured notes will reduce the amount of interest expense paid by the company by approximately $ 1.7 million per annum . as a result , we expensed $ 13.0 million of debt issuance costs and fees to “ loss on extinguishment of debt. ” · in january 2015 , a settlement agreement was made in connection with a lawsuit we participated in as plaintiffs for which we received and recorded the settlement proceeds in the first quarter of 2015. this settlement is included as a reduction of operating expenses in our consolidated statements of ( loss ) income and comprehensive ( loss ) income for the year ended december 30 , 2015 . · in december 2014 , we acquired all of the outstanding capital stock of everi games . the results contributed by the everi games business from the date of consummation of the merger are reflected in our games segment and c onsolidated f inancial s tatements . we incurred additional acquisition ‑related expenses , which are reflected in operating expenses for the years ended december 31 , 2015 and 2014. in addition , depreciation amortization expenses increased due to the purchase price allocation , which included tangible fixed assets and definite-lived intangible assets with relatively short amortization periods and interest expense increased in connection with the debt incurred to fund the merger . · in december 2014 , to effect the merger , we entered into the credit facilities and issued the notes and we used a portion of these proceeds to repay the outstanding amounts owed under prior credit facilities of $ 210.0 million and $ 35.0 million for everi payments and everi games , respectively ( the “ prior credit facilities ” ) . as a result , we expensed $ 2.7 million of related debt issuance costs and fees to “ loss on extinguishment of debt ” associated with the prior credit facilities of everi payments and everi games that were in effect prior to the consummation of the merger . · we recorded an asset impairment charge of approximately $ 3.1 million in the fourth quarter of 2014 related to certain definite ‑lived intangible assets . · in april 2014 , we acquired all of the outstanding capital stock of newave , inc. ( “ newave ” ) , a supplier of compliance , audit and data efficiency software to the gaming industry . the newave acquisition did not have a material impact on our results of operations and financial condition . · in march 2014 , our contract with caesars entertainment corporation expired and was not renewed . as such , our payments revenues and cost of revenues were impacted for the remainder of 2014 and the first quarter of 2015. as a result of the above transactions and events , the results of operations and earnings per share in the periods covered by the consolidated financial statements may not be directly comparable . operating segments operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-making group in deciding how to allocate resources and in assessing performance ; o ur chief operating decision-making group consists of the chief executive officer and the chief financial officer . this group manages the business , allocates resources and measures profitability based on our operating segments . the operating segments are reviewed separately because each represents products that can be sold separately to our customers . since the most recent filing of our annual report on form 10-k for the year ended december 31 , 2014 , and in connection with the merger , our chief operating decision-making group has determined the following to be the operating segments for which we conduct business : ( a ) games , and ( b ) payments . therefore , beginning in the first quarter of 2015 , we are reporting our financial performance based on our new segments in both the current and prior period s. this change had no impact on our consolidated financial statements . each of these segments is monitored by our management for performance against its internal forecast and is consistent with our internal management reporting .
| results of operations year ended december 31 , 2015 compared to the year ended december 31 , 2014 the following table presents our consolidated results of operations ( in thousands ) * : replace_table_token_5_th * rounding may cause variances . 46 total revenues total revenues increased by $ 233.9 million , or 39 % , to $ 827.0 million for the year ended december 31 , 2015 , as compared to the same period in the prior year . games revenues increased to $ 207.0 million or 2,795 % to $ 214.4 million as a result of a full year of operations related to the acquired games business in late 2014 . payments revenues increased by $ 26.9 million , or 5 % , to $ 612.6 million for the year ended december 31 , 2015 , as compared to the same period in the prior year . this was primarily due to higher dollar and transaction volumes and sales of compliance related solutions . costs and expenses games c ost of revenues ( exclusive of depreciation and amortization ) increased by $ 45.3 million , or 2,582 % , to $ 47.0 million for the year ended december 31 , 2015 , as compared to the prior year . this was primarily due to the cost of revenues associated with a full year of operations related to the acquired games business . payments c ost of revenues ( exclusive of depreciation and amortization ) increased by $ 25.1 million , or 6 % , to $ 463.4 million for the year ended december 31 , 2015 , as compared to the prior year . this was primarily due to variable costs related to additional revenues from the payments business . operating expenses increased by $ 5.8 million , or 6 % , to $ 10 1 . 2 million for the year ended december 31 , 2015 , as compared to the prior year .
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as a result , our net interest rate spread ( the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities ) increased to 2.93 % for the year ended june 30 , 2011 from 1.88 % for the year ended june 30 , 2007. this contributed to a corresponding increase in net interest income ( the difference between interest income and interest expense ) to $ 12.0 million for the fiscal year ended june 30 , 2011 from $ 6.2 million for the fiscal year ended june 30 , 2007. our emphasis on conservative loan underwriting has resulted in relatively low levels of non-performing assets at a time when many financial institutions are experiencing significant asset quality issues . our non-performing assets totaled $ 6.0 million or 1.17 % of total assets at june 30 , 2011. other than our loans for the construction of one- to four-family residential properties and the draw portion of our home equity lines of credit , we do not offer interest only mortgage loans on one- to four-family residential properties ( where the borrower pays interest but no principal for an initial period , after which the loan converts to a fully amortizing loan ) . 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 their loan , resulting in an increased principal balance during the life of the loan . we do not offer subprime loans ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans ( traditionally defined as loans having less than full documentation ) . we also do not own any private label mortgage-backed securities that are collateralized by alt-a , low or no documentation or subprime mortgage loans . all of our mortgage-backed securities have been issued by freddie mac , fannie mae or ginnie mae , u.s. government-sponsored enterprises . these entities guarantee the payment of principal and interest on our mortgage-backed securities . on july 7 , 2011 we completed our initial public offering of common stock in connection with iroquois federal 's mutual-to-stock conversion , selling 4,496,500 shares of common stock at $ 10.00 per share , including 384,900 shares sold to iroquois federal 's employee stock ownership plan , and raising approximately $ 45.0 million of gross proceeds . in addition , we issued 314,755 shares of our common stock to the iroquois federal foundation . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . we consider the following to be our critical accounting policies . allowance for loan losses . we believe that the allowance for loan losses and related provision for loan losses are particularly susceptible to change in the near term , due to changes in credit quality which are evidenced by trends in charge-offs and in the volume and severity of past due loans . in addition , our portfolio is comprised of 41 a substantial amount of commercial real estate loans which generally have greater credit risk than one- to four-family residential mortgage and consumer loans because these loans generally have larger principal balances and are non-homogenous . the allowance for loan losses is maintained at a level to cover probable credit losses inherent in the loan portfolio at the balance sheet date . based on our estimate of the level of allowance for loan losses required , we record a provision for loan losses as a charge to earnings to maintain the allowance for loan losses at an appropriate level . the estimate of our credit losses is applied to two general categories of loans : loans that we evaluate individually for impairment under asc 310-10 , receivables ; and groups of loans with similar risk characteristics that we evaluate collectively for impairment under asc 450-20 , loss contingencies. the allowance for loan losses is evaluated on a regular basis by management and reflects consideration of all significant factors that affect the collectability of the loan portfolio . the factors used to evaluate the collectability of the loan portfolio include , but are not limited to , current economic conditions , our historical loss experience , the nature and volume of the loan portfolio , the financial strength of the borrower , and estimated value of any underlying collateral . this evaluation is inherently subjective as it requires estimates that are subject to significant revision as more information becomes available . actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results . see also businessallowance for loan losses. income tax accounting . the provision for income taxes is based upon income in our consolidated financial statements , rather than amounts reported on our income tax return . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to 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 our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date . under gaap , a valuation allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized . story_separator_special_tag bank-owned life insurance also generally provides noninterest income that is nontaxable . at june 30 , 2011 , our investment in bank-owned life insurance was $ 7.2 million , an increase of $ 200,000 from $ 7.0 million at june 30 , 2010. federal regulations generally limit our investment in bank-owned life insurance to 25 % of our tier 1 capital plus our allowance for loan losses . at june 30 , 2011 , our investment in bank-owned life insurance was 18.0 % of our tier 1 capital plus our allowance for loan losses . deposits increased $ 123.5 million , or 38.5 % , to $ 444.1 million at june 30 , 2011 from $ 320.6 million at june 30 , 2010. certificates of deposit increased $ 1.2 million , or 0.6 % , to $ 199.4 million , savings , now , and money market accounts increased $ 118.8 million , or 106.6 % , to $ 230.3 million , brokered certificates of deposit increased $ 1.0 million , or 20.0 % , to $ 6.0 million , and noninterest bearing demand accounts increased $ 2.6 million , or 44.0 % , to $ 8.4 million . the large increase in deposits , and in now accounts in particular , was due to the inflow of $ 105.8 million held in escrow for the subscription offering that was closed on july 7 , 2011. the oversubscribed amount of $ 68.9 million was refunded when the offering was closed . as part of our funds management policy and to provide alternative sources of liquidity , iroquois federal adopted and used this source of funding within prescribed limits . these deposits have the benefit of a known upfront interest cost and a known maturity , and can be acquired at a nominal cost over the interest rate on the certificate . these funding sources may be relied upon to remain at 43 iroquois federal for the entire contractual life of the certificate . iroquois federal looks upon these funds as a supplemental source of liquidity . borrowings , which consisted solely of advances from the federal home loan bank of chicago remained consistent at $ 22.5 million at june 30 , 2011 and june 30 , 2010. total equity increased $ 2.1 or 5.8 % , to $ 39.4 million at june 30 , 2011 from $ 37.3 million at june 30 , 2010. the increase was attributable to earnings , partially offset by a $ 677,000 decrease in accumulated other comprehensive income . comparison of operating results for the years ended june 30 , 2011 and 2010 story_separator_special_tag tax expense for each of the years ended june 30 , 2011 and 2010 , reflecting effective tax rates of 33.1 % and 34.2 % , respectively . average balances and yields the following tables set forth average balance sheets , average yields and costs , and certain other information for the periods indicated . tax-equivalent yield adjustments have not been made for tax-exempt securities . all average balances are based on month-end balances , which management deems to be representative of the operations of iroquois federal . non-accrual loans were included in the computation of average balances , but have been reflected in the table as loans carrying a zero yield . the yields set forth below include the effect of deferred fees , discounts and premiums that are amortized or accreted to interest income or expense . 45 replace_table_token_20_th ( 1 ) includes home equity loans . ( 2 ) net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities . ( 3 ) net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities . ( 4 ) net interest margin represents net interest income divided by average total interest-earning assets . 46 rate/volume analysis the following table presents the effects of changing rates and volumes on our net interest income for the periods indicated . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the net column represents the sum of the prior columns . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated to the changes due to rate and the changes due to volume in proportion to the relationship of the absolute dollar amounts of change in each . replace_table_token_21_th management of market risk general . because the majority of our assets and liabilities are sensitive to changes in interest rates , our most significant form of market risk is interest rate risk . we are vulnerable to an increase in interest rates to the extent that our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets . as a result , a principal part of our business strategy is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates . accordingly , our board of directors has established an asset/liability management committee pursuant to our interest rate risk management policy that is responsible for evaluating the interest rate risk inherent in our assets and liabilities , for determining the level of risk that is appropriate , given our business strategy , operating environment , capital , liquidity and performance objectives , and for managing this risk consistent with the guidelines approved by the board of directors .
| general . net income increased $ 153,000 , or 5.7 % , to $ 2.8 million for the year ended june 30 , 2011 from $ 2.7 million for the year ended june 30 , 2010. the increase was primarily due to a $ 906,000 increase in net interest income and a $ 524,000 reduction in the provision for loan losses , partially offset by an increase in non-interest expense of $ 1.0 million and a decrease of $ 229,000 of noninterest income . net interest income . net interest income increased by $ 906,000 , or 8.2 % , to $ 12.0 million for the year ended june 30 , 2011 from $ 11.0 million for the year ended june 30 , 2010. the increase was due to a decrease of $ 1.7 million in interest expense partially offset by a decrease of $ 820,000 in interest income . the increase in net interest income was primarily the result of the cost of our deposits , particularly our certificates of deposit , decreasing faster than the yields on our interest-earning assets in a period of declining market interest rates . as a result , our net interest margin increased 4 basis points to 3.05 % for the year ended june 30 , 2011 compared to 3.01 % for the year ended june 30 , 2010 , and our net interest rate spread remained consistent at 2.92 % for the year ended june 30 , 2011 and the year ended june 30 , 2010. interest income . interest income decreased $ 820,000 to $ 16.9 million for the year ended june 30 , 2011 from $ 17.8 million for the year ended june 30 , 2010. the decrease was primarily due to a $ 569,000 decrease in interest income on securities , and a $ 255,000 decrease in interest income on loans .
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at january 1 , 2012 and january 2 , 2011 , lakes had invested a total of $ 15.7 million and $ 2.4 million , respectively , in rock ohio ventures , which is included in investment in unconsolidated investee in the accompanying consolidated balance sheets . lakes has the right , but not the obligation , to make additional investments up to 10 % of equity required by rock ohio ventures to develop the casinos in ohio in return for a corresponding equity interest in those casinos ( see note 15 , commitments and contingencies ) . 7. land held for sale during july 2011 , lakes entered into a program to locate a buyer for the land located in vicksburg , mississippi which was previously held for development . as a result , during fiscal 2011 , lakes reclassified the story_separator_special_tag results of operations overview lakes entertainment , inc. and subsidiaries ( lakes , we or our ) primarily develops , finances and manages casino properties with a historical emphasis on those that are indian-owned . during fiscal 2011 , we had development and management or financing agreements as follows : we developed , and have a seven-year contract to manage the red hawk casino that was built on the rancheria of the shingle springs band of miwok indians ( the shingle springs tribe ) in el dorado county , california , adjacent to u.s. highway 50 , approximately 30 miles east of sacramento , california . we began managing the red hawk casino when it opened to the public on december 17 , 2008. the red hawk casino features approximately 2,200 slot machines and gaming devices , 70 table games , seven poker tables , five restaurants , four bars , retail space , a parking garage and a child care facility and arcade . we recorded significant impairment charges related to the notes receivable from the shingle springs tribe and related intangible assets in fiscal 2010. we developed , and had a five-year contract to manage , the four winds casino resort for the pokagon band of potawatomi indians ( the pokagon band ) in new buffalo township , michigan . we began 17 managing the four winds casino resort when it opened to the public on august 2 , 2007. the four winds casino resort is located near the first interstate 94 exit in southwestern michigan and approximately 75 miles east of chicago . on june 30 , 2011 , we entered into a buy-out and termination agreement ( the buy-out agreement ) with the pokagon band for the management agreement for the four winds casino resort , which was scheduled to expire in august 2012. the buy-out of the management agreement was provided for in the original five-year management agreement . the buy-out agreement also terminated the management agreement resulting in lakes having no further obligations or responsibilities with respect to the four winds casino resort . lakes initially entered into an agreement with the jamul indian village ( the jamul tribe ) during 1999 to develop and manage a casino on behalf of the jamul tribe on the jamul tribe 's existing reservation approximately 20 miles east of san diego , california ( the jamul casino project ) . the jamul tribe has a compact with the state of california and the two basic requirements to eventually build a successful project federal recognition as an indian tribe and indian land eligible for gaming . on november 22 , 2011 , lakes entered into an exclusive pre-development , development and financing arrangement agreement ( the jamul development agreement ) with the jamul tribe . the jamul development agreement superseded and replaced the previous development financing and services agreement entered into by lakes and the jamul tribe in 2006. as a result of entering into the jamul development agreement , accrued interest on amounts previously advanced by lakes to the jamul tribe and on land that may be sold to the jamul tribe was decreased by approximately $ 19.6 million . as of january 1 , 2012 , lakes had advanced approximately $ 56.5 million including accrued interest to the jamul tribe related to casino development efforts . due to lakes ' corporate strategic objectives , lakes determined that it would not continue to move forward with the project with the jamul tribe and terminated the jamul development agreement effective march 13 , 2012 ( the termination date ) . as a result , lakes estimated the fair value of the notes receivable from the jamul tribe to be zero as of january 1 , 2012 and incurred a net unrealized loss of approximately $ 11.9 million during fiscal 2011 related to the notes receivable . during fiscal 2012 through the termination date , lakes had advanced an additional $ 0.8 million that will be reflected as losses in lakes ' consolidated statement of operations in the first quarter of fiscal 2012. pursuant to the jamul development agreement , lakes is required to fund tribal support costs of approximately $ 0.6 million subsequent to the termination date and provide funding of certain professional fees for a period of thirty days from the termination date ( post-termination payments ) . these amounts will also be reflected as losses during fiscal 2012. although the jamul tribe remains obligated to repay all advances including accrued interest , it is not contemplated that the jamul tribe will have sufficient funds to make such payments unless it opens a gaming facility on its reservation . lakes continues to have a collateral interest in all revenues from any future casino owned by the tribe , and the casino 's furnishings and equipment . we have also explored , and continue to explore , other casino development projects . story_separator_special_tag in fiscal 2011 , the income tax benefit results from lakes ' ability to carry back the 2011 taxable loss to the prior year . in fiscal 2010 , the provision primarily consists of changes in valuation allowance of $ 10.8 million and $ 1.1 million related to state taxes , offset by $ 8.5 million of tax benefit for a reduction in the uncertain tax position and current tax benefit of $ 2.2 million . as of january 1 , 2012 , we evaluated the ability to utilize existing deferred tax assets arising from other ordinary items and determined that , due to a lack of sufficient positive evidence that future income will support the recognition of those other deferred tax assets , a 100 % valuation allowance against deferred tax assets continues to be appropriate for those items at january 1 , 2012. liquidity and capital resources as of january 1 , 2012 , we had $ 38.6 million in cash and cash equivalents . we currently believe that our cash and cash equivalents balance and our cash flows from operations will be sufficient to meet our working capital requirements during the next 12 months and we currently expect to be able to obtain the financing necessary for our planned development projects . however , such financing , if necessary , may not be available at all , or at acceptable terms , or it may be dilutive to our stockholders . our operating results and performance depend significantly on economic conditions and their effect on consumer spending in the casinos we develop and or manage . declines in consumer spending cause our revenue generated from the management of the casinos to be adversely affected . during the fiscal year ended 2011 , our revenues were derived from the management of the four winds casino resort ( through june 2011 ) and the red hawk casino . pursuant to the buy-out agreement effective june 30 , 2011 , the pokagon band paid to lakes a buy-out fee of approximately $ 24.5 million . as a result of the buy-out agreement , we will no longer earn management fees related to the four winds casino resort . our remaining management contract is with the red hawk casino and continues through december 2015. the management agreement with the red hawk casino includes a minimum guaranteed payment to the shingle springs tribe of $ 0.5 million a month . we are obligated to advance funds for these minimum guaranteed 21 monthly payments when the casino operating results are not sufficient to distribute such amount to the shingle springs tribe , and we are repaid the advances in subsequent periods when operating results are sufficient to distribute such amount to the shingle springs tribe and repay such previous advances . as of january 1 , 2012 , $ 1.1 million was outstanding under this obligation . we advanced $ 2.9 million and collected payments of $ 2.8 million under this obligation during fiscal 2011. we expect to continue to advance funds for the minimum guaranteed payment throughout the next twelve months based on the current projected operating results of the property . at january 2 , 2011 , we evaluated the notes receivable with the shingle springs tribe for impairment and concluded that the notes receivable were impaired because we determined it was probable that substantial amounts due would not be repaid within the contract term . at january 1 , 2012 , we evaluated the notes receivable with the shingle springs tribe for impairment and concluded that the notes receivable continue to be impaired . we continue to manage the red hawk casino and will collect monthly interest as scheduled as well as repayments of any minimum guaranteed monthly payments as discussed above and management fees when allowed as determined by net revenue levels of the red hawk casino . however , the collection of principal on the transition loan will be deferred until december 2013. while we have concluded that it is probable that substantial amounts due from the shingle springs tribe will not be repaid within the contract term , the shingle springs tribe will remain legally obligated to repay any remaining amounts due to us subsequent to the conclusion of the contract . lakes terminated the jamul development agreement with the jamul tribe effective march 13 , 2012. as of january 1 , 2012 , lakes had advanced approximately $ 56.5 million including accrued interest to the jamul tribe related to casino development efforts . during fiscal 2012 through the termination date , lakes had advanced an additional $ 0.8 million that will be reflected as losses in lakes ' consolidated statement of operations in the first quarter of fiscal 2012. pursuant to the jamul development agreement , lakes is required to fund tribal support costs of approximately $ 0.6 million subsequent to the termination date and provide funding of post-termination payments . these amounts will also be reflected as losses during fiscal 2012. although the jamul tribe remains obligated to repay all advances including accrued interest , it is not contemplated that the jamul tribe will have sufficient funds to make such payments unless it opens a gaming facility on its reservation . lakes continues to have a collateral interest in all revenues from any future casino owned by the tribe , and the casino 's furnishings and equipment . we can not be assured of the repayment of these amounts . during fiscal 2011 , we contributed approximately $ 12.2 million to rock ohio ventures resulting in a total investment of $ 15.7 million in rock ohio ventures . per our agreement with rock ohio ventures related to potential casino developments in cincinnati and cleveland , ohio , we currently plan to invest additional funds in those projects . as a result , we may need to obtain additional financing .
| results of continuing operations the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k for the year ended january 1 , 2012. fiscal year ended january 1 , 2012 ( fiscal 2011 ) compared to fiscal year ended january 2 , 2011 ( fiscal 2010 ) revenues total revenues were $ 35.6 million for fiscal 2011 compared to $ 24.6 million for fiscal 2010. contributing to the increase in revenues was the buy-out agreement for the four winds casino resort , which occurred during the three months ended july 3 , 2011. under the buy-out agreement , lakes was compensated in the amount of $ 24.5 million for the management fees it would have received had it managed the four winds casino resort through the original contract expiration date which was august 2012. as a result of the buy-out agreement for the four winds casino resort , lakes ' consolidated statement of operations does not include management fee revenues related to the four winds casino resort subsequent to june 30 , 2011 and our total revenues in fiscal 2012 will be significantly reduced . selling , general and administrative expenses selling , general and administrative expenses were $ 9.5 million for fiscal 2011 compared to $ 11.8 million for fiscal 2010. the decline in selling , general and administrative expenses was primarily due to a reduction in payroll and travel expenses . for fiscal 2011 , lakes ' selling , general and administrative expenses included payroll and related expenses of $ 4.9 million ( including share-based compensation ) , travel expenses of $ 1.5 million and professional fees of $ 1.6 million .
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f-18 mitcham industries , inc. notes to consolidated financial statements continued as of january 31 , 2014 and 2013 , the company had unrecognized tax benefits amounting to approximately $ 408,000 and $ 376,000 , respectively , attributable to uncertain tax positions . story_separator_special_tag overview we operate in two segments , equipment leasing and seamap . our equipment leasing operations are conducted from our huntsville , texas headquarters and from our locations in calgary , canada ; brisbane , australia ; lima , peru ; bogota , colombia ; budapest , hungary ; singapore and ufa , russia . this includes the operations of our mcl , sap , mel , mml and mse subsidiaries and our branches in peru and colombia . mel and mml were formed in late fiscal 2012. accordingly , the first full year of operations for these subsidiaries was fiscal 2013. seamap operates from its locations near bristol , united kingdom and in singapore . management believes that the performance of our equipment leasing segment is indicated by revenues from equipment leasing and by the level of our investment in lease pool equipment . management further believes that the performance of our seamap segment is indicated by revenues from equipment sales and by gross profit from those sales . management monitors ebitda and adjusted ebitda , both as defined in the following table , as key indicators of our overall performance and liquidity . 28 the following table presents certain operating information by operating segment : replace_table_token_6_th ( 1 ) ebitda is defined as net income before ( a ) interest income and interest expense , ( b ) provision for ( or benefit from ) income taxes and ( c ) depreciation , amortization and impairment . adjusted ebitda excludes stock-based compensation . we consider ebitda and adjusted ebitda to be important indicators for the performance of our business , but not 29 measures of performance or liquidity calculated in accordance with accounting principles generally accepted in the united states of america ( gaap ) . we have included these non-gaap financial measures because management utilizes this information for assessing our performance and liquidity , and as indicators of our ability to make capital expenditures , service debt and finance working capital requirements . the covenants of the predecessor credit agreement and the credit agreement each contain financial covenants based on ebitda or adjusted ebitda . management believes that ebitda and adjusted ebitda are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us . in particular , we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities . we believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations . ebitda and adjusted ebitda are not measures of financial performance or liquidity under gaap and should not be considered in isolation or as alternatives to cash flow from operating activities or as alternatives to net income as indicators of operating performance or any other measures of performance derived in accordance with gaap . in evaluating our performance as measured by ebitda , management recognizes and considers the limitations of this measurement . ebitda and adjusted ebitda do not reflect our obligations for the payment of income taxes , interest expense or other obligations such as capital expenditures . accordingly , editda and adjusted ebitda are only two of the measurements that management utilizes . other companies in our industry may calculate ebitda or adjusted ebitda differently than we do and ebitda and adjusted ebitda may not be comparable with similarly titled measures reported by other companies . in our equipment leasing segment , we lease seismic data acquisition equipment primarily to seismic data acquisition companies conducting land , transition zone and marine seismic surveys worldwide . we provide short-term leasing of seismic equipment to meet a customer 's requirements . all active leases at january 31 , 2014 were for a term of less than one year . seismic equipment held for lease is carried at cost , net of accumulated depreciation . we acquire some marine lease pool equipment from our seamap segment . these amounts are carried in our lease pool at the cost to our seamap segment , less accumulated depreciation . from time to time , we sell lease pool equipment to our customers . these sales are usually transacted when we have equipment for which we do not have near term needs in our leasing business . additionally , when equipment that has been leased to a customer is lost or destroyed , the customer is charged for such equipment at amounts specified in the underlying lease agreement . these charges are included in lease pool equipment sales in the accompanying financial statements . we occasionally sell new seismic equipment that we acquire from other manufacturers . we produce and sell , as well as lease , equipment used to deploy and retrieve seismic equipment with helicopters . in addition to leasing seismic equipment , sap sells equipment , consumable supplies , systems integration , engineering hardware and software maintenance support services to the seismic , hydrographic , oceanographic , environmental and defense industries throughout southeast asia and australia . our seamap segment designs , manufactures and sells a variety of products used primarily in marine seismic applications . seamap 's primary products include the ( i ) gunlink seismic source acquisition and control systems , which provide marine operators more precise control of exploration tools ; and ( ii ) the buoylink rgps tracking system used to provide precise positioning of seismic sources and streamers ( marine recording channels that are towed behind a vessel ) . seismic equipment leasing is susceptible to weather patterns in certain geographic regions . in canada and russia , a significant percentage of the seismic survey activity normally occurs in the winter months , from december through march or april . story_separator_special_tag it is our understanding , based on discussions with customers , that several oil and gas 31 companies that have commissioned seismic surveys in past winters in canada did not do so this year . accordingly , demand for seismic equipment and services in this market has declined recently . it is not clear if this decline is temporary and limited to the 2013-2014 winter season or if it will extend into future periods . despite the overall decline in demand , we have recently seen an increase in demand for wireless recording equipment in canada . in response to this increased demand , we purchased certain wireless recording equipment in the fourth quarter of fiscal 2014 for deployment on a particular project . this project commenced in the first quarter of fiscal 2015. land leasing activity in europe was considerably lower in fiscal 2013 than originally expected and as compared to fiscal 2012. political changes , fiscal issues and environmental concerns , we believe , caused delays in many energy projects in europe , particularly non-conventional natural gas projects . the effect of these matters continued into the first six months of fiscal 2014. however , we experienced a significant increase in rental activity in the market beginning in the third and fourth quarters of fiscal 2014. based on discussions with our customers , we believe there are indications of continued improved leasing activity in europe in fiscal 2015. as the seismic industry in russia is generally seasonal , most seismic projects are scheduled for the winter season , which would encompass the fourth quarter and the first quarter . we have experienced an increase in demand for the current 2013-2014 winter season . we have deployed additional equipment to that region , including equipment from europe , in response to this increased demand . we experienced a decline for our down hole seismic tools during fiscal 2013 and the first half of fiscal 2014. beginning in the third quarter of fiscal 2014 , we began to see a recovery in demand for these products and believe that this improvement will continue into fiscal 2015. however , demand for down hole seismic tools tends to be sporadic and projects utilizing this equipment are often subject to delays or cancellation . we saw a decline in demand in our marine rental business during fiscal 2014. due to industry consolidation and restructuring we believe there to be an oversupply of used marine equipment available on the market , which has had a negative impact on the demand for our products and services . we believe this situation to be temporary ; however , we expect the overall lower demand to continue into fiscal 2015. the market for products sold by seamap and the demand for the leasing of marine seismic equipment is dependent upon activity within the offshore , or marine , seismic industry , including the re-fitting of existing seismic vessels and the equipping of new vessels . our seamap business has benefited from equipping new-build vessels and from re-equipping older vessels with newer , more efficient technology . in addition , as seamap has expanded its installed base of products , our business for replacements , spare parts , repair and support services has expanded . certain existing and potential customers continue to express interest in our gunlink and buoylink products . some of this interest involves the upgrade of existing gunlink and buoylink products to newer versions or systems with greater functionality . recently , some marine seismic contractors have reported softening of demand and therefore pressure on the pricing from their customers . we do not believe this has had a material impact on our business to date . however , should this situation persist , we could experience a decline in demand for our seamap products and for marine leasing products . this could also cause customers to delay expansion or upgrade plans . in june 2013 , we entered into a manufacturing arrangement with petroleum geo-services asa ( pgs ) , one of the largest marine seismic contractors in the world . under this arrangement , we will manufacture and sell to pgs a customized and proprietary marine energy source controller that is based on our gunlink 4000 product ( the pgs sourcelink ) . we have previously collaborated with pgs to develop pgs sourcelink . we expect pgs sourcelink will be deployed on the majority of pgs ' fleet of seismic vessels . this fleet currently consists of 13 vessels , with three additional vessels under development . the deployment will take place over a period of several years . the oil and gas industry , in general , and the seismic industry , in particular , have historically been cyclical businesses . if worldwide oil and gas prices should materially decline from current levels , or if the expectations 32 for future prices should change , we could see a material change in the level of our business and our income from operations . over the past several years , we have made significant additions to our lease pool of equipment , amounting to over $ 200 million in equipment purchases during the five years ended january 31 , 2014. by adding this equipment , we have not only expanded the amount of equipment that we have , but have also increased the geographic expanse of our leasing operations and have expanded the types of equipment that we have in our lease pool . from time to time , we will seek to sell certain types of equipment from our lease pool , such as older technology or equipment for which demand is declining , and redeploy that capital into other types of equipment .
| results of operations for fiscal 2014 , we recorded operating income of approximately $ 5.8 million , compared to approximately $ 13.9 million for fiscal 2013 and approximately $ 34.5 million for fiscal 2012. the decrease in fiscal 2014 from fiscal 2013 relates primarily to lower gross profits from the seamap segment and lower leasing revenues , offset by lower depreciation expense . the decrease in fiscal 2013 from fiscal 2012 relates primarily to decreased leasing revenues and increased lease pool depreciation . the gross profit for our equipment leasing segment was approximately $ 19.2 million in fiscal 2014 , compared to approximately $ 20.2 million in fiscal 2013 and approximately $ 41.8 million in fiscal 2012. in fiscal 2014 , we experienced lower leasing revenues , but this decrease was largely offset by lower depreciation costs . the decrease between fiscal 2012 and fiscal 2013 resulted from lower leasing revenues and higher lease pool 33 depreciation expense . our seamap segment recorded gross profit of approximately $ 12.6 million , $ 17.4 million and $ 15.9 million in fiscal 2014 , 2013 and 2012 , respectively . the decrease in fiscal 2014 from fiscal 2013 resulted from lower revenues and lower gross profit on certain shipments as more fully described below . the increase in gross profit in fiscal 2013 over fiscal 2012 was due primarily to increased revenues . revenues and cost of sales equipment leasing revenues and cost of sales from our equipment leasing segment were comprised of the following : replace_table_token_7_th equipment leasing revenues declined approximately 14 % in fiscal 2014 as compared to fiscal 2013. this decline was due primarily to lower land leasing revenues from the united states and latin america and lower marine leasing revenues . these declines were partially offset by increased land leasing revenues in russia , europe and the pacific rim and increased leasing revenue for down hole seismic tools .
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we believe that our facile silicon nitride manufacturing expertise positions us favorably to introduce new and innovative devices in the medical and non-medical fields . we also believe that we are the first and only company to commercialize silicon nitride medical implants . we have received 510 ( k ) regulatory clearance in the united states , a ce mark in europe , and anvisa approval in brazil for a number of our devices that are designed for spinal fusion surgery . to date , more than 28,000 of our silicon nitride devices have been implanted into patients , with an 8-year successful track record . in december 2016 , we re-filed an fda 510 ( k ) submission for clearance in the united states of a modified novel composite spinal fusion device that combines porous and solid silicon nitride , and obviates the need for bone grafts that is comparable to our commercially-available valeo®c cervical implants . we believe that silicon nitride has a superb combination of properties that make it ideally suited for human implantation . other biomaterials are based on bone grafts , metal alloys , and polymers ; all of which have practical limitations . in contrast , silicon nitride has a legacy of success in the most demanding and extreme industrial environments . as a human implant material , silicon nitride offers bone ingrowth , resistance to bacterial infection , resistance to corrosion , superior strength and fracture resistance , and ease of diagnostic imaging , among other advantages . we market and sell our valeo brand of silicon nitride implants to surgeons and hospitals in the united states and to selected markets in europe and south america through more than 50 independent sales distributors who are supported by an in-house sales and marketing management team . these implants are designed for use in cervical ( neck ) and thoracolumbar ( lower back ) spine surgery . in 2016 we entered into a 10-year exclusive distribution agreement with shandong weigao orthopaedic device company limited ( “ weigao ” ) to sell amedica-branded silicon nitride spinal fusion devices within the people 's republic of china ( “ china ” ) . weigao , a large orthopedic company , has expertise in acquiring chinese food and drug administration ( “ cfda ” ) approval of medical devices , and will assist us in obtaining regulatory approval . weigao has committed to minimum purchase requirements totaling 225,000 implants in the first six years following cfda clearance . we are also working with other partners in japan to obtain regulatory approval for silicon nitride in that country . china and japan are relevant because historically , ceramic implants are more familiar to , and more readily accepted by surgeons outside the united states , i.e. , in asia and europe . in addition to silicon nitride , we also sell metal-based products in the united states that provide surgeons and hospitals with a complete package for spinal surgery . these metal products are designed to address spinal deformity and degenerative conditions . although these metal products have accounted for approximately 48 % of our product revenues for each of the years ended december 31 , 2016 and 2015 , respectively , we remain focused on developing and promoting silicon nitride , and driving its adoption through a scientifically-intense , data-driven strategy . in addition to direct sales , we have targeted original equipment manufacturer ( “ oem ” ) and private label partnerships in order to accelerate adoption of silicon nitride , both in the spinal space , and also in future markets such as hip and knee replacements , dental , extremities , trauma , and sports medicine . existing biomaterials , based on plastics , metals , and bone grafts have well-recognized limitations that we believe are addressed by silicon nitride , and we are uniquely positioned to convert existing , successful implant designs made by other companies into silicon nitride . we believe oem and private label partnerships will allow us to work with a variety of partners , accelerate the adoption of silicon nitride , and realize incremental revenue at improved operating margins , when compared to the cost-intensive direct sales model . 47 we believe that silicon nitride addresses many of the biomaterial-related limitations in fields such as hip and knee replacements , dental implants , sports medicine , extremities , and trauma surgery . we further believe that the inherent material properties of silicon nitride , and the ability to formulate the material in a variety of compositions , combined with precise control of the surface properties of the material , opens up a number of commercial opportunities across orthopedic surgery , neurological surgery , maxillofacial surgery , and other medical disciplines . we operate a 30,000 square foot manufacturing facility at our corporate headquarters in salt lake city , utah , and we believe we are the only vertically integrated silicon nitride medical device manufacturer in the world . components of our results of operations we manage our business within one reportable segment , which is consistent with how our management reviews our business , makes investment and resource allocation decisions and assesses operating performance . product revenue we derive our product revenue primarily from the sale of spinal fusion devices and related products used in the treatment of spine disorders . our product revenue is generated from sales to three types of customers : ( 1 ) surgeons and hospitals ; ( 2 ) stocking distributors ; and ( 3 ) private label customers . most of our products are sold on a consignment basis through a network of independent sales distributors ; however , we also sell our products to independent stocking distributors and private label customers . product revenue is recognized when all four of the following criteria are met : ( 1 ) persuasive evidence that an arrangement exists ; ( 2 ) delivery of the products has occurred ; ( 3 ) the selling price of the product is fixed or determinable ; and ( 4 ) collectability is reasonably assured . story_separator_special_tag liquidity and capital resources the consolidated financial statements have been prepared assuming we will continue to operate as a going concern , which contemplates the realization of assets and settlement of liabilities in the normal course of business , and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern within one year from the date of issuance of our consolidated financial statements . for the years ended december 31 , 2016 and 2015 , we incurred a net loss of $ 16.6 million and $ 23.9 million , respectively , and used cash in operations of $ 7.2 million and $ 9.1 million , respectively . we had an accumulated deficit of $ 213.1 million and $ 196.5 million at december 31 , 2016 and 2015 , respectively . to date , our operations have been principally financed from proceeds from the issuance of preferred and common stock , convertible debt and bank debt and , to a lesser extent , cash generated from product sales . it is anticipated that we will continue to generate operating losses and use cash in operations for the foreseeable future . our continuation as a going concern is dependent upon our ability to increase sales , implement cost saving measures , maintain compliance with debt covenants and or raise additional funds through the capital markets . whether and when we can attain profitability and positive cash flows from operations or obtain additional financing is uncertain . in 2016 we implemented certain cost saving measures , including workforce and office space reductions , and will continue to evaluate additional cost savings alternatives during 2017. these additional cost savings measures may include additional workforce and research and development reductions , as well as reductions to certain other operating expenses including legal , patent , and travel expenses . in addition to these cost saving measures an experienced and highly successful leader for the sales and marketing team was recruited and hired . this individual has subsequently hired additional experienced personnel in sales and market development . we are actively generating additional scientific and clinical data to have it published in leading industry publications . the unique features of our silicon nitride material are not well known , and the publication of such data would help sales efforts as we approach new prospects . we are also making additional changes to the sales strategy , including a focus on revenue growth of silicon nitride lateral lumbar implants and the newly developed pedicle screw system ( known as taurus ) . as discussed further in note 7 to the consolidated financial statements , in june 2014 , we entered into a term loan with hercules technology growth capital , inc. ( “ hercules technology ” ) , as administrative and collateral agent for the lenders thereunder and as lender , and hercules technology iii , lp , ( “ ht iii ” and , together with hercules technology , “ hercules ” ) as lender ( the “ hercules term loan ” ) . the hercules term loan has a liquidity covenant that requires us to maintain a cash balance of not less than $ 3.0 million at december 31 , 2016. at december 31 , 2016 , our cash balance was approximately $ 6.9 million . we believe we will be in position to maintain compliance with the liquidity covenant related to the hercules term loan into the fourth quarter of 2017. to maintain compliance beyond that date , we would need to refinance the note or obtain additional funding in or prior to the fourth quarter of 2017. we have common stock that is publicly traded and have been able to successfully raise capital when needed since the time of our initial public offering . we are engaged in discussions with an investment banking firm to examine financing alternatives , including options to encourage the exercise of outstanding warrants . the company is also seeking to refinance the hercules term loan and is in discussions with banking firms to look at lending alternatives . if we are unable to refinance the hercules term loan or access additional funds prior to becoming non-compliant with the financial and liquidity covenants related to the hercules term loan , the entire remaining balance of the debt under the hercules term loan could become immediately due and payable at the option of the lender . although we are seeking to refinance the note or obtain additional debt financing , such funding is not assured and may not be available to us on favorable or acceptable terms , and may involve restrictive covenants . any additional equity financing is also not assured and , if available to us , will most likely be dilutive to its current stockholders . if we are not able to obtain additional debt or equity financing on a timely basis , the impact on us will be material and adverse . these uncertainties create substantial doubt about our ability to continue as a going concern . the consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties . cash flows the following table summarizes , for the periods indicated , cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_7_th net cash used in operating activities net cash used in operating activities was $ 7.2 million in 2016 , compared to $ 9.1 million used in 2015 , a decrease of $ 1.9 million , or 21 % . the decrease in cash used in operating activities during 2016 was primarily due to a decrease in the net loss of $ 8.2 million , which equated to a decrease in the net loss after non-cash add backs of $ 1.7 million .
| results of operations year ended december 31 , 2016 compared to the year ended december 31 , 2015 the following table sets forth , for the periods indicated , our results of operations for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_4_th 49 product revenue the following table sets forth our product revenue from sales of the indicated product category for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_5_th total product revenue was $ 15.2 million in 2016 as compared to $ 19.4 million in 2015 , a decrease of $ 4.2 million or 22 % . this decline was due to silicon nitride sales decreasing by $ 2.2 million , or 22 % , and non-silicon nitride sales decreasing by $ 2.0 million , or 21 % , as compared to the same period in 2015. this decline was primarily attributable to the loss of a few surgeons during the year and consequences from our restructuring . the remaining decrease was due to reduced private label sales . the following table sets forth , for the periods indicated , our product revenue by geographic area ( in thousands ) : replace_table_token_6_th international revenue increased in 2016 as compared to 2015 primarily as a result of having received regulatory approval to begin selling our silicon nitride products in brazil . costs of revenue and gross profit our cost of revenue decreased $ 2.5 million , or 40 % , as compared to the same period in 2015. the decrease was primarily due to the decline in sales and the moratorium on the medical device excise tax . this decrease was offset by an increase of $ 0.2 of impairment charges relating to our manufacturing assets .
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these forward-looking statements typically include the words “ anticipate , ” “ believe , ” “ consider , ” “ estimate , ” “ expect , ” “ forecast , ” “ intend , ” “ objective , ” “ plan , ” “ predict , ” “ projection , ” “ seek , ” “ strategy , ” “ target , ” “ will ” or other words of similar meaning . some of them are opinions formed based upon general observations , anecdotal evidence and industry experience , but that are not supported by specific investigation or analysis . these forward-looking statements reflect our current views about future events and are subject to risks , uncertainties and assumptions . we wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from what is anticipated by our forward-looking statements . the most important factors that could cause actual results to differ materially from those anticipated by our forward-looking statements include , but are not limited to : our inability to acquire land at anticipated prices ; increases in operating costs , including costs related to real estate taxes , construction materials , labor and insurance ; unfavorable outcomes in legal proceedings ; anything that prevents the calatlantic transaction from taking place when expected ; our inability to realize the anticipated synergy benefits from the calatlantic transaction ; our inability to close a one-time transaction expected to take place in the first quarter of 2018 ; a downturn in the market for residential real estate ; changes in general economic and financial conditions that reduce demand for our products and services , lower our profit margins or reduce our access to credit ; the possibility that we will incur nonrecurring costs that affect earnings in one or more reporting periods ; decreased demand for our lennar multifamily rental units or difficulty selling our rental properties ; the possibility that the tax cuts and jobs act will have more negative than positive impact on us ; the possibility that the benefit from our increasing use of technology will not justify its cost ; increased competition for home sales from other sellers of new and resale homes ; negative effects of increasing mortgage interest rates ; our inability to reduce our homebuilding debt to our total capital net of cash ; a decline in the value of our land inventories and resulting write-downs of the carrying value of our real estate assets ; the failure of the participants in various joint ventures to honor their commitments ; difficulty obtaining land-use entitlements or construction financing ; natural disasters and other unforeseen events for which our insurance does not provide adequate coverage ; the inability of rialto to sell mortgages it originates into securitizations on favorable terms ; new laws or regulatory changes that adversely affect the profitability of our businesses ; our inability to refinance our debt on terms that are acceptable to us ; and changes in accounting conventions that adversely affect our reported earnings . please see `` item 1a-risk factors '' of this annual report for a further discussion of these and other risks and uncertainties which could affect our future results . we undertake no obligation to revise any forward-looking statements to reflect events or circumstances after the date of those statements or to reflect the occurrence of anticipated or unanticipated events , except to the extent we are legally required to disclose certain matters in sec filings or otherwise . outlook the housing market has been strong in 2017 and there continues to be a general sense of optimism in the market , with increased job creation across the country and wages have generally been moving higher . we believe lower unemployment , modest wage growth and consumer confidence should increase household formation , which drives families to purchase homes and to rent apartments . we believe that the generally strong , stable and improving economy , together with limited supply and production deficits from past years , have been and will continue to drive demand and pricing power in the upcoming spring selling season , even though that will be offset by land and construction cost increases . the recently passed tax cuts and jobs act has added additional momentum to the economic landscape . while there have been concerns about the new tax law on housing , initial readings and reviews are suggesting that it is generally stimulative to the economy . in addition , concerns about the reduction of the mortgage interest deduction , deductibility of real estate taxes and state and local taxes seem to be offset by overall optimistic momentum around economic stability and growth . for our typical buyer profile , we have found that the effect of the new tax law is generally positive at their income levels . additionally , the doubling of the standard deduction should help a new group of aspiring homeowners accumulate savings for a down payment to purchase a home and create personal financial stability . fiscal 2017 was another excellent year for lennar , with revenues increasing 15 % from 2016. our core homebuilding business continued to produce strong operating results as gross margins and operating margins were 22.1 % and 12.9 % , respectively . our home deliveries and new orders both increased 11 % compared to fiscal 2016. our efficient everything 's 24 included ® manufacturing model helped mitigate the impact of a tight labor market and our focus on strategic innovation and higher volume helped to improve our s , g & a leverage . story_separator_special_tag excluded from our 2018 effective tax rate is a one-time non-cash write-down of our deferred tax assets of approximately $ 70 million which will be recorded in the first quarter of 2018 as a result of our lower federal tax rate . 2016 versus 2015 revenues from home sales increased 15 % in the year ended november 30 , 2016 to $ 9.6 billion from $ 8.3 billion in 2015. revenues were higher primarily due to a 9 % increase in the number of home deliveries , excluding unconsolidated entities , and a 5 % increase in the average sales price of homes delivered . new home deliveries , excluding unconsolidated entities , increased to 26,481 homes in the year ended november 30 , 2016 from 24,209 homes in 2015. there was an increase in home deliveries in all of our homebuilding segments and homebuilding other . the increase in the number of deliveries was primarily driven by an increase in active communities over 2015 and by higher demand as the number of deliveries per active community increased . the average sales price of homes delivered increased to $ 361,000 in the year ended november 30 , 2016 from $ 344,000 in the year ended november 30 , 2015 , primarily due to product mix and increased pricing in certain of our markets due to favorable market conditions . sales incentives offered to homebuyers were $ 22,500 per home delivered in the year ended november 30 , 2016 , or 5.9 % as a percentage of home sales revenue , compared to $ 21,400 per home delivered in the year ended november 30 , 2015 , or 5.9 % as a percentage of home sales revenue . gross margins on home sales were $ 2.2 billion , or 23.0 % , in the year ended november 30 , 2016 , compared to $ 2.0 billion , or 24.0 % , in the year ended november 30 , 2015. gross margin percentage on home sales decreased compared to the year ended november 30 , 2015 primarily due to an increase in land costs per home , partially offset by an increase in the average sales price of homes delivered . selling , general and administrative expenses were $ 898.9 million in the year ended november 30 , 2016 , compared to $ 831.1 million in the year ended november 30 , 2015. as a percentage of revenues from home sales , selling , general and administrative expenses improved to 9.4 % in the year ended november 30 , 2016 , from 10.0 % in the year ended november 30 , 2015 due to improved operating leverage as a result of an increase in home deliveries and benefits from our focus on digital marketing . gross profits on land sales were $ 44.7 million in the year ended november 30 , 2016 , compared to $ 30.1 million in the year ended november 30 , 2015 . 28 lennar homebuilding equity in earnings ( loss ) from unconsolidated entities was ( $ 49.3 ) million in the year ended november 30 , 2016 , compared to $ 63.4 million in the year ended november 30 , 2015. in the year ended november 30 , 2016 , lennar homebuilding equity in loss from unconsolidated entities was primarily attributable to our share of costs associated with the fivepoint combination and operational net losses from the new fivepoint unconsolidated entity , totaling $ 42.6 million . this was partially offset by $ 12.7 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites to third parties . in the year ended november 30 , 2015 , lennar homebuilding equity in earnings from unconsolidated entities included $ 82.8 million of equity in earnings from one of our unconsolidated entities primarily due to sales of homesites and a commercial property to third parties , sales of homesites to another joint venture in which we have a 50 % investment , and a gain on debt extinguishment . lennar homebuilding other income , net , totaled $ 52.8 million in the year ended november 30 , 2016 , compared to $ 6.2 million in the year ended november 30 , 2015. in the year ended november 30 , 2016 , other income , net , included management fee income and a profit participation related to lennar homebuilding 's strategic joint ventures and gains on the sale of several clubhouses . in the year ended november 30 , 2015 , other income , net included $ 10.2 million aggregate gains on sales of an operating property and a clubhouse . lennar homebuilding interest expense was $ 245.1 million in the year ended november 30 , 2016 ( $ 235.1 million was included in costs of homes sold , $ 5.3 million in costs of land sold and $ 4.6 million in other interest expense ) , compared to $ 220.1 million in the year ended november 30 , 2015 ( $ 205.2 million was included in costs of homes sold , $ 2.5 million in costs of land sold and $ 12.5 million in other interest expense ) . interest expense included in costs of homes sold increased primarily due to an increase in home deliveries . operating earnings for our lennar financial services segment were $ 163.6 million in the year ended november 30 , 2016 , compared to $ 127.8 million in the year ended november 30 , 2015. the increase in profitability was primarily due to increased transactions and higher profit per transaction in the segment 's mortgage and title operations . operating earnings for our rialto segment were $ 2.1 million in the year ended november 30 , 2016 ( which included a $ 16.7 million operating loss and an add back of $ 18.8 million of net loss attributable to noncontrolling interests ) .
| results of operations overview our net earnings attributable to lennar were $ 810.5 million , or $ 3.38 per diluted share ( $ 3.38 per basic share ) in 2017 , $ 911.8 million , or $ 3.86 per diluted share ( $ 4.05 per basic share ) in 2016 , and $ 802.9 million , or $ 3.39 per diluted share ( $ 3.78 per basic share ) in 2015 . all earnings per share amounts have been retroactively adjusted for the class b stock dividend . the following table sets forth financial and operational information for the years indicated related to our operations . replace_table_token_7_th 26 2017 versus 2016 revenues from home sales increased 15 % in the year ended november 30 , 2017 to $ 11.0 billion from $ 9.6 billion in 2016 . revenues were higher primarily due to an 11 % increase in the number of home deliveries , excluding unconsolidated entities , and a 4 % increase in the average sales price of homes delivered . new home deliveries , excluding unconsolidated entities , increased to 29,322 homes in the year ended november 30 , 2017 from 26,481 homes last year . there was an increase in home deliveries in all of our homebuilding segments and homebuilding other . the increase in the number of deliveries was primarily driven by an increase in active communities over the last year and by higher demand as the number of deliveries per active community increased . the average sales price of homes delivered , excluding unconsolidated entities , increased to $ 376,000 in the year ended november 30 , 2017 from $ 361,000 in the year ended november 30 , 2016 , primarily due to product mix ( selling at different price points ) and increased pricing in certain of our markets due to favorable market conditions .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in the section titled “ risk factors ” included elsewhere in this annual report on form 10-k. for a comparison of our results of operations for the fiscal years ended december 31 , 2019 and 2018 see item 7 , management 's discussion and analysis of financial condition and results of operations , of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 21 , 2020. overview our modern economy runs on knowledge . today , knowledge lives in the cloud as digital content , and dropbox is where businesses and individuals can create , access , and share this content globally . we serve more than 700 million registered users across 180 countries . since our founding in 2007 , our market opportunity has grown as we 've expanded from keeping files in sync to keeping teams in sync . in a world where using technology at work can be fragmented and distracting , dropbox makes it easy to focus on the work that matters . by solving these universal problems , we 've become invaluable to our users . the popularity of our platform drives viral growth , which has allowed us to scale rapidly and efficiently . we 've built a thriving global business with 15.48 million paying users . our subscription plans we generate revenue from individuals , families , teams , and organizations by selling subscriptions to our platform , which serve the varying needs of our diverse customer base . subscribers can purchase individual licenses through our plus and professional plans , or purchase multiple licenses through our family plan or our standard , advanced , and enterprise team plans . each team or family represents a separately billed deployment that is managed through a single administrative dashboard . teams must have a minimum of three users , but can also have more than tens of thousands of users . families can have up to six users . customers can choose between an annual or monthly plan , with a small number of large organizations on multi-year plans . a majority of our customers opt for our annual plans , although we have seen and may continue to see an increase in customers opting for our monthly plans . we typically bill our customers at the beginning of their respective terms and recognize revenue ratably over the term of the subscription period . international customers can pay in u.s. dollars or a select number of foreign currencies . our premium subscription plans , such as professional and advanced , provide more functionality than other subscription plans and have higher per user prices . our standard and advanced subscription plans offer robust capabilities for businesses , and the vast majority of dropbox business teams purchase our standard or advanced subscription plans . while our enterprise subscription plan offers more opportunities for customization , companies can subscribe to any of these team plans for their business needs . in 2019 , we acquired hellosign , an e-signature and document workflow platform . the acquisition of hellosign expanded our content collaboration capabilities to include additional business-critical workflows . hellosign has several product lines , and the pricing and revenue generated from each product line varies , with some product lines priced based on the number of licenses purchased ( similar to dropbox plans ) , while others are priced based on a customer 's transaction volume . depending on the product purchased , teams must have a minimum of a certain number of licenses , but can also have hundreds of users . customers can choose between an annual or monthly plan , with a small number of large organizations on multi-year plans . we typically bill hellosign customers at the beginning of their respective terms and recognizes revenue ratably over the subscription period . we sell hellosign products globally and sell primarily in u.s. dollars . our customers our customer base is highly diversified , and in the period presented , no customer accounted for more than 1 % of our revenue . our customers include individuals , families , teams , and organizations of all sizes , from freelancers and small businesses to fortune 100 companies . they work across a wide range of industries , including professional services , technology , media , education , industrials , consumer and retail , and financial services . within companies , our platform is used by all types of teams and functions , including sales , marketing , product , design , engineering , finance , legal , and human resources . 48 our business model drive new signups we acquire users efficiently and at relatively low costs through word-of-mouth referrals , direct in-product referrals , and sharing of content . anyone can create a dropbox account for free through our website or app and be up and running in minutes . these users often share and collaborate with other non-registered users , attracting new signups into our network . increase conversion of registered users to our paid subscription plans we generate over 90 % of our revenue from self-serve channels—users who purchase a subscription through our app or website . to grow our recurring revenue base , we actively encourage our registered users to convert to one of our paid plans based on the functionality that best suits their needs . we do this via in-product prompts and notifications , time-limited free trials of paid subscription plans , email campaigns , and lifecycle marketing . together , these enable us to generate increased recurring revenues from our existing user base . upgrade and expand existing customers we offer a range of paid subscription plans , from plus , professional , and family for individuals , to standard , advanced , and enterprise for teams . story_separator_special_tag total arr is a performance metric and should be viewed independently of revenue and deferred revenue , and is not intended to be a substitute for , or combined with , any of these items . total arr consists of contributions from all of our revenue streams , including subscriptions and add-ons . we calculate total arr as the number of users who have active paid licenses for access to our platform as of the end of the period , multiplied by their annualized subscription price to our platform . we adjust the exchange rates used to calculate total arr on an annual basis at the beginning of each fiscal year . we experienced an increase in arr during the year ended december 31 , 2020 , as compared to the year ended december 31 , 2019. the increase in arr was primarily driven by an increase in paying users across our product portfolio , as well as an increased mix of sales going to our higher-priced subscription plans . the below tables set forth our total arr using the exchange rates set at the beginning of each year , as well as on a constant currency basis relative to the exchange rates used in 2020. replace_table_token_5_th as of december 31 , constant currency 2020 2019 2018 ( in millions ) total arr $ 2,022 $ 1,811 $ 1,510 50 revaluing our ending total arr for fiscal 2020 using exchange rates set at the beginning of fiscal 2021 , total arr at the end of fiscal 2020 would be $ 2,052 million . we undertook several business initiatives that positively impacted total arr in the periods presented . these initiatives include the renewal of our grandfathered existing dropbox business teams into the dropbox business advanced plan in the second quarter of 2018 , and the repricing and repackaging of our existing dropbox plus plans in the second quarter of 2019. as of the fiscal year ended 2020 , all of our existing dropbox plus plans have successfully migrated over to our now current pricing and packaging . in addition to these business initiatives , we also acquired hellosign in the first quarter of 2019 , resulting in a benefit to total arr in that period . we also undertook several initiatives to improve the conversion rate of our free users to paying users and saw benefits in total arr as we continued to expand our user base and saw an increased mix of sales towards our higher-priced subscription plans . paying users we define paying users as the number of users who have active paid licenses for access to our platform as of the end of the period . one person would count as multiple paying users if the person had more than one active license . for example , a 50-person dropbox business team would count as 50 paying users , and an individual dropbox plus user would count as one paying user . if that individual dropbox plus user was also part of the 50-person dropbox business team , we would count the individual as two paying users . we have experienced growth in the number of paying users across our products , with the majority of paying users for the periods presented coming from our self-serve channels . we acquired hellosign in the first quarter of fiscal 2019. hellosign has several product lines and the pricing and revenue generated from each product line varies , with some product lines priced based on the number of licenses purchased ( similar to dropbox plans ) . for purposes of hellosign results , we include as paying users either ( i ) the number of users who have active paid licenses for access to the hellosign platform as of the period end for those products that are priced based on the number of licenses purchased ( which is the same method we use to evaluate existing dropbox plans ) or ( ii ) the number of customers for those products that are priced based on transaction volumes . the below table sets forth the number of paying users as of december 31 , 2020 , 2019 , and 2018 : replace_table_token_6_th average revenue per paying user we define average revenue per paying user , or arpu , as our revenue for the period presented divided by the average paying users during the same period . for interim periods , we use annualized revenue , which is calculated by dividing the revenue for the particular period by the number of days in that period and multiplying this value by 365 days . average paying users are calculated based on adding the number of paying users as of the beginning of the period to the number of paying users as of the end of the period , and then dividing by two . in the second quarter of 2019 , we repackaged our existing dropbox plus plans to include additional features and , as a result , increased the price for new and existing users on this plan . for certain existing users at the time of the price change , the increase in price was effective on their next renewal date . as a result of the price increase , and combined with an increased mix of sales towards our higher-priced subscription plans , we experienced an increase in our average revenue per paying user for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. as of the fiscal year ended 2020 , all of our existing dropbox plus plans have successfully migrated over to our now current pricing and packaging . the below table sets forth our arpu for the years ended december 31 , 2020 , 2019 , and 2018 . 51 replace_table_token_7_th non-gaap financial measure in addition to our results determined in accordance with u.s. generally accepted accounting principles , or gaap , we believe that free cash flow , or fcf , a non-gaap financial measure , is useful in evaluating our liquidity .
| results of operations the following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods : replace_table_token_9_th ( 1 ) includes stock-based compensation as follows : replace_table_token_10_th ( 2 ) includes impairment charges related to certain right-of-use and other lease related assets as a result of our decision to shift to a virtual first work model . see note 9 `` leases '' for further information . ( 3 ) on march 19 , 2020 , one of our co-founders resigned as a member of the board and as an officer of the company , resulting in the reversal of $ 23.8 million in stock-based compensation expense . of the total amount reversed , $ 21.5 million related to expense recognized prior to december 31 , 2019. see note 12 `` stockholders ' equity '' for further information . 54 ( 4 ) upon the effectiveness of the registration statement for our initial public offering , which was march 22 , 2018 , the liquidity event-related performance vesting condition associated with our two-tier rsus was satisfied . during the year ended december 31 , 2018 , we recognized the cumulative unrecognized stock-based compensation of $ 418.7 million .
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vessel improvement costs that add value to the company 's vessels , such as those discussed above , are capitalized to the vessels and depreciated over the shorter of the improvements or the vessel 's estimated remaining useful life , while costs of repairs and maintenance , including minor improvement costs and drydock expenses , are charged to expense as incurred and included in other vessels operating expenses . drydock story_separator_special_tag the information contained in this section should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this form 10-k under the heading “ risk factors , ” “ selected financial data , ” and “ business. ” overview we currently operate a fleet of six expedition ships owned by our subsidiaries and four seasonal charter vessels and have two new vessels on order for delivery in 2017 and 2018. our mission is offering life-changing adventures on all seven continents , and pioneering innovative ways to allow our guests to connect with exotic and remote places . our expedition ships are customized , nimble and intimately-scaled vessels that are able to venture where larger cruise ships can not , thus allowing us to offer up-close experiences in the planet 's wild and remote places and capitals of culture . many of these expeditions involve travel to remote places with limited infrastructure and ports ( such as antarctica and the artic ) or places that are best accessed by a ship ( such as the galápagos , alaska , baja 's sea of cortez , costa rica , and panama ) , and foster active engagement by guests . each expedition ship is designed to be comfortable and inviting , while being fully equipped with state-of-the-art tools for in-depth exploration . we also have an alliance with the national geographic society ( “ national geographic ” ) , who often provides lecturers and national geographic experts , including photographers , writers , marine biologists , naturalists , field researchers , and film crews . the key components of our business strategy are to deliver exceptional guest experiences , maximize occupancy levels , continually optimize pricing methodologies , effectively manage itinerary offerings to meet guest demand , maximize and grow net yields , elevate brand awareness and loyalty , and expand and operate the business in a safe , prudent and disciplined manner . a perspective on how we maximize occupancy and optimize pricing is illustrated in the redeployment of the national geographic orion , which came under our management in 2013. we added departures from the antarctic peninsula and extensive travel across the pacific ocean as well as began marketing the vessel 's offerings in the u.s. , a core marketing region where we command strong pricing . in 2016 , we further repositioned the national geographic orion by redeploying the ship from serving the western australian geographies to voyages in europe for the northern hemisphere summer . we deploy chartered vessels for various seasonal offerings and continually seek to optimize our charter fleet to balance our inventory with demand and maximized yields . we use our charter inventory as a mechanism to both increase travel options of our existing and prospective guests and also to test demand for certain areas and seasons to understand the potential for longer term deployments and additional vessel needs . we continually evaluate a range of strategies for expansion of guest capacity . we consider closely the expected return on invested capital and the range of possibilities , such as a newbuild program , adding selected charters and the acquisition of existing ships or small operators . in december 2015 , we executed definitive agreements for the construction of two new coastal vessels for delivery targeted in the second quarter of 2017 and the second quarter of 2018 at a purchase price of $ 48.0 million and $ 46.8 million , respectively . these 236-foot vessels are expected to have capacity of approximately 100 guests each and management considers this investment to be an important step to meet increasing demand for our offerings . the newbuild process will expose us to certain risks typically associated with new ship construction , which we are prepared to manage through detailed planning and close monitoring by our internal marine team . the purchase of the ships will be funded through a combination of cash available on our balance sheet and excess cash flows generated by our existing operations . also in december 2015 , we signed a definitive agreement for the purchase of the via australis to be used in our operations in the galápagos islands . we expect to take possession of the ship in the second quarter of 2016 and following a significant renovation expect to deploy the ship during the fourth quarter of 2016. the via australis will replace the national geographic endeavour . the purchase price for the ship is $ 18.0 million and we plan to spend up to $ 10.0 million to refurbish and outfit the ship immediately after closing . 37 we maintain our fleet in accordance with applicable regulations , international conventions and insurance requirements . this includes regularly scheduled maintenance , periodic inspections , drydocking , and overhaul . in addition , renovations and replacements of various vessel elements are part of the ongoing process of maintaining the vessels to a high standard . following the acquisition of the national geographic orion , the vessel underwent an extensive drydock process during which we added our own specific modifications in order for the ship to meet its operational requirements . on a year-to-year basis , increases in maintenance expense for the current owned fleet are anticipated to grow in line with inflation . due to the specific geographies in which we operate and the cost of providing access to fuel in our remote destinations , we have historically not experienced significant fluctuations in fuel costs with changes in world fuel commodity prices . story_separator_special_tag we reviewed the remaining useful life of the national geographic endeavour , which is expected to be replaced by the via australis in the fourth quarter of 2016. the evaluation of the national geographic endeavour 's useful life as of december 31 , 2015 indicated a shorter remaining useful life of less than one year versus the previous estimated remaining useful life of seven years ( see note 5 – property and equipment ) . we do not expect any residual value for the national geographic endeavour after the end of the fourth quarter of 2016. we also evaluated a new law in ecuador and its effect on our operating rights in the galápagos islands . as a result of the new law , the life of the cupos changed from indefinite lives to nine years and amortization of operating rights began in august 2015 ( see note 4 – operating rights ) . financial presentation description of certain line items tour revenues tour revenues consist of the following : ● guest ticket revenues recognized from the sale of guest tickets ; and ● other revenues from the sale of pre- or post-expedition excursions , hotel accommodations , and land-based expeditions ; air transportation to and from the ships , goods and services rendered onboard that are not included in guest ticket prices , trip insurance , and cancellation fees . cost of tours cost of tours includes the following : ● direct costs associated with revenues , including cost of pre- or post-expedition excursions , hotel accommodations , and land-based expeditions , air and other transportation expenses , and cost of goods and services rendered onboard ; 39 ● payroll costs and related expenses for shipboard personnel ; ● food costs for guests and crew , including complimentary food and beverage amenities for guests ; ● fuel costs and related costs of delivery , storage and safe disposal of waste ; and ● other expenses , such as land costs , port costs , repairs and maintenance , equipment expense , drydock , ship insurance , and charter hire costs . selling and marketing selling and marketing expenses include commissions and a broad range of advertising and promotional expenses . general and administrative general and administrative expenses include the cost of shoreside vessel support , reservations and other administrative functions , including salaries and related benefits , credit card commissions , professional fees and rent . key operational and financial metrics we use a variety of operational and financial metrics , which are defined below , to evaluate our performance and financial condition . we use certain non-gaap financial measures , such as ebitda , adjusted ebitda , net yields , and net cruise costs , to enable us to analyze our performance and financial condition . we utilize these financial measures to manage our business on a day-to-day basis and believe that they are the most relevant measures of performance . some of these measures are commonly used in the cruise industry to measure performance . we believe these non-gaap measures provide expanded insight to measure revenue and cost performance , in addition to the standard gaap-based financial measures . there are no specific rules or regulations for determining non-gaap measures , and as such , they may not be comparable to measures used by other companies within the industry . the presentation of non-gaap financial information should not be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . you should read this discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes thereto also included within . ebitda is net income ( loss ) excluding depreciation and amortization , net interest expense and income tax benefit ( expense ) . adjusted ebitda is net income ( loss ) excluding depreciation and amortization , net interest expense , other income ( expense ) , income tax benefit ( expense ) , and other supplemental adjustments . other supplemental adjustments include certain non-operating items such as stock-based compensation , the national geographic fee amortization , merger-related expenses , acquisition-related expenses and retention expenses . we believe adjusted ebitda , when considered along with other performance measures , is a useful measure as it reflects certain operating drivers of the business , such as sales growth , operating costs , selling and administrative expense , and other operating income and expense . we believe adjusted ebitda can provide a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of our financial performance and prospects for the future . while adjusted ebitda is not a recognized measure under gaap , management uses this financial measure to evaluate and forecast business performance . adjusted ebitda is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements , such as unearned passenger revenue , capital expenditures and related depreciation , principal and interest payments , and tax payments . our use of adjusted ebitda may not be comparable to other companies within the industry . management compensates for these limitations by using adjusted ebitda as only one of several measures for evaluating our business performance . in addition , capital expenditures , which impact depreciation and amortization , interest expense , and income tax benefit ( expense ) , are reviewed separately by management . available guest nights is a measurement of capacity and represents double occupancy per cabin ( except single occupancy for a single capacity cabin ) multiplied by the number of cruise days for the period . we also record the number of guest nights available on our limited land programs in this definition . we use this measure to perform capacity and rate analysis to identify the main non-capacity drivers that cause revenue and expense to vary .
| results of operations results and demand for our business continued to improve in 2015. in the year ended december 31 , 2015 , we generated revenues of $ 210.0 million compared to revenues of $ 198.5 million for the year ended december 31 , 2014 , which represents an increase of $ 11.5 million , or 5.8 % . net income was $ 19.7 million and $ 22.2 million for the years ended december 31 , 2015 and 2014 , respectively . for the year ended december 31 , 2015 , we generated adjusted ebitda ( as defined below ) of $ 46.8 million compared to $ 44.6 million for the year ended december 31 , 2014 . 41 we reported tour revenues , cost of tours , operating expenses , operating income and net income for the years ended december 31 , 2015 , 2014 and 2013 as shown in the following table : replace_table_token_6_th the following table sets forth our operating data as a percentage of total revenue : replace_table_token_7_th 42 the following table sets forth our available guest nights , guest nights sold , occupancy , maximum guests , number of guests and voyages for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_8_th the following table shows the calculations of gross yield and net yield for the years ended december 31 , 2015 , 2014 and 2013. gross yield is calculated by dividing tour revenues by available guest nights , and net yield is calculated by dividing net revenue by available guest nights .
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13 section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the exchange act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of the company 's equity securities to file with the sec initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the company . officers , directors and greater than ten percent beneficial shareholders are required by sec regulations to furnish us with copies of all section 16 ( a ) forms they file . to the best of our knowledge based solely on a review of forms 3 , 4 , and 5 ( and any amendments thereof ) received by us , the following persons have failed to file , on a timely basis , the identified reports required by section 16 ( a ) of the exchange act during fiscal year ended december 31 , 2013 : replace_table_token_16_th code of ethics as of december 31 , 2013 , we had not adopted a code of ethics for financial executives , which would include our principal executive officer , principal financial officer , principal accounting officer or controller , or persons performing similar functions . 14 item 11. executive compensation the table below summarizes all compensation awarded to , earned by , or paid to our former or current executive officers for the fiscal years ended december 31 , 2013 and 2012. replace_table_token_17_th narrative disclosure to the summary compensation table on january 14 , 2013 , we entered into a written employment agreement with shad stastney . pursuant to the terms and conditions of the employment agreement : § mr. stastney will serve as chairman and chief executive officer of our company for a period of twelve ( 12 ) months ; § mr. stastney will earn a base salary of $ 175,000 ; § we will issue to mr. stastney an option to acquire two million ( 2,000,000 ) shares of our common stock at an exercise price per share of $ 1.00 with a term of 5 years ; and § mr. stastney will be entitled to participate in any employee benefit plans , as established by our board of directors . mr. stastney also agreed to keep certain information confidential and not compete with or solicit from our company for a period of time . on august 14 , 2013 , we amended the employment agreement with mr. stastney . pursuant to the terms and conditions of the amendment to employment agreement with shad stastney : § mr. stastney agreed to non-competition and non-solicitation restrictions with our company during the term of his employment and two years thereafter ; § the term of mr. stastney 's employment shall be for one year , and shall automatically renew for each year thereafter unless terminated on thirty day 's notice before the end of the term ; and § mr. stastney shall be entitled to two years of severance pay if he is terminated with or without cause . 15 on september 20 , 2013 , we entered into a separation agreement with mr. stastney regarding the terms and conditions of his departure from the company ( the “ agreement ” ) . pursuant to the provisions of the agreement , we agreed with mr. stastney as follows : § as of the date of the agreement , mr. stastney is no longer an officer or director of our company and all prior agreements with mr. stastney are terminated in their entirety ; § mr. stastney shall receive 500,000 shares of our common stock , half now and the rest by january 1 , 2014 ; § we agreed to use our best efforts to register mr. stastney 's shares on form s-8 by march 1 , 2014 ; § we agreed to pay mr. stastney $ 126,762 and his reasonable out of pocket expenses incurred on our behalf ; § the parties agreed to a mutual release of all claims and mr. stastney further agreed to certain covenants as provided for in the agreement ; and § mr. stastney will be involved with our company in a limited role as a consultant for one year to assist us on financing , strategic and legal initiatives and to help the transition with several ongoing projects . on april 6 , 2009 , we entered into an employment agreement with mr. lester to serve as our chief executive officer . the agreement was amended on january 14 , 2013 to account for his new positions as coo , secretary and treasurer . under the agreement , we agreed to compensate mr. lester $ 150,000 annually and we granted him options to purchase 500,000 shares of our common stock , with 25 % vesting immediately and 25 % vesting after the completion of each quarter of hire . mr. lester is also eligible for additional quarterly and annual bonus compensation , stock options , and stock grants based on performance metrics outlined by our board of directors . he is entitled to vacation and sick days , and other benefits included in the agreement . on august 14 , 2013 , we amended the employment agreement with mr. lester . pursuant to the terms and conditions of the amendment to employment agreement with david lester : § mr. lester will serve as chief operating officer of our company ; and § mr. lester will earn a base salary of $ 157,500 per year . on august 1 , 2008 , we entered into an employment agreement with mr. hamilton to serve as our vp of sales . under the agreement , we agreed to compensate mr. hamilton $ 120,000 annually and we granted him options to purchase 150,000 shares of our common stock in 2009. mr. hamilton is also eligible for additional quarterly and annual bonus compensation , stock options , and stock story_separator_special_tag 13 section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the exchange act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of the company 's equity securities to file with the sec initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the company . officers , directors and greater than ten percent beneficial shareholders are required by sec regulations to furnish us with copies of all section 16 ( a ) forms they file . to the best of our knowledge based solely on a review of forms 3 , 4 , and 5 ( and any amendments thereof ) received by us , the following persons have failed to file , on a timely basis , the identified reports required by section 16 ( a ) of the exchange act during fiscal year ended december 31 , 2013 : replace_table_token_16_th code of ethics as of december 31 , 2013 , we had not adopted a code of ethics for financial executives , which would include our principal executive officer , principal financial officer , principal accounting officer or controller , or persons performing similar functions . 14 item 11. executive compensation the table below summarizes all compensation awarded to , earned by , or paid to our former or current executive officers for the fiscal years ended december 31 , 2013 and 2012. replace_table_token_17_th narrative disclosure to the summary compensation table on january 14 , 2013 , we entered into a written employment agreement with shad stastney . pursuant to the terms and conditions of the employment agreement : § mr. stastney will serve as chairman and chief executive officer of our company for a period of twelve ( 12 ) months ; § mr. stastney will earn a base salary of $ 175,000 ; § we will issue to mr. stastney an option to acquire two million ( 2,000,000 ) shares of our common stock at an exercise price per share of $ 1.00 with a term of 5 years ; and § mr. stastney will be entitled to participate in any employee benefit plans , as established by our board of directors . mr. stastney also agreed to keep certain information confidential and not compete with or solicit from our company for a period of time . on august 14 , 2013 , we amended the employment agreement with mr. stastney . pursuant to the terms and conditions of the amendment to employment agreement with shad stastney : § mr. stastney agreed to non-competition and non-solicitation restrictions with our company during the term of his employment and two years thereafter ; § the term of mr. stastney 's employment shall be for one year , and shall automatically renew for each year thereafter unless terminated on thirty day 's notice before the end of the term ; and § mr. stastney shall be entitled to two years of severance pay if he is terminated with or without cause . 15 on september 20 , 2013 , we entered into a separation agreement with mr. stastney regarding the terms and conditions of his departure from the company ( the “ agreement ” ) . pursuant to the provisions of the agreement , we agreed with mr. stastney as follows : § as of the date of the agreement , mr. stastney is no longer an officer or director of our company and all prior agreements with mr. stastney are terminated in their entirety ; § mr. stastney shall receive 500,000 shares of our common stock , half now and the rest by january 1 , 2014 ; § we agreed to use our best efforts to register mr. stastney 's shares on form s-8 by march 1 , 2014 ; § we agreed to pay mr. stastney $ 126,762 and his reasonable out of pocket expenses incurred on our behalf ; § the parties agreed to a mutual release of all claims and mr. stastney further agreed to certain covenants as provided for in the agreement ; and § mr. stastney will be involved with our company in a limited role as a consultant for one year to assist us on financing , strategic and legal initiatives and to help the transition with several ongoing projects . on april 6 , 2009 , we entered into an employment agreement with mr. lester to serve as our chief executive officer . the agreement was amended on january 14 , 2013 to account for his new positions as coo , secretary and treasurer . under the agreement , we agreed to compensate mr. lester $ 150,000 annually and we granted him options to purchase 500,000 shares of our common stock , with 25 % vesting immediately and 25 % vesting after the completion of each quarter of hire . mr. lester is also eligible for additional quarterly and annual bonus compensation , stock options , and stock grants based on performance metrics outlined by our board of directors . he is entitled to vacation and sick days , and other benefits included in the agreement . on august 14 , 2013 , we amended the employment agreement with mr. lester . pursuant to the terms and conditions of the amendment to employment agreement with david lester : § mr. lester will serve as chief operating officer of our company ; and § mr. lester will earn a base salary of $ 157,500 per year . on august 1 , 2008 , we entered into an employment agreement with mr. hamilton to serve as our vp of sales . under the agreement , we agreed to compensate mr. hamilton $ 120,000 annually and we granted him options to purchase 150,000 shares of our common stock in 2009. mr. hamilton is also eligible for additional quarterly and annual bonus compensation , stock options , and stock
| revenues our total revenue reported for year ended december 31 , 2013 was $ 4,957,016 , an increase from $ 1,989,086 from the prior year . our increased revenue for the year ended december 31 , 2013 as compared with the prior year is a result of the continued viability of our samplemd solution and the setup and integration fees for pharmaceutical manufacturers whom are participating within this offering . the bulk of our revenue for the year ended december 31 , 2013 came mainly from our core samplemd solutions as opposed to our new consulting business . we expect revenues to increase on our consulting business for 2014. operating expenses operating expenses increased to $ 2,973,990 for the year ended december 31 , 2013 from $ 2,328,648 for the year ended december 31 , 2012. our major expenses for the year ended december 31 , 2013 were salaries , wages and benefits of $ 1,319,712 , professional fees of $ 552,824 , stock-based compensation of $ 411,412 , general and administrative expenses of $ 288,297 , depreciation and amortization of $ 193,971 , and consulting fees of $ 100,077. our expenses increased in 2013 as compared with 2012 largely as a result of salaries , wages and benefits , professional fees and stock-based compensation . we expect operating expenses to increase slightly , with the most increase coming as we will continue to add personnel to strengthen our operations , sales and marketing efforts going forward . 9 net loss net income for the year ended december 31 , 2013 was $ 215,847 , compared to net loss of $ $ 454,553 for the year ended december 31 , 2012. we believe that our company is starting to show real signs of improvement with positive income this year .
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60 a loan is considered impaired , in accordance with the impairment accounting guidance ( asc 310-10-35-16 ) , when based on current information and events , it is probable state bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan . impaired loans include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties . these concessions could include a reduction in the interest rate on the loan , payment extensions , forgiveness of principal , forbearance or other actions intended to maximize collection . the following tables present impaired loan activity for the twelve months ended december 31 , 2013 and 2012 : replace_table_token_40_th replace_table_token_41_th 61 impaired loans less than $ 100,000 are included in groups of homogenous loans . these loans are evaluated based on delinquency status . interest income recognized on a cash basis does not materially differ from interest income recognized on an accrual basis . troubled debt restructured ( tdr ) loans tdrs are modified loans where a concession was provided to a borrower experiencing financial difficulties . loan modifications are considered tdrs when the concessions provided are not available to the borrower through either normal channels or other sources . however , not all loan modifications are tdrs . tdr concession types the company 's standards relating to loan modifications consider , among other factors , minimum verified income requirements , cash flow analysis , and collateral valuations . each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower 's specific circumstances at a point in time . all loan modifications , including those classified as tdrs , are reviewed and approved . the types of concessions provided to borrowers include : · interest rate reduction : a reduction of the stated interest rate to a nonmarket rate for the remaining original life of the debt . the company also may grant interest rate concessions for a limited timeframe on a case by case basis . · amortization or maturity date change beyond what the collateral supports , including any of the following : ( 1 ) lengthens the amortization period of the amortized principal beyond market terms . this concession reduces the minimum monthly payment and increases the amount of the balloon payment at the end of the term of the loan . principal is generally story_separator_special_tag sb financial group , inc. ( “ sb financial ” ) , is a bank holding company registered with the federal reserve board under the bank holding company act of 1956 , as amended . through its direct and indirect subsidiaries , sb financial is engaged in commercial banking , computerized item processing , and trust and financial services . the following discussion is intended to provide a review of the consolidated financial condition and results of operations of sb financial and its subsidiaries ( collectively , the “ company ” ) . this discussion should be read in conjunction with the company 's consolidated financial statements and related footnotes as of and for the years ended december 31 , 2013 and 2012. critical accounting policies the accounting and reporting policies of the company are in accordance with generally accepted accounting principles in the united states and conform to general practices within the banking industry . the company 's significant accounting policies are described in detail in the notes to the company 's consolidated financial statements for the years ended december 31 , 2013 and 2012. the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions . the company 's financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results . critical accounting policies are those policies that management believes are the most important to the portrayal of the company 's financial condition and results , and they require management to make estimates that are difficult , subjective or complex . allowance for loan losses - the allowance for loan losses provides coverage for probable losses inherent in the company 's loan portfolio . management evaluates the adequacy of the allowance for loan losses each quarter based on changes , if any , in the nature and amount of problem assets and associated collateral , underwriting activities , loan portfolio composition ( including product mix and geographic , industry or customer-specific concentrations ) , trends in loan performance , regulatory guidance and economic factors . this evaluation is inherently subjective , as it requires the use of significant management estimates . many factors can affect management 's estimates of specific and expected losses , including volatility of default probabilities , rating migrations , loss severity and economic and political conditions . the allowance is increased through provisions charged to operating earnings and reduced by net charge-offs . the company determines the amount of the allowance based on relative risk characteristics of the loan portfolio . the allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience . the allowance recorded for homogeneous consumer loans is based on an analysis of loan mix , risk characteristics of the portfolio , fraud loss and bankruptcy experiences , and historical losses , adjusted for current trends , for each homogeneous category or group of loans . the allowance for credit losses relating to impaired loans is based on each impaired loan 's observable market price , the collateral for certain collateral-dependent loans , or the discounted cash flows using the loan 's effective interest rate . story_separator_special_tag the total consolidated risk-based capital ratio was 12.6 percent at december 31 , 2013. total consolidated regulatory ( risk-based ) capital was $ 64.9 million at december 31 , 2013 , and $ 59.4 million at december 31 , 2012. capital ratios for the company 's banking subsidiary , state bank , were 8.8 percent for the tier 1 leverage ratio and 12.5 percent for the risk-based capital ratio at december 31 , 2013. goodwill and intangibles the company completed the most recent annual goodwill impairment test as of december 31 , 2013. the first step impairment test compares the fair value of the reporting unit with the carrying value , including goodwill . the reporting unit is state bank . rdsi has no remaining goodwill . at december 31 , 2013 , state bank passed step one , which indicated no impairment . the fair value testing of goodwill and intangibles was conducted pursuant to asc topic 350 and utilized company prepared projections of cash flows , historical financial results and market based comparisons . these inputs were used to evaluate the expected future cash flows of the business and those results determined the fair value of the goodwill and intangibles . planned purchases of premises and equipment management plans to purchase additional premises and equipment to meet the current and future needs of the company 's customers . these purchases , including buildings and improvements and furniture and equipment ( which includes computer hardware , software , office furniture and license agreements ) , are currently expected to total approximately $ 2.3 million for the company during 2014. these purchases are expected to be funded by cash on hand and from cash generated from current operations . liquidity liquidity relates primarily to the company 's ability to fund loan demand , meet deposit customers ' withdrawal requirements and provide for operating expenses . sources used to satisfy these needs consist of cash and due from banks , interest bearing deposits in other financial institutions , securities available for sale , loans held for sale , and borrowings from various sources . the assets , excluding the borrowings , are commonly referred to as liquid assets . liquid assets were $ 106.3 million at december 31 , 2013 compared to $ 124.0 million at december 31 , 2012. the company 's commercial real estate , first mortgage residential and multi-family mortgage portfolio of $ 304.9 million at december 31 , 2013 can and has been readily used to collateralize borrowings , which is an additional source of liquidity . management believes the company 's current liquidity level , without these borrowings , is sufficient to meet its current and anticipated liquidity needs . at december 31 , 2013 , all eligible commercial real estate , residential first , and multi-family mortgage loans were pledged under an fhlb blanket lien . the cash flow statements for the periods presented provide an indication of the company 's sources and uses of cash as well as an indication of the ability of the company to maintain an adequate level of liquidity . a discussion of the cash flow statements for 2013 and 2012 follows : the company experienced positive cash flows from operating activities in 2013 and 2012. net cash from operating activities was $ 13.9 million and $ 7.4 million for the years ended december 31 , 2013 and 2012 , respectively . significant operating items for 2013 included omsr recapture ( $ 0.6 million ) , gain on sale of loans ( $ 5.7 million ) and loss on sale of assets ( $ 0.4 million ) . net proceeds from sales of loans held for sale and loans originated and held for sale were a positive $ 15.1 million . the company experienced negative cash flows from investing activities in 2013 and 2012. net cash used in investing activities was ( $ 8.9 ) million and ( $ 10.0 ) million for the years ended december 31 , 2013 and 2012 , respectively . the changes for 2013 include the purchase of available-for-sale securities of $ 32.1 million , and net increase in loans of $ 15.7 million . the changes for 2012 include the purchase of available-for-sale securities of $ 28.6 million and net increase in loans of $ 23.0 million . the company had proceeds from repayments , maturities , sales and calls of securities of $ 37.4 million and $ 41.3 million in 2013 and 2012 , respectively . 36 the company experienced negative cash flows from financing activities in 2013 and positive cash flows from financing activities in 2012. net cash used in financing activities was ( $ 11.0 million ) in 2013 and a source of cash of $ 6.9 million in 2012. negative $ 4.4 million and positive $ 8.2 million of the change is attributable to the change in deposits for 2013 and 2012 , respectively . the company uses an economic value of equity ( “ eve ” ) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions . the eve analysis calculates the net present value of the company 's assets and liabilities in rate shock environments that range from -400 basis points to +400 basis points . the likelihood of a decrease in rates as of december 31 , 2013 and december 31 , 2012 was considered to be remote given the current interest rate environment and therefore , only the minus 100 basis point rate change was included for 2013 and no negative rate changes were included for 2012. the results of this analysis are reflected in the following tables for december 31 , 2013 and december 31 , 2012. replace_table_token_21_th replace_table_token_22_th off-balance-sheet borrowing arrangements : significant additional off-balance-sheet liquidity is available in the form of federal home loan bank ( fhlb ) advances , unused federal funds lines from correspondent banks and the national
| earnings summary net income for 2013 was $ 5.2 million , or $ 1.07 per diluted share , compared with net income of $ 4.8 million , or $ 0.99 per diluted share for 2012. net charge-offs for 2013 of $ 0.7 million resulted in a loan loss provision of $ 0.9 million , which was down from the $ 1.4 million in 2012. state bank reported net income for 2013 of $ 7.1 million , which is up significantly from the $ 6.4 million in net income in 2012. rdsi reported a net loss for 2013 of $ 0.2 million , compared to net income of $ 0.4 million reported for 2012. positive results at state bank for 2013 included loan growth of $ 13.9 million , and demand deposit growth of $ 6.0 million . both of these factors contributed to a net interest margin of 3.75 percent , which is down just 1 basis point from 2012. the mortgage banking business line continues to grow , with residential real estate loan production of $ 248 million for the year , resulting in $ 5.1 million of revenue from gains on sale . the company 's loans serviced for others ended the year at $ 606 million .
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as of february 24 , 2018 , we operated 2,318 stores across 35 states and the district of columbia under 20 well-known banners including albertsons , safeway , vons , jewel-osco , shaw 's , acme , tom thumb , randalls , united supermarkets , market street , pavilions , star market , haggen and carrs , as well as meal kit company plated based in new york city . over the past five years , we have completed a series of acquisitions that has significantly increased our portfolio of stores . we operated 2,318 , 2,324 , 2,271 , 2,382 , 1,075 and 192 stores as of february 24 , 2018 , february 25 , 2017 , february 27 , 2016 , february 28 , 2015 , february 20 , 2014 and february 21 , 2013 , respectively . in addition , as of february 24 , 2018 , we operated 1,777 pharmacies , 1,275 in-store branded coffee shops , 397 adjacent fuel centers , 23 dedicated distribution centers , five plated fulfillment centers and 20 manufacturing facilities . our operations and financial performance are affected by u.s. economic conditions such as macroeconomic conditions , credit market conditions and the level of consumer confidence . while the combination of improved economic conditions , the trend towards lower unemployment , higher wages and lower gasoline prices have contributed to improved consumer confidence , there is continued uncertainty about the strength of the economic recovery . if the current economic situation does not continue to improve or if it weakens , or if gasoline prices rebound , consumers may reduce spending , trade down to a less expensive mix of products or increasingly rely on food discounters , all of which could impact our sales growth . in addition , consumers ' perception or uncertainty related to the economic recovery and future fuel prices could also dampen overall consumer confidence and reduce demand for our product offerings . both inflation and deflation affect our business . food deflation could reduce sales growth and earnings , while food inflation could reduce gross profit margins . several food items and categories , such as meat , eggs and dairy , experienced price deflation during 2017 and 2016 , and such price deflation could continue in the future . we are unable to predict if the economy will continue to improve , or predict the rate at which the economy may improve , the direction of gasoline prices or if deflationary trends will occur . if the economy does not continue to improve or if it weakens or fuel prices increase , our business and results of operations could be adversely affected . we currently expect to achieve approximately $ 823 million of annual synergies related to the safeway acquisition on a run-rate basis by the end of fiscal 2018 , with remaining associated one-time costs of approximately $ 200 million , including approximately $ 65 million of safeway integration-related capital expenditures . inclusion of the projected synergies should not be viewed as a representation that we in fact will achieve this annual synergy target by the end of fiscal 2018. to the extent we fail to achieve these synergies , our results of operations may be impacted , and any such impact may be material . we achieved synergies from the safeway acquisition of approximately $ 575 million during fiscal 2016 and approximately $ 675 million during fiscal 2017. we have identified various synergies including corporate and division overhead savings , our own brands , vendor funds , the conversion of albertsons and nalp to safeway 's it systems , marketing and advertising cost reduction and operational efficiencies within our back office , distribution and manufacturing organizations . actual synergies , the expenses and cash required to realize the synergies and the sources of the synergies could differ materially from 37 these estimates , and we can not assure you that we will achieve the full amount of synergies on the schedule anticipated , or that these synergy programs will not have other adverse effect on our business . in light of these significant uncertainties , you should not place undue reliance on our estimated synergies . total debt , including both the current and long-term portions of capital lease obligations and net of deferred financing costs and debt discounts , decreased $ 462.1 million to $ 11.9 billion as of the end of fiscal 2017 compared to $ 12.3 billion as of the end of fiscal 2016 . the decrease in fiscal 2017 was primarily due to the repurchase of certain nalp notes and the repayment of term loans made in connection with our term loan repricing that occurred in june 2017. our substantial indebtedness could have important consequences . for example it could : adversely affect the market price of our common stock ; increase our vulnerability to general adverse economic and industry conditions ; require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness , thereby reducing the availability of our cash flow to fund working capital , capital expenditures and other general corporate purposes , including acquisitions and costs related to revenue opportunities in connection with the mergers ; limit our flexibility in planning for , or reacting to , changes in our business and the industry in which we operate ; place us at a competitive disadvantage compared to our competitors that have less debt ; and limit our ability to borrow additional funds . see `` debt management '' contained in `` liquidity and financial resources . '' in fiscal 2017 , we spent approximately $ 1,547 million for capital expenditures , including approximately $ 200 million of safeway integration-related capital expenditures . we expect to spend approximately $ 1,200 million in total for capital expenditures in fiscal 2018 , or approximately 2.0 % of our sales in fiscal 2017 , including $ 65 million of safeway integration-related capital expenditures . for fiscal 2017 , we completed 166 upgrade and remodel projects and opened 15 new stores . story_separator_special_tag we continue to enhance our delivery platform to offer more delivery options and windows across our store base , including early morning deliveries , same-day deliveries , one-to-two hour deliveries by instacart and unattended deliveries . in addition , we are seeking to expand our curbside “ drive up and go ” program in order to enable customers to conveniently pick up their goods on the way home or to the office . we have added to our delivery offerings with our recent alliance with instacart , offering delivery in as little as an hour across key market areas . we believe our strategy of providing customers with a variety of in-store and online options that suit their varying individual needs will drive additional sales growth and differentiate us from many of our competitors . capitalizing on demand for health and wellness services . we intend to leverage our portfolio of 1,777 pharmacies and our growing network of wellness clinics to capitalize on increasing customer demand for health and wellness services . pharmacy customers are among our most loyal , and their average weekly spend on groceries is over 2.5x that of our non-pharmacy customers . we plan to continue to grow our pharmacy script counts through new patient prescription transfer programs and initiatives such as clinic , hospital and preferred network partnerships , which we believe will expand our access to more customers . to further enhance our pharmacy offerings , we recently acquired 39 medcart specialty pharmacy , a urac- accredited specialty pharmacy with accreditation and license to operate in over 40 states , which will extend our ability to service our customers ' health needs . we believe that these efforts will drive sales and generate customer loyalty . continuously evaluating and upgrading our store portfolio . we plan to pursue a disciplined but committed capital allocation strategy to upgrade , remodel and relocate stores to attract customers to our stores and to increase store volumes . we opened 15 new stores in the both fiscal 2016 and 2017 , and expect to open a total of 12 new stores in fiscal 2018 . we completed 166 upgrade and remodel projects in fiscal 2017 and expect to complete 110 to 120 upgrade and remodel projects during fiscal 2018 . we believe that our store base is in excellent condition , and we have developed a remodel strategy that is both cost-efficient and effective . in addition to store remodels , we continuously evaluate and optimize store formats to better serve the different customer demographics of each local community . we have identified approximately 300 stores across our divisions that we have started to re-merchandise to our “ premium ” format , where we offer a greater assortment of unique items in our fresh and service departments , as well as more natural , organic and healthy products throughout the store . additionally , we have started to reposition approximately 100 stores across our divisions from our “ premium ” format to an “ ultra-premium ” format that also offers gourmet and artisanal products , upscale décor and experiential elements including walk-in wine cellars and wine and cheese tasting counters . driving innovation . we intend to drive traffic and sales growth through constant innovation . we will remain focused on identifying emerging trends in food and sourcing new and innovative products . we are adjusting our store layouts to accommodate a greater assortment of grab-and-go , individually packaged , and snack-sized meals . we are also rolling out new merchandising initiatives across our store base , including the introduction of meal kits , product sampling events , quality prepared foods and in-store dining . sharing best practices across divisions . our division leaders collaborate closely to ensure the rapid sharing of best practices . recent examples include the expansion of our o organics and open nature offerings across banners , the accelerated roll-out of signature products such as albertsons ' in-store fresh-cut fruit and vegetables and implementing safeway 's successful wine and floral shop strategies , with broader product assortments and new fixtures across many of our banners . we believe the combination of these actions and initiatives , together with the attractive industry trends will position us to achieve sales growth . enhance our operating margin . our focus on sales growth provides an opportunity to enhance our operating margin by leveraging our fixed costs . we plan to realize further margin benefits through added scale from partnering with vendors and by achieving efficiencies in manufacturing and distribution . we are investing in our supply channel , including the automation of several of our distribution centers , in order to create efficiencies and reduce costs . in addition , we maintain a disciplined approach to expense management and budgeting . implement our synergy realization plan . we currently expect to achieve $ 823 million in annual run-rate synergies by the end of fiscal 2018 from our acquisition of safeway , with remaining associated one-time costs of approximately $ 200 million , including approximately $ 65 million of safeway integration-related capital expenditures . our detailed synergy plan was developed on a bottom-up , function-by-function basis by combined albertsons and safeway teams . the plan includes capturing opportunities from corporate and division cost savings , simplifying business processes and rationalizing headcount . by the end of fiscal 2018 , we expect that safeway 's information technology systems will support all of our stores , distribution centers and systems , including financial reporting and payroll processing , as we wind down our transition services agreement for our albertsons , acme , jewel-osco , shaw 's and star market banners with supervalu . we are extending the expansive and high-quality own brands program developed at safeway across all of our banners . we believe our increased scale will help us to optimize and improve our vendor relationships . we also plan to achieve marketing and advertising savings from lower print , production and broadcast rates in overlapping 40 regions and reduced agency spend .
| results of operations the following table and related discussion sets forth certain information and comparisons regarding the components of our consolidated statements of operations for fiscal 2017 , fiscal 2016 and fiscal 2015 , respectively ( in millions ) : replace_table_token_5_th identical store sales , excluding fuel identical store sales , on an actual basis , is defined as stores operating during the same period in both the current year and the prior year , comparing sales on a daily basis , excluding fuel . acquired stores become identical on the one-year anniversary date of their acquisition . identical store sales results , on an actual basis , for the past three fiscal years were as follows : replace_table_token_6_th our identical store sales decrease in fiscal 2017 was driven by a decrease of 2.9 % in customer traffic partially offset by an increase of 1.6 % in average ticket size . during fiscal 2016 and the first half of fiscal 2017 , our identical store sales were negatively impacted by food price deflation in certain categories , including meat , eggs and dairy , together with selective investments in price . our fourth quarter of fiscal 2017 identical store sales were positive at 0.6 % , which reflected the benefit from improvements in customer traffic trends and an increase in average ticket . we anticipate overall identical store sales growth of 1.5 % to 2.0 % during fiscal 2018 with such growth being weighted more to the second half of fiscal 2018. operating results overview net income was $ 46.3 million in fiscal 2017 compared to net loss of $ 373.3 million in fiscal 2016 , an increase of $ 419.6 million .
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the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report on form 10-k. 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 form 10-k , our actual results could differ materially from the results described , in or implied , by these forward-looking statements . overview we are a biotechnology company pioneering the development of engineered igm antibodies for the treatment of cancer patients . igm antibodies have inherent properties that we believe may enable them to bind more strongly to cancer cells than comparable igg antibodies . we have created a proprietary igm antibody technology platform that we believe is particularly well suited for developing t cell engagers , receptor cross-linking agonists and targeted cytokines . our lead product candidate , igm-2323 , is a bispecific t cell engaging igm antibody targeting cd20 and cd3 proteins , and in october 2019 we announced the dosing of the first patient in our phase 1 clinical trial for the treatment of relapsed/refractory b cell non-hodgkin 's lymphoma ( nhl ) patients . our second product candidate , igm-8444 is an igm antibody targeting death receptor 5 ( dr5 ) proteins , and we plan to file an investigational new drug application ( ind ) for the treatment of patients with solid and hematologic malignancies in 2020. our third product candidate , igm-7354 , is a bispecific igm antibody delivering interleukin-15 ( il-15 ) cytokines to pd-l1 expressing cells , and we plan to file an ind for the treatment of patients with solid and hematologic malignancies in 2021. we believe that we have the most advanced research and development program focused on engineered therapeutic igm antibodies . we have created a portfolio of patents and patent applications , know-how and trade secrets directed to our platform technology , product candidates and manufacturing capabilities , and we retain worldwide commercial rights to all of our product candidates and the intellectual property related thereto . since the commencement of our operations , we have focused substantially all of our resources on conducting research and development activities , including drug discovery , preclinical studies and clinical trials , establishing and maintaining our intellectual property portfolio , the manufacturing of clinical and research material , developing our in-house manufacturing capabilities , hiring personnel , raising capital and providing general and administrative support for these operations . since 2010 , such activities have exclusively related to the research , development and manufacture of igm antibodies and to building our proprietary igm antibody technology platform . we do not have any products approved for sale , and we have not generated any revenue from product sales . we have incurred significant net losses to date . our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates . our net losses were $ 43.1 million , $ 22.7 million , and $ 11.1 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 107.2 million . these losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future , and our net losses may fluctuate significantly from period to period , depending on the timing of and expenditures on our planned research and development activities . in addition , we expect to incur additional costs associated with operating as a public company . we expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we : ▪ advance the development of igm-2323 , igm-8444 and igm-7354 ; ▪ expand our pipeline of igm antibody product candidates ; ▪ continue to invest in our igm antibody technology platform ; ▪ build out and expand our in-house manufacturing capabilities ; 92 index to financial statements ▪ maintain , protect and expand our intellectual property portfolio , including patents , trade secrets and know-how ; ▪ seek marketing approvals for any product candidates that successfully complete clinical trials ; ▪ establish a sales , marketing , and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval and related commercial manufacturing build-out ; ▪ implement operational , financial and management information systems ; and ▪ attract , hire and retain additional clinical , scientific , management and administrative personnel . we plan to continue to use third-party service providers , including clinical research organizations ( cros ) and clinical manufacturing organizations ( cmos ) , to carry out our preclinical and clinical development and manufacture and supply of our preclinical and clinical materials to be used during the development of our product candidates . we do not have any products approved for sale and have not generated any revenue since inception . prior to the completion of our initial public offering ( ipo ) in september 2019 , we had funded our operations primarily with an aggregate of approximately $ 162.0 million in gross cash proceeds from the sale of convertible preferred stock and issuance of unsecured promissory notes . story_separator_special_tag 94 index to financial statements story_separator_special_tag ▪ the number and characteristics of other product candidates that we pursue ; ▪ the costs , timing and outcome of seeking and obtaining u.s. food and drug administration ( fda ) and non-u.s. regulatory approvals ; ▪ our ability to maintain , expand and defend the scope of our intellectual property portfolio , including the amount and timing of any payments we may be required to make in connection with the licensing , filing , defense and enforcement of any patents or other intellectual property rights ; ▪ the timing , receipt and amount of sales from our potential products ; ▪ our need and ability to hire additional management , scientific and medical personnel ; ▪ the effect of competing products that may limit market penetration of our product candidates ; ▪ our need to implement additional internal systems and infrastructure , including financial and reporting systems ; ▪ the economic and other terms , timing and success of any collaboration , licensing , or other arrangements into which we may enter in the future , including the timing of receipt of any milestone or royalty payments under these agreements ; ▪ the compliance and administrative costs associated with being a public company ; and ▪ the extent to which we acquire or invest in businesses , products or technologies , although we currently have no commitments or agreements relating to any of these types of transactions . in addition , we will continue to require additional funding in order to complete development of our product candidates and commercialize our products , if approved . we may seek to raise any necessary additional capital through a combination of public or private equity offerings , debt financings , collaborations , strategic alliances , licensing arrangements and other marketing and distribution arrangements . there can be no assurance that , in the event we require additional financing , such financing will be available at terms acceptable to us , if at all . failure to generate sufficient cash flows from operations , raise additional capital and reduce discretionary spending should additional capital not become available could have a material adverse effect on our ability to achieve our intended business objectives . because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials . to the 97 index to financial statements extent that we raise additional capital through collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our product candidates , future revenue streams or research programs at an earlier stage of development or on less favorable terms than we would otherwise choose or to grant licenses on terms that may not be favorable to us . if we do raise additional capital through public or private equity or convertible debt offerings , the ownership interest of our existing stockholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders ' rights . if we raise additional capital through debt financing , we may be subject to covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we are unable to obtain additional funding from these or other sources , it may be necessary to significantly reduce our rate of spending through reductions in staff and delaying , scaling back , or stopping certain research and development programs . summary statement of cash flows the following table sets forth the primary sources and uses of cash for each of the periods presented below : replace_table_token_7_th net cash used in operating activities in 2019 , net cash used in operating activities was $ 45.1 million , which consisted of a net loss of $ 43.1 million and a net change of $ 5.0 million in our net operating assets and liabilities , partially offset by $ 3.0 million in non-cash charges . the net change in our operating assets and liabilities was primarily due to an increase in prepaid expenses of $ 5.4 million , an increase in other assets of $ 0.3 million and a decrease in lease liabilities of $ 1.3 million , partially offset by an increase in accounts payable of $ 2.0 million . the non-cash charges primarily consisted of non-cash lease expense of $ 1.7 million , stock-based compensation of $ 1.0 million and depreciation expense of $ 0.6 million , partially offset by net amortization of premiums and accretion of discounts on investments of $ 0.3 million . in 2018 , net cash used in operating activities was $ 20.0 million , which consisted of a net loss of $ 22.7 million , partially offset by a net change of $ 2.2 million in our net operating assets and liabilities and $ 0.5 million in non-cash charges . the net change in our operating assets and liabilities was primarily due to an increase in accrued liabilities of $ 2.8 million resulting from an increase in research and development activities . this was partially offset by an increase in prepaid expenses of $ 0.3 million primarily associated with prepayments made for ongoing research and development activities conducted by third-party service providers . the non-cash charges primarily consisted of depreciation of $ 0.3 million and stock-based compensation of $ 0.2 million . in 2017 , net cash used in operating activities was $ 10.4 million , which consisted of a net loss of $ 11.1 million , partially offset by a net change of $ 0.4 million in our net operating assets and liabilities and $ 0.3 million in non-cash charges . the net change in our operating assets and liabilities was primarily due to an increase in accrued liabilities of $ 0.3 million resulting from an increase in research and development activities .
| results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_3_th research and development expenses the following table summarizes our research and development expenses incurred during the periods indicated : replace_table_token_4_th ( 1 ) includes direct expenses related to our lead product candidate , igm-2323 , for which we announced the dosing of the first patient in our phase 1 clinical trial in october 2019. research and development expenses were $ 35.3 million in 2019 compared to $ 19.0 million in 2018. the increase of $ 16.3 million was driven by advancement of our product candidates , including $ 3.2 million of expenses related to our clinical stage program , which consisted of preclinical , clinical and manufacturing expense incurred in the development of our lead product candidate , igm-2323 , for which we announced the dosing of the first patient in our phase 1 clinical trial in october 2019 , and $ 6.7 million related to our preclinical stage programs which consisted of preclinical and manufacturing expenses incurred in the development of our second product candidate , igm-8444 , and expenses related to our discovery programs . personnel-related expenses , including stock-based compensation , increased by $ 4.8 million due to an increase in headcount . depreciation and facilities increased by $ 1.6 million primarily due to new lease agreements for additional office , laboratory and manufacturing space in mountain view which commenced in 2019. general and administrative expenses general and administrative expenses were $ 9.2 million in 2019 compared to $ 3.8 million in 2018. the increase of $ 5.4 million was primarily due to a $ 2.3 million increase in personnel-related expenses , including stock-based compensation , due to an increase in headcount . professional services increased by $ 1.8 million due to legal , accounting , consulting and other services in preparation for our public company status .
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for geographic story_separator_special_tag story_separator_special_tag contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period . on an ongoing basis , we evaluate our estimates , including those related to the recoverability of long-lived assets , pension and other postretirement benefit obligations and the underlying actuarial assumptions related thereto , the realization of deferred income tax assets and accruals for litigation , income tax and other contingencies . 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 reported amounts of assets , liabilities , revenues and expenses . actual results may differ significantly from previously-estimated amounts under different assumptions or conditions . the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : · investments - we own investments in valhi , inc. that we account for as marketable securities carried at fair value or that we account for under the equity method . for these investments , we evaluate the fair value at each balance sheet date . we use quoted market prices , level 1 inputs as defined in accounting standards codification ( asc ) 820-10-35 , fair value measurements and disclosures , to determine fair value for certain of our marketable debt securities and publicly traded investees . we record an impairment charge when we believe an investment has experienced an other-than-temporary decline in fair value below its cost basis ( for marketable securities ) or below its carrying value ( for equity method investees ) . in this regard , as of december 31 , 2015 our cost basis exceeded the market value of our marketable equity security investment . after considering all available evidence we consider such decline in market value to be temporary . see note 5 to our consolidated financial statements . further adverse changes in market conditions or poor operating results of underlying - 32 - investments could result in losses or our inability to recover the carrying value of the investments that may not be reflected in an investment 's current carrying value , thereby possibly requiring us to recognize an impairment charge i n the future . at december 31 , 201 5 , the $ 5 . 64 per share quoted market price of our investment in kronos ( our only equity method investee ) exceeded its per share net carrying value by over 14 0 % . · long-lived assets - we assess property and equipment for impairment only when circumstances ( as specified in asc 360-10-35 , property , plant , and equipment ) indicate an impairment may exist . our determination is based upon , among other things , our estimates of the amount of future net cash flows to be generated by the long-lived asset ( level 3 inputs ) and our estimates of the current fair value of the asset . significant judgment is required in estimating such cash flows . adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset , thereby possibly requiring an impairment charge to be recognized in the future . we do not assess our property and equipment for impairment unless certain impairment indicators specified in asc topic 360-10-35 are present . we did not evaluate any long-lived assets for impairment during 2015 because no such impairment indicators were present . · goodwill - our net goodwill totaled $ 27.2 million at december 31 , 2015. we perform a goodwill impairment test annually in the third quarter of each year . goodwill is also evaluated for impairment at other times whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . all of our net goodwill at december 31 , 2015 is related to compx . since 2013 , we have used the qualitative assessment of asc 350-20-35 for our annual impairment test and determined it was not necessary to perform the two-step quantitative goodwill impairment test . see note 7 to our consolidated financial statements . considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit . events and circumstances considered in our impairment evaluations , such as historical profits and stability of the markets served , are consistent with factors utilized with our internal projections and operating plan . however , future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment . · benefit plans - we maintain various defined benefit pension plans and postretirement benefits other than pensions ( opeb ) . the amounts recognized as defined benefit pension and opeb expenses and the reported amounts of pension asset and accrued pension and opeb costs are actuarially determined based on several assumptions , including discount rates , expected rates of returns on plan assets , expected health care trend rates and expected mortality . variances from these actuarially assumed rates will result in increases or decreases , as applicable , in the recognized pension and opeb obligations , pension and opeb expenses and funding requirements . these assumptions are more fully described below under the heading “ assumptions on defined benefit pension plans and opeb plans. ” · income taxes - we recognize deferred taxes for future tax effects of temporary differences between financial and income tax reporting . story_separator_special_tag total material costs represented approximately 4 8 % of our cost of sales in 201 5 , with commodity - related raw materials accounting for approximately 10 % of our cost of sales . with the exception of a moderate midyear 2014 increase in mine d metals , including zinc , worldwide commodity raw material costs were mostly stable during 2013 and 2014 . during 2015 , markets for our primary commodity-related raw materials , including zinc , brass and stainless steel , have generally softened and are expe cted to remain soft well into 2016 . compx occasionally enter s into short-term commodity-related raw material supply arrangements to mitigate the impact of future increases in commodity - related raw material costs . see item 1 - “ business- raw materials. ” results by reporting unit the key performance indicator for compx 's reporting units is the level of their income from operations ( see discussion below ) . replace_table_token_9_th security products - security products net sales increased 5 % to $ 95.6 million in 2015 compared to $ 91.4 million in 2014. the increase in sales is primarily due to an increase of approximately $ 3.0 million in sales to existing government customers . gross margin for 2015 decreased compared to the same period in 2014 due to relative changes in customer and product mix driving lower variable margins , and increased fixed costs . operating costs and expenses increased approximately $ .5 million in 2015 compared to 2014 primarily as a result of increased personnel costs . security products income from operations as a percentage of net sales for 2015 decreased compared to 2014 primarily as a result of the factors impacting gross margin and operating costs and expenses discussed above . security products net sales increased 12 % to $ 91.4 million in 2014 compared to $ 81.5 million in 2013. the increase in sales is primarily due to an increase of approximately $ 5.0 million in sales of new products for an existing government customer , additional sales of $ 2.9 million into transportation markets on strong demand from - 36 - motor cycle and recreational vehicle oem customers and a $ 1.7 million increase in electronic lock sales in 2014 due to increased market penetration and two significant project installations . gross margin for 2014 is comparable to the same period in 2013 as impr oved coverage of fixed costs over increased production volumes were offset by lower variable margins . additionally , operating costs and expenses for 2014 increased approximately $ 1.2 million , primarily as a result of increased administrative personnel and benefits costs of approximately $ .5 million and increased depreciation of $ .2 million . security products income from operations as a percentage of net sales for 2014 is comparable to 2013 primarily as a result of the factors impacting gross margin and op erating costs and expenses discussed above . marine components - marine components net sales increased 8 % in 2015 as compared to 2014. the increase in sales was primarily due to improved demand for products sold to the ski/wakeboard boat market , including the introduction of new product lines to that market . as a percentage of net sales , gross margin and the income from operations percentage each improved due to improved pricing , changes in customer and product mix , improved manufacturing efficiencies and increased leverage of fixed costs as a result of higher production volumes . marine components net sales increased 17 % in 2014 as compared to 2013. the increase was primarily the result of gains in market share for products sold to the ski/wakeboard boat market and other non high performance marine markets . as a percentage of net sales , gross margin and the income from operations percentage improved primarily due to variable margins related to product mix and increased leverage of fixed costs as a result of higher volumes . outlook - the robust demand for our products experienced in 2015 was supported by continued high demand from certain large existing customers , including those serving the government security applications and recreational transportation markets . in addition , 2015 sales included over $ 5 million in sales for a government security end-user which is not expected to recur in 2016. we also continue to experience the benefits of innovation and diversification in our product offerings to the recreational boat markets served by our marine components segment . we anticipate continued strong demand for our products in 2016 , though we do not expect demand for government security applications to approach 2015 volumes . as in prior periods , we will continue to monitor general economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and consistent execution of our lean manufacturing and cost improvement initiatives . additionally , we continue to seek opportunities to gain market share in markets we currently serve , to expand into new markets and to develop new product features in order to mitigate the impact of changes in demand as well as broaden our sales base . general corporate items , interest and dividend income , interest expense , provision for income taxes , noncontrolling interest and related party transactions insurance recoveries - we have agreements with certain insurance carriers pursuant to which the carriers reimburse us for a portion of our past lead pigment and asbestos litigation defense costs . insurance recoveries include amounts we received from these insurance carriers . substantially all of the $ 3.7 million of insurance recoveries we recognized in 2015 relate to a first quarter settlement we reached with one of our insurance carriers in which they agreed to reimburse us for a portion of our past litigation defense costs . substantially all of the $ 10.4 million of insurance recoveries we recognized in 2014 relate to a settlement we reached with one of our insurance carriers in september 2014 in which they agreed to reimburse us for a portion of our past litigation defense costs .
| results of operations business overview we are primarily a holding company . we operate in the component products industry through our majority-owned subsidiary , compx international inc. we also own a noncontrolling interest in kronos worldwide , inc. both compx ( nyse mkt : cix ) and kronos ( nyse : kro ) file periodic reports with the sec . compx is a leading manufacturer of engineered components utilized in a variety of applications and industries . through its security products operations , compx manufactures mechanical and electronic cabinet locks and other locking mechanisms used in recreational transportation , postal , office and institutional furniture , cabinetry , tool storage and healthcare applications . compx also manufactures stainless steel exhaust systems , gauges , throttle controls , and trim tabs for the recreational marine and other industries through its marine components operations . we account for our 30 % non-controlling interest in kronos by the equity method . kronos is a leading global producer and marketer of value-added titanium dioxide pigments . tio 2 is used for a variety of manufacturing applications including coatings , plastics , paper and other industrial products . net income ( loss ) overview our net loss attributable to nl stockholders was $ 23.9 million , or $ .49 per share , in 2015 compared to net income of $ 28.5 million , or $ .59 per share , in 2014 and a net loss of $ 55.3 million , or $ 1.14 per share in 2013. as more fully described below , the decrease in our earnings per share from 2014 to 2015 is primarily related to : · equity in losses from kronos in 2015 of $ 52.8 million compared to equity in earnings from kronos in 2014 of $ 30.2 million , · lower insurance recoveries in 2015 of $ 6.7 million primarily related to an insurance recovery settlement for certain past lead pigment litigation defense costs we recognized in 2014 , · lower
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we reassess our liability when and if changes in circumstances occur . the liability and corresponding asset are removed from the consolidated balance sheets upon customer acceptance of the project . circumstances that could lead to a loss under these agreements beyond our stated ownership interest include the failure of a partner to contribute additional funds to the venture in the event the project incurs a loss or additional costs that we could incur should a partner fail to provide the services and resources that it had committed to provide in the agreement . contingencies : we are currently involved in various story_separator_special_tag results of operations general we are one of the largest diversified heavy civil contractors and construction materials producers in the united states , engaged in the construction and improvement of streets , roads , highways , mass transit facilities , airport infrastructure , bridges , trenchless and underground utilities , power-related facilities , water-related facilities , utilities , tunnels , dams and other infrastructure-related projects . we own aggregate reserves and plant facilities to produce construction materials for use in our construction business and for sale to third parties . our permanent offices are located in alaska , arizona , california , florida , illinois , nevada , new york , texas , utah and washington . we have three reportable business segments : construction , large project construction and construction materials ( see note 18 of “ notes to the consolidated financial statements ” ) . in addition to business segments , we review our business by operating groups and by public and private market sectors . our operating groups are defined as follows : ( i ) california ; ( ii ) northwest , which primarily includes offices in alaska , arizona , nevada , utah and washington ; ( iii ) heavy civil , which primarily includes offices in california , florida , new york and texas ; and ( iv ) kenny , which primarily includes an office in illinois . each of these operating groups may include financial results from our construction and large project construction segments . a project 's results are reported in the operating group that is responsible for the project , not necessarily the geographic area where the work is located . in some cases , the operations of an operating group include the results of work performed outside of that geographic region . our california and northwest operating groups include financial results from our construction materials segment . the four primary economic drivers of our business are ( i ) the overall health of the u.s. economy ; ( ii ) federal , state and local public funding levels ; ( iii ) population growth resulting in public and private development ; and ( iv ) the need to replace or repair aging infrastructure . a stagnant or declining economy will generally result in reduced demand for construction and construction materials in the private sector . this reduced demand increases competition for private sector projects and will ultimately also increase competition in the public sector as companies migrate from bidding on scarce private sector work to projects in the public sector . in addition , a stagnant or declining economy tends to produce less tax revenue for public agencies , thereby decreasing a source of funds available for spending on public infrastructure improvements . some funding sources that have been specifically earmarked for infrastructure spending , such as diesel and gasoline taxes , are not as directly affected by a stagnant or declining economy , unless actual consumption is reduced or gasoline sales tax revenues decline consistent with fuel prices . however , even these can be temporarily at risk as federal , state and local governments take actions to balance their budgets . additionally , fuel prices and more fuel efficient vehicles can have a dampening effect on consumption , resulting in overall lower tax revenue . conversely , increased levels of public funding as well as an expanding or robust economy will generally increase demand for our services and provide opportunities for revenue growth and margin improvement . 23 critical accounting policies and estimates the financial statements included in “ item 8. financial statements and supplementary data ” 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 that affect the reported amounts of assets and liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . our estimates and related judgments and assumptions are continually evaluated based on available information and experiences ; however , actual amounts could differ from those estimates . the following are accounting policies and estimates that involve significant management judgment and can have significant effects on the company 's reported results of operations . the audit/compliance committee of our board of directors has reviewed our disclosure of critical accounting policies and estimates . revenue and earnings recognition for construction contracts revenue and earnings on construction contracts , including construction joint ventures , are recognized under the percentage of completion method using the ratio of costs incurred to estimated total costs . revenue from unapproved change orders is recognized to the extent the related costs have been incurred , the amount can be reliably estimated and recovery is probable . unresolved contract modifications and affirmative claims ( “ affirmative claims ” ) to recover additional costs to which the company believes it is entitled under the terms of contracts with customers , subcontractors , vendors or others are pending or have been submitted on certain projects . the owners or their authorized representatives and or other third parties may be in partial or full agreement with the modifications or affirmative claims , or may have rejected or disagree entirely or partially as to such entitlement . story_separator_special_tag the results of our annual goodwill impairment tests , performed in accordance with asc topic 350 , intangibles - goodwill and other , indicated that the estimated fair values of our reporting units exceeded their net book values ( i.e. , cushion ) by at least 50 % for the reporting units with goodwill . out of the five reporting units with goodwill , the kenny large project construction business is the most susceptible to fluctuations in results depending on awarded work given the large size and limited frequency of awards . while we believe the current cushion for the reporting unit is adequate to absorb these fluctuations , a material decline in job win rates could have a material impact to this reporting unit 's estimated fair value . 25 long-lived assets we review property and equipment and amortizable intangible assets for impairment at an asset group level whenever events or changes in circumstances indicate the net book value of an asset group may not be recoverable . recoverability of these asset groups is measured by comparing their net book values to the future undiscounted cash flows the asset groups are expected to generate . if the asset groups are considered to be impaired , an impairment charge will be recognized equal to the amount by which the net book value of the asset group exceeds fair value . we group construction and plant equipment assets at a regional level , which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . when an individual asset or group of assets is determined to no longer contribute to the vertically integrated asset group , it is assessed for impairment independently . insurance estimates we carry insurance policies to cover various risks , primarily general liability , automobile liability , workers compensation and employee medical expenses under which we are liable to reimburse the insurance company for a portion of each claim paid . payment for general liability and workers compensation claim amounts generally range from the first $ 0.5 million to $ 1.0 million per occurrence . we accrue for probable losses , both reported and unreported , that are reasonably estimable using actuarial methods based on historic trends , modified , if necessary , by recent events . changes in our loss assumptions caused by changes in actual experience would affect our assessment of the ultimate liability and could have an effect on our operating results and financial position up to $ 1.0 million per occurrence for general liability and workers compensation or $ 0.3 million for medical insurance . asset retirement and reclamation obligations we account for the costs related to legal obligations to reclaim aggregate mining sites and other facilities by recording our estimated reclamation liability at fair value , capitalizing the estimated liability as part of the related asset 's carrying amount and allocating it to expense over the asset 's useful life . to determine the fair value of the obligation , we estimate the cost for a third-party to perform the legally required reclamation including a reasonable profit margin . this cost is then increased for future estimated inflation based on the estimated years to complete and discounted to fair value using present value techniques with a credit-adjusted , risk-free rate . in estimating the settlement date , we evaluate the current facts and conditions to determine the most likely settlement date . we review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date . additionally , reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date . contingencies we are currently involved in various claims and legal proceedings . loss contingency provisions are recorded if the potential loss from any asserted or unasserted claim or legal proceeding is considered probable and the amount can be reasonably estimated . if a potential loss is considered probable but only a range of loss can be determined , the low-end of the range is recorded . these accruals represent management 's best estimate of probable loss . disclosure is also provided when it is reasonably possible and estimable that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the amount recorded . significant judgment is required in both the determination of probability of loss and the determination as to whether an exposure is reasonably estimable . because of uncertainties related to these matters , accruals are based only on the best information available at the time . as additional information becomes available , we reassess the potential liability related to claims and litigation and may revise our estimates . see note 17 of “ notes to the consolidated financial statements ” and “ item 3. legal proceedings ” for additional information . 26 current economic environment and outlook we finished the 2016 fiscal year with backlog of $ 3.5 billion , a year-end record . overall demand remains steady in an environment of modest economic growth . public and private markets remain highly competitive , with private market activity across geographies and end markets driving growth opportunities the past few years . we continue to anticipate notable near- and long-term growth opportunities for our construction and construction materials segments , driven by a balance of private non-residential demand and an expected demand increase linked to public infrastructure spending trends in 2017 and beyond . the federal budget remains funded by continuing resolution . as a result , incremental public spending has not started from the fixing america 's surface transportation ( “ fast ” ) act , passed in december 2015. the five-year bill stabilized planning for state departments of transportation , but it is not yet a growth catalyst .
| results of operations replace_table_token_6_th revenue replace_table_token_7_th 27 replace_table_token_8_th construction revenue for the year ended december 31 , 2016 increased by $ 102.5 million , or 8.1 % , compared to the year ended december 31 , 2015 primarily due to increased volumes from entering the year with greater contract backlog in the northwest and kenny public sectors , as well as from an improved success rate on bidding activity for solar work in the california private sector . the increases were partially offset by declines in the northwest and kenny private sectors as well as a decline in the california public sector from the completion of projects in 2016 coupled with lower beginning contract backlog and a decline in the volume of awarded work during 2016. replace_table_token_9_th 1 for the periods presented , this large project construction revenue was earned from the public sector . large project construction revenue for the year ended december 31 , 2016 increased by $ 75.5 million , or 9.3 % , compared to the year ended december 31 , 2015 , primarily due to progress on new projects in the california operating group , heavy civil operating group and kenny public sector . these increases were partially offset by decreases in the northwest operating group and kenny private sector from completion of projects in late 2015 and early 2016 coupled with lower beginning contract backlog in the kenny private sector . replace_table_token_10_th construction materials revenue for the year ended december 31 , 2016 decreased $ 34.4 million , or 11.6 % , when compared to the year ended december 31 , 2015 primarily due to a net decline in sales volume across most of our markets in california with demand shifting to increased internal ( construction segment ) use in 2016 .
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the commercial reporting unit 's customers include health plans , accountable story_separator_special_tag the following discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's selected financial data and the company 's financial statements and the accompanying notes included herein . the following discussion may contain “ forward‑looking statements ” within the meaning of the securities act and the exchange act . when used in this form 10‑k , the words “ estimate , ” “ anticipate , ” “ expect , ” “ believe , ” “ should ” and similar expressions are intended to be forward‑looking statements . although the company believes that its plans , intentions and expectations reflected in such forward‑looking statements are reasonable , it can give no assurance that such plans , intentions or expectations will be achieved . prospective investors are cautioned that any such forward‑looking statements are not guarantees of future performance and involve risks and uncertainties , and that actual results may differ materially from those contemplated by such forward‑looking statements . important factors currently known to management that could cause actual results to differ materially from those in forward‑looking statements are set forth under the heading “ risk factors ” in item 1a and elsewhere in this form 10‑k . capitalized or defined terms included in this item 7 have the meanings set forth in item 1 of this form 10‑k . business overview the company is engaged in the healthcare management business , and is focused on meeting needs in areas of healthcare that are fast growing , highly complex and high cost , with an emphasis on special population management . the company provides services to health plans and other mcos , employers , labor unions , various military and governmental agencies , tpas , consultants and brokers . the company 's business is divided into three segments , based on the services it provides and or the customers that it serves . see item 1— “ business ” for more information on the company 's business segments . the following tables summarize , for the periods indicated , revenues and covered lives for healthcare by product classification and customer type ( in thousands ) : replace_table_token_6_th replace_table_token_7_th ( 1 ) includes revenues of $ 49.4 million from eap services provided on a risk basis to health plans and employers with 10.8 million covered lives . ( 2 ) includes revenues of $ 332.6 million from eap services provided on a risk basis to federal governmental entities with 3.7 million covered lives . during 2017 , pharmacy management paid 29.1 million adjusted commercial network claims in its pbm business , 80.7 million adjusted pba claims and 0.1 million specialty dispensing claims . adjusted claim totals apply a multiple of three for each 90‑day and traditional mail claim . as of december 31 , 2017 , pharmacy management had a generic dispensing rate of 87.3 percent within its commercial pbm business and served 1.9 million commercial pbm members , 13.1 million members in its medical pharmacy management programs , and 27 states and the district of columbia in its pba business . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states 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 revenue and expenses during the reporting period . actual results could differ from those estimates . the company considers the following to be its critical accounting policies and estimates : cost of care , medical claims payable and other medical liabilities cost of care is recognized in the period in which members receive managed healthcare services . in addition to actual benefits paid , cost of care in a period also includes the impact of accruals for estimates of medical claims payable . medical claims payable represents the liability for healthcare claims reported but not yet paid and claims ibnr related to the company 's managed healthcare businesses . such liabilities are determined by employing actuarial methods that are commonly used by health insurance actuaries and that meet actuarial standards of practice . cost of care for the company 's eap contracts , which are mainly with the united states federal government , pertain to the costs to employ licensed behavioral health counselors to deliver non-medical counseling for these contracts . the ibnr portion of medical claims payable is estimated based on past claims payment experience for member groups , enrollment data , utilization statistics , authorized healthcare services and other factors . this data is incorporated into contract‑specific actuarial reserve models and is further analyzed to create “ completion factors ” that represent the average percentage of total incurred claims that have been paid through a given date after being incurred . factors that affect estimated completion factors include benefit changes , enrollment changes , shifts in product mix , seasonality influences , provider reimbursement changes , changes in claims inventory levels , the speed of claims processing and changes in paid claim levels . completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period . actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims . for the most recent incurred months ( generally the most recent two months ) , the percentage of claims paid for claims incurred in those months is generally low . this makes the completion factor methodology less reliable for such months . story_separator_special_tag the estimated fair value for each reporting unit is compared to the carrying value of the reporting unit , which includes goodwill . if the estimated fair value is less than the carrying value , a second step is performed to compute the amount of the impairment by determining an “ implied fair value ” of goodwill . the determination of a reporting unit 's “ implied fair value ” of goodwill requires the company to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit . any unallocated fair value represents the “ implied fair value ” of goodwill , which is compared to its corresponding carrying value . goodwill is tested for impairment at a level referred to as a reporting unit , with the company 's reporting units with goodwill as of december 31 , 2017 comprised of commercial , government and pharmacy management . the fair value of the commercial ( a component of the healthcare segment ) , government ( a component of the healthcare segment ) and pharmacy management reporting units were determined using a discounted cash flow method . this method involves estimating the present value of estimated future cash flows utilizing a risk adjusted discount rate . key assumptions for this method include cash flow projections , terminal growth rates and discount rates . goodwill for each of the company 's reporting units with goodwill at december 31 , 2016 and 2017 were as follows ( in thousands ) : replace_table_token_10_th the changes in the carrying amount of goodwill for the years ended december 31 , 2016 and 2017 are reflected in the table below ( in thousands ) : replace_table_token_11_th income taxes the company estimates income taxes for each of the jurisdictions in which it operates . this process involves determining both permanent and temporary differences resulting from differing treatment for tax and book purposes . deferred tax assets and or liabilities are determined by multiplying the temporary differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled . the company then assesses the likelihood that the deferred tax assets will be recovered from the reversal of temporary differences , the implementation of feasible and prudent tax planning strategies , and future taxable income . to the extent the company can not conclude that recovery is more likely than not , it establishes a valuation allowance . the effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date . determination of the amount of deferred tax assets considered realizable requires significant judgment and estimation regarding the forecasts of future taxable income which are consistent with the plans and estimates the company uses to manage the underlying businesses . although consideration is also given to potential tax planning strategies which might be available to improve the realization of deferred tax assets , none were identified which were both prudent and reasonable . future changes in the estimated realizable portion of deferred tax assets could materially affect the company 's financial condition and results of operations . on december 22 , 2017 , the president of the united states signed into law the “ tax cuts and jobs act ” ( the “ tax act ” ) . the legislation includes a number of changes to existing u.s. tax laws that impact the company , most notably a reduction of the u.s. corporate income tax rate from 35 percent to 21 percent , effective january 1 , 2018. the legislation also provides for the acceleration of depreciation on certain assets placed in service after september 27 , 2017 , as well as prospective changes beginning in 2018 , including additional limitations on the deduction of executive compensation . the sec staff issued staff accounting bulletin no . 118 ( “ sab 118 ” ) on december 22 , 2017 to address the application of u.s. gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax act . sab 118 allows registrants to determine a reasonable estimate to be included as provisional amounts and provides a measurement period by which the accounting must be completed . the measurement period ends when a registrant has obtained , prepared , and analyzed the information that was needed in order to complete the accounting requirements under asc topic 740 but under no circumstances is the measurement period to extend beyond one year from the enactment date ( i.e . december 22 , 2018 ) . the company has recognized the provisional tax impacts related to the re-measurement of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended december 31 , 2017. the company will continue to analyze the tax act and additional technical and interpretive guidance on the tax act from the government and will complete its accounting no later than december 22 , 2018. the company did not identify any items for which a reasonable estimate of the income tax effects of the tax act could not be determined as of december 31 , 2017. however , the company has recognized the provisional tax impacts related to the remeasurement of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended december 31 , 2017. the ultimate impact may differ from these provisional amounts , possibly materially , due to , among other things , additional analysis , changes in interpretations and assumptions the company has made , additional regulatory guidance that may be issued , and actions the company may take as a result of the tax act .
| results of operations the accounting policies of the company 's segments are the same as those described in note 1— “ general. ” the company evaluates performance of its segments based on profit or loss from operations before stock compensation expense , depreciation and amortization , interest expense , interest and other income , changes in the fair value of contingent consideration recorded in relation to acquisitions , gain on sale of assets , special charges or benefits , and income taxes ( “ segment profit ” ) . management uses segment profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources , risk assessment and employee compensation , among other matters . healthcare subcontracts with pharmacy management to provide pharmacy benefits management services for certain of healthcare 's customers . in addition , pharmacy management provides pharmacy benefits management for the company 's employees covered under its medical plan . as such , revenue , cost of goods sold and direct service costs and other related to these arrangements are eliminated . the following tables summarize , for the periods indicated , operating results by business segment ( in thousands ) : replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th ( 1 ) stock compensation expense , changes in the fair value of contingent consideration recorded in relation to the acquisitions and impairment of intangible assets are included in direct service costs and other operating expenses ; however , these amounts are excluded from the computation of segment profit . ( 2 ) the non‑controlling interest portion of alphacare 's segment profit ( loss ) is excluded from the computation of segment profit .
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crumbs is required to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority , including resolution of any related appeals or litigation processes , based on the technical merits of the position . the tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority . de-recognition of a tax benefit previously recognized results in crumbs recording a tax liability that reduces stockholders ' equity . based on its analysis , crumbs has determined that it has not incurred any liability for unrecognized tax benefits as of december 31 , 2013 or 2012. crumbs ' conclusions may be subject to review and adjustment at a later date based on factors including , but not limited to , on-going analyses of and changes to tax laws , regulations and interpretations thereof . crumbs recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses , respectively . no interest expense or penalties have been recognized in 2013 or 2012. f- 9 crumbs bake shop , inc. and subsidiaries notes to consolidated financial statements 1. nature of business and summary of significant accounting policies ( continued ) lease obligations crumbs leases stores and office space under operating leases . most lease agreements contain rent escalation clauses , and some contain contingent rent provisions , tenant improvement allowances and rent holidays . for purposes of recognizing incentives and minimum rental expenses on a straight-line basis over the terms of the leases , crumbs uses the date of initial possession to begin amortization , which is generally when crumbs enters the space and begins to make improvements in preparation for its intended use . no restrictions are imposed in the lease agreements regarding dividends , additional debt or further leasing . for tenant improvement allowances and rent holidays , crumbs records deferred rent in the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to occupancy expense in the consolidated statements of operations . for scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy , crumbs records minimum rental expenses on a straight-line basis over the terms of the leases in the consolidated statements of operations . for contingent rent provisions that require payment of additional rent based on a specified percentage of a store 's net sales in excess of a defined breakpoint , crumbs records occupancy expense related to the contingency in the consolidated statements of operations provided the achievement of the breakpoint is considered probable . sales tax crumbs charges sales tax to its customers as and at the rates required by applicable state law and records the liability to remit such taxes on an individual state basis . restricted stock compensation cost for awards of restricted shares of cbs common stock stock is measured using the market price of cbs ' common stock at the date each award is granted . the compensation cost is recognized over the period between the award grant date and the date that all restrictions lapse . warrant liability crumbs accounts for cbs ' 5,456,300 outstanding publicly-traded warrants in accordance with the guidance contained in fasb asc 815-40-15-7d . pursuant to this guidance , management has determined that the warrants do not meet the criteria for equity treatment and must be recorded as a liability . accordingly , crumbs classifies the warrant instruments as a liability at their fair value and adjusts the instruments to fair value at each reporting period . this liability is subject to re-measurement at each balance sheet date until exercised or expired , and any change in fair value is recognized in crumbs ' consolidated statements of operations . the fair story_separator_special_tag overview cbs is a delaware corporation organized in october 2009 under the name 57 th street general acquisition corp. 57 th street was organized as a blank check company for the purpose of acquiring , through a merger , capital stock exchange , asset acquisition , stock purchase , reorganization , exchangeable share transaction or other similar business transaction , one or more operating businesses or assets . following the transaction ( discussed above in item 1 of part i of this annual report ) , in october 2011 , 57 th street changed its name to crumbs bake shop , inc. to reflect the nature of its business more accurately . cbs , through its consolidated subsidiary , holdings , engages in the business of selling a wide variety of cupcakes , cakes , cookies and other baked goods under the trade name “ crumbs bake shop ” . cupcake sales have historically comprised the majority of crumbs ' business . crumbs believes its baked goods appeal to a wide demographic of customers who span a broad range of socio-economic classes . crumbs operates in commercial and residential sections of urban and suburban markets . as of december 31 , 2013 , there were 70 crumbs bake shop stores operating in twelve states and washington , d.c. , including 18 stores in manhattan , new york . of the total stores , 22 were opened in 2013. crumbs ' sales are primarily conducted through its stores in california , connecticut , delaware , illinois , maryland , massachusetts , new hampshire , new york , new jersey , pennsylvania , rhode island , washington , d.c. and virginia . a small percentage of baked goods sales are from crumbs ' wholesale distribution business , catering services and crumbs ' e-commerce division at http : //www.crumbs.com which ships cupcakes nationwide . story_separator_special_tag in february 2014 and march 2014 , lease termination agreements were executed for the pennsylvania and new york stores , respectively , and each were closed within the same month . no decision has been made by management to close the remaining impaired stores . the net book value of the assets remaining after impairing all leasehold improvements at the stores was $ 0.4 million and $ 0.6 million as of december 31 , 2013 and 2012 , respectively , and included tangible personal property that crumbs could utilize in other stores during the assets ' remaining useful lives . in 2012 , crumbs recorded a non-cash loss on impairment of leasehold improvements related to nine underperforming stores , including three stores in the district of columbia , three stores in chicago and three stores in new york city . other income the decrease in fair value of crumbs ' warrant liability was $ 0.1 million in 2013 , a decrease of 80.0 % when compared to the $ 0.3 million recorded in 2012. see notes 1 and 9 to the consolidated financial statements included in item 8 of part ii of this annual report for further information about the warrant liability . income taxes the income tax expense was $ 2.4 million in 2013 as compared to an income tax benefit of $ 0.01 million in 2012 , and crumbs ' effective tax rate was a 40.0 % and a 0.2 % benefit for 2013 and 2012 , respectively . see note 7 to the consolidated financial statements included in item 8 of part ii of this annual report for further information about income amounts . 26 general economic trends and seasonality crumbs ' results of operations are generally affected by the economic trends in its market areas due to the dependence on its customers ' discretionary spending . weakness in the national economy and or regional economies in its market areas , combined with other factors including inflation , labor and healthcare costs and availability of suitable locations for its stores , may negatively impact its business . if consumer activities associated with the consumption of its products decline or the business activities of its corporate customers decrease , its net sales and sales volumes may decline . crumbs ' results to date have not been significantly impacted by inflation . while crumbs ' business is not highly seasonal , it is impacted by weather . extreme hot , cold and wet weather may cause decreased sales in the affected stores , especially street locations , and could impact the daily delivery of its baked goods . in addition , crumbs ' sales peak throughout the year on certain holidays/events such as valentine 's day , easter , mother 's day , halloween , thanksgiving , christmas and hanukkah ( particularly in the mall locations ) . the timing of these holidays/events in a particular year could impact quarterly results . hurricane sandy resulted in the loss of approximately 250 days of business ( number of stores times number of days ) of business during october and november 2012 resulting in an estimated loss of approximately $ 0.7 million of net sales . in 2013 , crumbs received and recorded $ 0.1 million in insurance recoveries related to the business interruption losses caused by the hurricane liquidity and capital resources cbs sold approximately $ 9.9 million of common stock in october 2012 and contributed net proceeds of approximately $ 9.3 million from that sale to holdings . see note 15 to the consolidated financial statements included in item 8 of part ii of this annual report for additional information about this stock sale . cbs sold $ 10.0 million in aggregate principal amount of its unsecured notes at closings that occurred in may 2013 and june 2013 and contributed net proceeds of approximately $ 9.1 million from that sale to holdings . see note 6 to the consolidated financial statements included in item 8 of part ii of this annual report for additional information about the unsecured notes . in addition to these cash contributions and the cash that holdings received from cbs as part of the merger , holdings ' primary source of liquidity has been , and is , cash from sales of cupcakes and other baked goods and beverages . holdings ' primary uses of cash are cost of sales , operating expenses and capital expenditures , including expenditures associated with the construction and opening of new stores . as of december 31 , 2013 , crumbs had $ 2.6 million of current liabilities in excess of cash and other current assets , compared to $ 5.3 million in cash and other current assets , net of current liabilities at december 31 , 2012. at december 31 , 2013 , the company had cash and cash equivalents of approximately $ 0.9 million and an accumulated deficit of approximately $ 25.0 million . management is in the process of closing underperforming stores . management has also initiated strategies to improve profitability of the remaining stores . in addition , management has negotiated and entered into various licensing agreements that will provide additional revenue , and is actively working to become a registered franchisor . management 's goal is to be registered to sell crumbs franchises domestically no later than september 30 , 2014. the licensing and franchising programs may include converting a significant number of existing operating crumbs stores from company-owned to a franchise arrangements . in addition , decreases in corporate level expenses have been initiated with additional reductions planned .
| results of operations and known trends crumbs ' results of operations as a percentage of net sales and variances between 2013 and 2012 are discussed in the following sections . net loss for the year ended december 31 , 2013 crumbs recorded a net loss attributable to common stockholders of $ ( 15.3 ) million , or basic and diluted net loss per common share of $ ( 1.32 ) , compared to a net loss attributable to common stockholders of $ ( 7.7 ) million , or basic and diluted net loss per common share of $ ( 1.12 ) , for the year ended december 31 , 2012. net sales on january 1 , 2013 there were 39 stores in the same store base , with 14 additional stores entering the base and 11 stores closing during the year , for a total of 42 stores in the same store base at december 31 , 2013. same store sales represent the change in sales for stores after their 15 th full calendar month of operation . net sales in 2013 were $ 47.2 million , an increase of 9.7 % over $ 43.0 million in 2012. this increase was primarily attributable to $ 9.6 million in sales from 43 new stores opened between october 7 , 2011 and december 31 , 2013. the increase was offset by a $ 5.7 million decrease in same store sales for 42 stores in the same store sales base , including partial periods from new stores that entered the same store sales base during the year . the decrease in same store sales was predominately due to reduced customer traffic in our stores , particularly in our mall-based stores , resulting in a lower volume of transactions . stores that are too close together may attract customers within a common trading area , and , as a result , a new store that is not appropriately located may have the effect of decreasing same store sales at a pre-existing store .
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when the liability is initially recorded , the partnership capitalizes this cost by increasing the carrying amount of the related property and equipment . over time , the liability is accreted 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 notes thereto presented elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ cautionary note regarding forward-looking statements ” and “ part i , item 1a . risk factors. ” overview we are one of the largest owners of oil and natural gas mineral interests in the united states . our principal business is maximizing the value of our existing portfolio of mineral and royalty assets through active management and expanding our asset base through acquisitions of additional mineral and royalty interests . we maximize value through the marketing of our mineral assets for lease , creative structuring of those leases to encourage and accelerate drilling activity , and selectively participating alongside our lessees on a working-interest basis . our primary business objective is to grow our reserves , production , and cash generated from operations over the long term , while paying , to the extent practicable , a growing quarterly distribution to our unitholders . on may 6 , 2015 , we completed our initial public offering of 22,500,000 common units representing limited partner interests . our common units trade on the new york stock exchange under the symbol `` bsm . '' our mineral and royalty interests consist of mineral interests in approximately 15.5 million acres , with an average 47.5 % ownership interest in that acreage , npris in 1.5 million acres , and orris in 1.5 million acres . these non-cost-bearing interests include ownership in over 50,000 producing wells . we also own non-operated working interests , a significant portion of which are on positions where we also have a mineral and royalty interest . we recognize oil and natural gas revenue from our mineral and royalty and non-operated working interests in producing wells when the oil and natural gas production from the associated acreage is sold . our other sources of revenue include mineral lease bonus and delay rentals , which are recognized as revenue according to the terms of the lease agreements . recent developments 2016 commodity prices oil and natural gas commodity pricing generally constitutes the largest single variable that impacts our operating results . the volatility in the value of these commodities is reflected in the fact that the 2016 wti oil spot price ranged from a low of $ 26.19 per bbl to a high of $ 54.01 per bbl and the 2016 henry hub natural gas spot price ranged from a low of $ 1.49 per mmbtu to a high of $ 3.80 mmbtu . despite the negative financial impacts of a low commodity price environment , our active marketing of mineral interests , effective commodity hedging practices , and diligent monitoring of expenses and capital spending enabled us to generate favorable 2016 operating results . 2016 acquisitions on january 8 , 2016 , we acquired mineral and royalty interests in the permian basin for $ 10.0 million . on june 15 , 2016 , we acquired an oil and natural gas mineral package primarily located in weld county , colorado for $ 34.0 million . on june 17 , 2016 , we acquired a diverse oil and natural gas mineral asset package from freeport-mcmoran oil and gas inc. and certain of its affiliates for $ 87.6 million . on august 8 , 2016 , we acquired mineral interests located in midland and glasscock counties of texas for $ 8.3 million . throughout 2016 , we acquired certain other oil and natural gas assets for approximately $ 1.2 million in the aggregate . these transactions met targeted acquisition volumes that were included in our budget and provided near term production and cash flow as well as future development potential that will fuel our planned distribution growth . 2017 acquisitions during january 2017 , the partnership closed four mineral interest transactions in loving county , texas for approximately $ 32.0 million in cash , with borrowings from the senior credit facility , and $ 11.8 million of the partnership 's common units . two haynesville/bossier shale mineral interest transactions closed for $ 6.4 million . two additional mineral interest acquisitions closed in angelina county , texas for approximately $ 8.6 million . 55 farmout agreement on february 21 , 2017 , the partnership announced that it had entered into a farmout agreement with canaan resource partners ( `` canaan '' ) which covers certain haynesville and bossier shale acreage in san augustine county , texas operated by xto energy inc. the partnership has an average 50 % working interest in the acreage and is the largest mineral owner . a total of 58 wells are anticipated to be drilled over an initial phase , beginning with wells spud after january 1 , 2017. at its option , canaan may participate in two additional phases with each phase estimated to last approximately two years . during the three phases of the agreement , canaan will commit on a phase-by-phase basis and fund 80 % of the partnership 's drilling and completion costs and will be assigned 80 % of the partnership 's working interests in such wells ( 40 % working interest on an 8/8ths basis ) . after the third phase , canaan can earn 40 % of the partnership 's working interest ( 20 % working interest on an 8/8ths basis ) in additional wells drilled in the area by continuing to fund 40 % of the partnership 's costs for those wells on a well-by-well basis . story_separator_special_tag the following table shows natural gas storage volumes by region at the close of each quarter presented : 57 replace_table_token_27_th source : eia how we evaluate our operations we use a variety of operational and financial measures to assess our performance . among the measures considered by management are the following : volumes of oil and natural gas produced ; commodity prices including the effect of hedges ; and ebitda , adjusted ebitda , and cash available for distribution . volumes of oil and natural gas produced in order to assess and track the performance of our assets , we monitor and analyze production volumes from the various basins and plays that comprise our extensive asset base . we also regularly compare projected volumes to actual reported volumes and investigate unexpected variations . commodity prices factors affecting the sales price of oil and natural gas the prices we receive for oil , natural gas , and natural gas liquids ( “ ngls ” ) vary by geographical area . the relative prices of these products are determined by the factors affecting global and regional supply and demand dynamics , such as economic conditions , production levels , availability of transportation , weather cycles , and other factors . in addition , realized prices are influenced by product quality and proximity to consuming and refining markets . any differences between realized prices and nymex prices are referred to as differentials . all of our production is derived from properties located in the united states . as a result of our geographic diversification , we are not exposed to concentrated differential risks associated with any single play , trend , or basin . oil . the substantial majority of our oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of our control . nymex light sweet crude oil , commonly referred to as wti , is the prevailing domestic oil pricing index . the majority of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials . the chemical composition of crude oil plays an important role in its refining and subsequent sale as petroleum products . as a result , variations in chemical composition relative to the benchmark crude oil , usually wti , will result in price adjustments , which are often referred to as quality differentials . the characteristics that most significantly affect quality differentials include the density of the oil , as characterized by its american petroleum institute ( “ api ” ) gravity , and the presence and concentration of impurities , such as sulfur . location differentials generally result from transportation costs based on the produced oil 's proximity to consuming and refining markets and major trading points . 58 natural gas . the nymex price quoted at henry hub is a widely used benchmark for the pricing of natural gas in the united states . the actual volumetric prices realized from the sale of natural gas differ from the quoted nymex price as a result of quality and location differentials . quality differentials result from the heating value of natural gas measured in btus and the presence of impurities , such as hydrogen sulfide , carbon dioxide , and nitrogen . natural gas containing ethane and heavier hydrocarbons has a higher btu value and will realize a higher volumetric price than natural gas which is predominantly methane , which has a lower btu value . natural gas with a higher concentration of impurities will realize a lower volumetric price due to the presence of the impurities in the natural gas when sold or the cost of treating the natural gas to meet pipeline quality specifications . natural gas , which currently has a limited global transportation system , is subject to price variances based on local supply and demand conditions and the cost to transport natural gas to end user markets . hedging we enter into derivative instruments to partially mitigate the impact of commodity price volatility on our cash generated from operations . from time to time , such instruments may include fixed-price swaps , fixed-price contracts , costless collars , and other contractual arrangements . we generally employ a “ rolling hedge ” strategy whereby we hedge a significant portion of our proved developed producing reserves 12 to 24 months into the future . the impact of these derivative instruments could affect the amount of revenue we ultimately realize . since 2015 , we have only entered into fixed-price swap contracts . under fixed-price swap contracts , a counterparty is required to make a payment to us if the settlement price for any settlement period is less than the swap strike price . conversely , we are required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap strike price . we may employ contractual arrangements other than fixed-price swap contracts in the future to mitigate the impact of price fluctuations . if commodity prices decline in the future , our hedging contracts will partially mitigate the effect of lower prices on our future revenue . our open oil and natural gas derivative contracts as of december 31 , 2016 and as of the date of this filing are detailed in note 5 – derivatives and financial instruments to our consolidated financial statements included elsewhere in this annual report . our credit agreement limits the extent to which we can hedge our future production . under the terms of our credit agreement , we are able to hedge substantially all of our estimated production from our proved developed producing reserves based on the most recent reserve information provided to our lenders . we do not enter into derivative instruments for speculative purposes .
| results of operations year ended december 31 , 2016 compared to year ended december 31 , 2015 the following table shows our production , revenues , and expenses for the periods presented : replace_table_token_29_th 1 as a mineral-and-royalty-interest owner , we are often provided insufficient and inconsistent data on ngl volumes by our operators . as a result , we are unable to reliably determine the total volumes of ngls associated with the production of natural gas on our acreage . accordingly , no ngl volumes are included in our reported production ; however , revenue attributable to ngls is included in our natural gas revenue and our calculation of realized prices for natural gas . revenues the $ 132.1 million decrease in total revenues for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was due to $ 126.8 million of losses attributable to commodity derivative instruments and $ 36.7 million lower realized commodity prices , partially offset by $ 22.4 million related to higher oil and condensate and natural gas and ngl volumes and $ 9.0 million in additional lease bonus and other income . oil and condensate sales . oil and condensate sales during 2016 were lower than the corresponding period in 2015 primarily due to a steep decline in realized prices . our mineral-and-royalty-interest oil volumes accounted for 77.3 % and 76.8 % of total oil and condensate volumes for the year ended december 31 , 2016 and the year ended december 31 , 2015 , respectively . our oil and condensate volumes increased in 2016 relative to 2015 primarily driven by production increases from new wells in the bakken/three forks , wilcox , and wolfcamp plays . natural gas and natural gas liquids sales .
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our expenses for shipping and handling was approximately $ 88 , $ story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) should be read in conjunction with the other sections of this report , including part i , item 1. , “ business ” ; part ii , item 6. , “ selected financial data ” ; and part ii , item 8. , “ financial statements and supplementary data. ” the various sections of this md & a contain a number of forward-looking statements , all of which are based on our current expectations . actual results may differ materially due to a number of factors , including those discussed on page 3 of this report in the section entitled “ information regarding forward-looking statements , ” in item 1a. , “ risk factors , ” and in item 7a. , “ quantitative and qualitative disclosures a bout market risk. ” throughout md & a , we refer to certain measures used by management to evaluate financial performance . we also may refer to a number of financial measures that are not defined under gaap , but have corresponding gaap-based measures . where non-gaap measures appear , we provide tables reconciling these to their corresponding gaap-based measures and refer to a discussion of their use . we believe these measures provide investors with important information that is useful in understanding our business results and trends . please see “ explanation of certain terms and measures used in md & a ” beginning on page 67 for more information on the use and calculation of certain financial measures . overview we operate our business under four segments : housewares , healthcare / home environment , nutritional supplements , and personal care . our housewares segment reports the operations of oxo , whose product offerings include food preparation tools , gadgets and storage containers , cleaning , organization , and baby and toddler care products . the healthcare / home environment segment sells products in the following categories : health care devices , such as thermometers , humidifiers , blood pressure monitors , and heating pads ; water filtration systems ; and small home appliances such as portable heaters , fans , air purifiers , and insect control devices . our nutritional supplements segment , formed following our acquisition of healthy directions , llc and its subsidiaries ( “ healthy directions ” ) on june 30 , 201 4 , is a leading provider of premium branded vitamins , minerals and supplements , as well as other health products sold directly to consumers . our personal care segment currently offers products in three categories : electric hair care , beauty care and wellness appliances ; grooming tools and hair accessories ; and liquid- , solid- and powder-based personal care and grooming products . the nutritional supplements segment sells directly to consumers . our other segments sell their products primarily through mass merchandisers , drugstore chains , warehouse clubs , catalogs , grocery stores and specialty stores . in addition , the personal care segment sells extensively through beauty supply retailers and wholesalers , and the healthcare / home environment segment sells certain of its product lines through medical distributors and other products through home improvement stores . our core business is seasonal due to different calendar events , holidays and seasonal weather patterns ; however , the overall sales pattern for our nutritional supplements segment is not highly seasonal . historically , the third fiscal quarter produces the highest net sales revenue and operating income during the fiscal year . seasonality in fiscal year 2015 was skewed in the latter half of the year by the inclusion of eight months of net sales revenue from healthy directions following its acquisition on june 30 , 2014. during the second half of fiscal year 2015 , international sales were dampened by the strengthening of the u.s. dollar against most currencies , in particular the british pound , euro , canadian dollar , and mexican peso . t hese currencies weakened against the u.s. dollar by approximately 3 , 10 , 8 , and 7 percent , respectively , when compared to average levels for the second half of f iscal year 2014 . 40 we believe that the growth in the internet as a sales channel continues to erode market share in the traditional “ brick and mortar ” channels . for fiscal year 201 5 , sales to our internet-based customers grew approximately 60 percent , compared to fiscal year 2014 , and comprised approximately 9.4 and 6.4 percent , respectively , of our total consolidated net sales revenue s for each fiscal year . we believe it will become increasingly important to leverage our domestic distribution capabilities to meet the logistical challenge of higher frequency , smaller order size shipments . we also believe the acquisition of healthy directions has brought additional internet and direct-to-consumer expertise to our company , which we hope will provide us with future operational scale to further develop the internet channel across all our product lines . our business depends upon discretionary consumer demand for most of our products and primarily operates within mature and highly developed consumer markets . the principal driver of our operating performance is the strength of the u.s. retail economy , as approximately 79 percent of our fiscal year 2015 net sales revenue was from u.s. shipments . domestically , we believe that consumers became more relaxed with their discretionary spending in the second half of fiscal year 2015 due to lower gasoline prices , continued low interest rates and improving employment activity , contributing to higher overall net sales revenue in fiscal year 2015 , as compared to the prior fiscal year . seasonal cough/cold/flu patterns also influence sales for the healthcare / home environment segment . in the united states , the season historically runs from november through march with peak activity normally in january-march . story_separator_special_tag net sales revenue in our healthcare / home environment segment increased $ 45.18 million , or 8.0 percent , in fiscal year 2015 compared to fiscal year 2014 . net sales revenue in our personal care segment decreased $ 39.37 million , or 8.3 percent , in fiscal year 2015 compared to fiscal year 2014 . our fiscal year 2015 net sales revenue includes the unfavorable impact of net foreign exchange fluctuations of $ 7.50 million compared to fiscal year 2014 , most of which impacted the personal care and healthcare / home environment segments . the impact of foreign exchange fluctuation s reduced our fiscal year 2015 core business growth rate by 0.6 percentage points . · consolidated gross profit margin as a percentage of net sales revenue increased 2.3 percentage points to 41.5 percent in fiscal year 2015 compared to 39.2 percent in fiscal year 2014 . · our sg & a ratio increased 0.3 percentage points to 29.7 percent in fiscal year 2015 compared to 29.4 percent in fiscal year 2014 . · operating income as a percentage of net sales increased 2.3 percentage points to 11.2 percent in fiscal year 2015 compared to 8.9 percent in fiscal year 2014 . operating income for fiscal year 2015 included a non-cash intangible asset impairment charge of $ 9.00 million compared to $ 12.05 million in fiscal year 2014 . fiscal year 2014 operating income also included pre -tax ceo succession costs of $ 18.23 million , for which there were no comparable charges in fiscal year 2015 . · adjusted operating income ( excluding non ‐ cash asset impairment charges , ceo succession costs , acquisition ‐ related expenses , amortization of intangible assets , and non ‐ cash share ‐ based compensation , as applicable ) as a percentage of net sales increased 0.3 percentage points to 14.2 percent in fiscal year 2015 compared to 13.9 percent in fiscal year 2014 . · income tax expense was $ 16.05 million , or 10.9 percent of income before taxes , in fiscal year 2015 compared to $ 20.89 million , or 19.5 percent of income before taxes , in fiscal year 2014 . · our net income was $ 131.16 million in fiscal year 2015 compared to net income of $ 86.25 million in fiscal year 2014 . diluted eps was $ 4.52 in fiscal year 2015 compared to $ 2.66 in fiscal year 2014 . · adjusted income ( excluding non ‐ cash asset impairment charges , ceo succession costs , acquisition ‐ related expenses , amortization of intangible assets and non ‐ cash share ‐ based compensation , as applicable ) was $ 169.92 million for fiscal year 2015 , compared to $ 145.77 million for fiscal year 2014 . · adjusted diluted eps ( excluding non ‐ cash asset impairment charges , ceo succession costs , acquisition ‐ related expenses , amortization of intangible assets , and non ‐ cash share ‐ based compensation , as applicable ) was $ 5.84 in fiscal year 2015 compared to $ 4.50 in fiscal year 2014 . · sg & a , operating income , adjusted operating income , net income and adjusted income for fiscal year 2015 include a $ 7 million gain ( $ 6.98 million after tax ) from the amendment of a trademark license agreement with honeywell international inc. this gain had a $ 0.24 impact on diluted eps and adjusted diluted eps . there was no comparable gain or income in fiscal year 2014. the effect of the healthy directions acquisition on net sales revenue is discussed on pages 46 and 47 . adjusted operating income , adjusted income and adjusted diluted eps are non ‐ gaap financial measures as contemplated by sec regulation g , rule 100. these measures are discussed further , and reconciled to their applicable gaap ‐ based measures , on pages 55 and 56 . 43 story_separator_special_tag style= '' display : inline ; font-size:11pt ; '' > in the closeout channel . from a product perspective , oxo had net sales revenue growth through line extensions in our infant and toddler category and gains in the gadgets , bath , cleaning products , barware , baking and measuring categories . oxo tot ( our infant and toddler product line ) continues to gain traction with consumers , resulting in net sales revenue growth of approximately 30 percent , compared to the same period last year . oxo has increased its product lines to over 800 items and growth continues to be driven by expanded shelf space and assortments at key traditional and internet retailers . 45 healthcare / home environment segment - net sales revenue in the healthcare / home environment segment for fiscal year 2015 increased $ 45.18 million , or 8.0 percent , to $ 613.25 million compared to $ 568.08 million for the same period last year . higher unit volume contributed approximately 1.5 percentage points of growth . an increase in average unit selling prices , largely due to a more favorable sales mix , contributed approximately 6.5 percentage points to the increase in net sales revenue . the segment experienced growth in the thermometry , air purification and fan product lines . in addition , the humidification product line recovered in the fourth fiscal quarter due to a strong cold/cough/ flu season , ending fiscal year 2015 with mid-single digit category growth . worldwide sales gains continue in thermometry and associated consumables as a result of new product introductions during the year and a strong flu season , which included a higher incidence of fever . these gains were partially offset by overall declines in water filtration and heater shipments . a relatively warm fall had the offsetting effects of improving fan sales and weakening early season heater shipments .
| results of operations the following table sets forth , for the periods indicated , our selected operating data , in u.s. dollars , as a percentage of net sales revenue , and as a year-over-year percentage change . selected operating data ( in thousands ) replace_table_token_10_th * calculation is not meaningful ( 1 ) includes eight months of operations for healthy directions , which was acquired on june 30 , 2014 . ( 2 ) sales revenue percentages by segment are computed as a percentage of the related segment 's sales revenue , net to total sales revenue , net . all other percentages are computed as a percentage of total sales revenue , net . consolidated net sales revenue : comparison of fiscal year 2015 to fiscal year 2014 consolidated net sales revenue increased $ 127.98 million , or 9.7 percentage points , in fiscal year 2015 compared to fiscal year 2014 . net sales revenue growth from acquisitions was $ 100.40 million , or 7.6 percentage points . core business net sales revenue growth was $ 27.58 million , or 2.1 percentage points . the increase in consolidated core business net sales revenue was driven by housewares and healthcare / home environment segment net sales revenue , which was partially offset by a decline in personal care segment net sales revenue . housewares segment net sales revenue increased $ 21.77 million , or 7.9 percent , in fiscal year 2015 compared to fiscal year 2014 . within the segment , year-over-year unit volume increases had a favorable 8.3 percentage point impact on net sales revenue . the unit volume increase was slightly offset by a 0.4 percentage point decline in the average unit selling price , primarily due to slightly higher year-over-year promotional discounts . healthcare / home environment segment net sales revenue increased $ 45.18 million , or 8.0 percent , in fiscal year 2015 compared to fiscal year 2014 .
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note 9 : stock-based compensation and stock options the company accounts for its employee stock options under the fair value method , which requires stock-based compensation to be estimated using the fair value on story_separator_special_tag the information in this report contains forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . such statements are based upon current expectations , assumptions , estimates and projections about travelzoo and our industry . these forward-looking statements are subject to the many risks and uncertainties that exist in our operations and business environment that may cause actual results , performance or achievements of travelzoo to be different from those expected or anticipated in the forward-looking statements . any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements . for example , words such as “ may ” , “ will ” , “ should ” , “ estimates ” , “ predicts ” , “ potential ” , “ continue ” , “ strategy ” , “ believes ” , “ anticipates ” , “ plans ” , “ expects ” , “ intends ” , and similar expressions are intended to identify forward-looking statements . travelzoo 's actual results and the timing of certain events could differ significantly from those anticipated in such forward-looking statements . factors that might cause or contribute to such a discrepancy include , but are not limited to , those discussed elsewhere in this report in the section entitled “ risk factors ” and the risks discussed in our other sec filings . the forward-looking statements included in this report reflect the beliefs of our management on the date of this report . travelzoo undertakes no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other circumstances occur in the future . 32 overview travelzoo inc. ( the “ company ” , or “ travelzoo ” ) is a global media commerce company . we inform over 28 million members in asia pacific , europe and north america , as well as millions of website users , about the best travel and entertainment deals available from thousands of companies . our deal experts source , research and test-book offers , recommending only those that meet travelzoo 's rigorous quality standards . we provide travel , entertainment and local businesses with a fast , flexible , and cost-effective way to reach millions of consumers . our revenues are generated primarily from advertising fees . our publications and products include the travelzoo websites ( travelzoo.com , travelzoo.ca , travelzoo.co.uk , travelzoo.de , travelzoo.es , travelzoo.fr , cn.travelzoo.com , travelzoo.co.jp , travelzoo.com.au , travelzoo.com.hk , travelzoo.com.tw , among others ) , the travelzoo top 20 e-mail newsletter , and the newsflash e-mail alert service . we operate supersearch , a pay-per-click travel search tool , and the travelzoo network , a network of third-party websites that list deals published by travelzoo . our travelzoo websites include our local deals and getaway listings that allow our members to purchase vouchers for deals from local businesses such as spas , hotels and restaurants . we receive a percentage of the face value of the voucher from the local businesses . we also operate fly.com , a travel search engine that allows users to quickly and easily find the best prices on flights from hundreds of airlines and online travel agencies . on august 20 , 2015 we acquired the travelzoo asia pacific business ( “ asia pacific ” ) , which includes the travelzoo businesses in australia , china , hong kong , japan , taiwan , and southeast asia . this business was independently operated by azzurro capital inc. ( `` azzurro '' ) , under a licensing agreement with travelzoo inc. azzurro was the majority stockholder of the travelzoo asia pacific business . travelzoo inc. accounted for this transaction as a common control transaction and change in reporting entity . the financial results for travelzoo inc. have been retrospectively adjusted to include the financial results of asia pacific in the current and prior periods as though the transaction occurred at the beginning of the each period presented . the asia pacific assets and liabilities have been combined with travelzoo inc. at their carrying values as though the transaction occurred at the beginning of each period presented . the asia pacific transaction proceeds were reflected as an equity transaction , included in retained earnings , during the period the transaction occurred , which was in the year ended december 31 , 2015 . see note 13 to the accompanying consolidated financial statements for further information on the acquisition of asia pacific . certain prior period statement of operations amounts have been reclassified to conform to the current period presentation primarily due to the company 's allocation of facilities costs to all of its operating activities and separate disclosure of product development costs . see note 1 to the accompanying unaudited condensed consolidated financial statements for further information . more than 2,000 companies use our services , including air new zealand , apple vacation , british airways , cathay pacific airways , expedia , fairmont hotels and resorts , hawaiian airlines , intercontinental hotels group , interstate hotel & resorts , lufthansa , key tours international , liberty travel , princess cruises , singapore airlines , solar tours , starwood hotels & resorts worldwide , travelocity , united airlines , vacation express and virgin atlantic . we have three operating segments based on geographic regions : asia pacific , europe and north america . asia pacific consists of our operations in australia , china , hong kong , japan , taiwan , and southeast asia . story_separator_special_tag a number of factors will have impact on our revenue , such as the reduction in spending by travel intermediaries due to their focus on improving profitability , the trend towards mobile usage by consumers , the willingness of consumers to purchase the deals we advertise , and the willingness of certain competitors to grow their business unprofitably . in addition , we have been impacted and expect to continue to be impacted by internal factors such as introduction of new advertising products , hiring and relying on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to attract the audience that advertisers desire . in response to declining search product revenue , which includes supersearch and fly.com products , the company is continuously reviewing the performance of these products , which has and will result in reduced traffic acquisition spend for these products and may result in merging the products , discontinuing or replacing one or both of them . challenges with traffic acquisition from search engines and poor monetization on mobile devices have led to continued declines in search revenue . given these factors impacting our search products , revenue from our search products are expected to decline . existing advertisers may shift from one advertising service ( e.g . top 20 ) to another ( e.g . local deals and getaway ) . these shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous periods depending on the amount purchased by the advertisers , and in particular , with local deals and getaway , depending on how many vouchers are purchased by members . in addition , we are anticipating a shift from our existing hotel revenue to commission-based hotel revenue as we expand the use of our hotel platform , which may result in lower revenue depending on volume of hotel bookings . 34 local revenues have been and may continue to decline over time due to market conditions driven by competition and declines in consumer demand . in the last several years , we have seen a decline in the number of vouchers sold and a decrease in the average take rate earned by us from the merchants for voucher sold . our ability to continue to generate advertising revenue depends heavily upon our ability to maintain and grow an attractive audience for our publications . we monitor our members to assess our efforts to maintain and grow our audience reach . we obtain additional members and activity on our websites by acquiring traffic from internet search companies . the costs to grow our audience have had , and we expect will to continue to have , a significant impact on our financial results and can vary from period to period . we may have to increase our expenditures on acquiring traffic to continue to grow or maintain our reach of our publications due to competition . we continue to see a shift in the audience to accessing our services through mobile devices and social media . we are addressing this growing channel of our audience through development of our mobile applications and through marketing on social media channels . however , we will need to keep pace with technological change and this trend to further address this shift in the audience behavior in order to offset any related declines in revenue . we believe that we can increase our advertising rates only if the reach of our publications increases . we do not know if we will be able to increase the reach of our publications . if we are able to increase the reach of our publications , we still may not be able to or want to increase rates given market conditions such as intense competition in our industry . we have not had any significant rate increase in recent years due to intense competition in our industry . even if we increase our rates , the increased price may reduce the amount of advertisers willing to advertise with us and , therefore , decrease our revenue . we may need to decrease our rates based on competitive market conditions and the performance of our audience in order to maintain or grow our revenue . we do not know what our cost of revenues as a percentage of revenues will be in future periods . our cost of revenues will increase if the number of searches performed on fly.com increases because we pay a fee based on the number of searches performed on fly.com . our cost of revenues may increase if the face value of vouchers that we sell for local deals and getaway increases or the total number of vouchers sold increases because we have credit card fees based upon face value of vouchers sold , due to customer service costs related to vouchers sold and due to member refunds on vouchers sold . our cost of revenues are expected to increase due to our effort to develop our hotel booking platform as well . we expect fluctuations in cost of revenues as a percentage of revenues from quarter to quarter . some of the fluctuations may be significant and have a material impact on our results of operations . we do not know what our sales and marketing expenses as a percentage of revenue will be in future periods . increased competition in our industry may require us to increase advertising for our brand and for our products . in order to increase the reach of our publications , we have to acquire a significant number of new members in every quarter and continue to promote our brand . one significant factor that impacts our advertising expenses is the average cost per acquisition of a new member . increases in the average cost of acquiring new members may result in an increase of sales and marketing expenses as a percentage of revenue .
| results of operations the following table sets forth , as a percentage of total revenues , the results from our operations for the periods indicated . replace_table_token_5_th 37 operating metrics the following table sets forth operating metrics in asia pacific , europe and north america : replace_table_token_6_th ( 1 ) members represent individuals who are signed up to receive one or more of our free email publications that present our travel , entertainment and local deals . ( 2 ) annual revenue divided by number of members at the beginning of the year . ( 3 ) annual revenue divided by number of employees at the end of the year . 38 revenues the following table sets forth the breakdown of revenues ( in thousands ) by category and segment . travel revenue includes travel publications ( top 20 , website , newsflash , travelzoo network ) , getaway vouchers and hotel booking platform . search revenue includes supersearch and fly.com . local revenue includes local deals vouchers and entertainment offers ( vouchers and direct bookings ) . replace_table_token_7_th asia pacific asia pacific revenues decreased $ 392,000 or 4 % in 2015 compared to 2014 . this decrease was primarily due to a $ 758,000 negative impact from foreign currency movements relative to the u.s. dollar and the decrease in local revenues offset by the increase in travel revenues . the decrease in local revenues of $ 285,000 was primarily due to the decreased number of local deals vouchers sold . the increase in travel revenues of $ 700,000 was primarily due to the increased number of e-mails sent . asia pacific revenues decreased $ 1.0 million or 8 % in 2014 compared to 2013 . this decrease was primarily due to a $ 481,000 negative impact from foreign currency movements relative to the u.s. dollar and a decrease in local revenues .
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we design industry-leading gaming gear that helps digital athletes , from casual gamers to committed professionals , to perform at their peak across pc or console platforms , and streaming gear that enables creators to produce studio-quality content to share with friends or to broadcast to millions of fans . our solution is a complete suite of gear that addresses the most critical components for both game performance and streaming . our product offering is enhanced by our two proprietary software platforms : icue for gamers and the elgato streaming suite for content creators , which provide unified , intuitive performance , and aesthetic control and customization across their respective product families . during 2020 , we further enhanced our streaming product offerings through acquiring epoccam software and gamer sensei gaming coaching services . we group our products into two categories ( segments ) : gamer and creator peripherals . includes our high-performance gaming keyboards , mice , headsets , controllers , and our streaming gear including capture cards , stream decks , usb microphones , studio accessories , and epoccam software , as well as coaching and training services , among others . gaming components and systems . includes our high-performance power supply units , or psus , cooling solutions , computer cases , dram modules , as well as high-end prebuilt and custom-built gaming pcs , among others . our gear is sold to gaming enthusiasts worldwide through either our retail channel or our direct-to-consumer channel . in our retail channel , we distribute our gear either directly to the retailer , such as amazon and best buy , or through key distributors . while we historically have sold a small percentage of our gear directly to consumers through our website , following the scuf acquisition and the origin acquisition in 2019 , the volume of direct-to-consumer sales has increased as both of these companies primarily generated sales through direct-to-consumer channels . we expect net revenue from our direct-to-consumer channel to increase as a percentage of total net revenue in future periods . from time to time , we may seek to partner with or , when appropriate , acquire companies that have products , personnel , and technologies that complement our strategic direction . in july 2019 , we acquired origin pc corporation , a company based in florida , specializing in delivering hand-built , personalized high-end gaming pcs and in december 2019 , we acquired scuf holdings , inc. and its subsidiaries . scuf , headquartered in georgia , specializes in delivering superior accessories and customized gaming controllers for gaming consoles and pcs that are used by top professional gamers as well as competitive amateur gamers . the addition of origin 's and scuf 's products enhances and expands our product offering to pc and console gamers , respectively . we subsequently completed three more immaterial acquisitions . i n august 2020 , we acquired epoccam to enhance the elgato streaming camera software offering ; in october 2020 , we acquired gamer sensei to offer gaming coaching services to the wide audience of gamers looking to improve their skills and in february 2021 , we acquired visuals by impulse to provide creative services to streamers looking to professionalize the look of their broadcast . origin is part of our gaming components and systems segment and scuf , epoccam , gamer sensei and visual by impulse are part of our gamer and creator peripherals segment . see note 5 of the notes to our combined consolidated financial statements for additional information . our net revenue was $ 1.7 billion , $ 1.1 billion , and $ 937.6 million for 2020 , 2019 , and 2018 , respectively , representing year-over-year increases of 55.2 % and 17.0 % for 2020 and 2019 , respectively . we had net income ( loss ) of $ 103.2 million , $ ( 8.4 ) million , and $ ( 13.7 ) million for 2020 , 2019 , and 2018 , respectively . net cash provided by operating activities was $ 169.0 million , $ 37.1 million and $ 0.4 million for 2020 , 2019 , and 2018 , respectively . key factors affecting our business our results of operations and financial condition are affected by numerous factors , including those discussed in the section titled “ risk factors ” in part i , item 1a of this annual report on form 10-k and those described below . 47 impact of industry trends . our results of operations and financial condition are impacted by industry trends in the gaming market , including : increasing gaming engagement . we believe that gaming 's increasing time share of global entertainment consumption will drive continued growth in spending on both games and gaming gear . gaming continues to become increasingly social and streaming viewership is more widely adopted along with increasing numbers of content creators . we believe this trend , which has accelerated in the current environment , will continue and corsair is well positioned to serve the streaming market with best-in-class tools for content creation . introduction of new high-performance computing hardware and sophisticated games . we believe that the introduction of more powerful cpus and gpus that place increased demands on other system components , such as memory , power supply or cooling , has a significant effect on increasing the demand for our gear . in addition , we believe that our business success depends in part on the introduction and success of games with sophisticated graphics that place increasing demands on system processing speed and capacity and therefore require more powerful cpus or gpus , which in turn drives demand for our high-performance gaming components and systems , such as psus and cooling solutions , and our gaming pc memory . story_separator_special_tag we have operations and employees in various regions affected by coronavirus , including our headquarters in california , which is subject to a shelter-in-place order . our manufacturing facilities in atlanta and the united kingdom , and our contract manufacturing facilities in southeast asia , many of which closed between one to two months in early 2020 have caused some disruptions in our supply chain which also resulted in increased air freight costs . although we have seen some significant business disruptions due to covid-19 , the broader implications of covid-19 on our results of operations and overall financial performance remain uncertain . the negative financial impact from the temporary stoppage in our factories , disruption in our supply chain and increased air freight costs experienced in the first quarter of 2020 was offset by strong revenue growth year-over-year partly due to an increase in demand for our gear as more people in more countries are under shelter-in-place restrictions . we believe that shelter-in-place and other similar restrictions have resulted in increased demand for our gear because such restrictions have limited people 's access to alternative forms of entertainment and social interaction , and thus have increased the demand for home entertainment and connecting with others through content creation . further , we believe the increased demand for our gear has been driven in part by individuals seeking to improve their work from home setup . this increase in demand continued into the second half of 2020 as the covid-19 pandemic continues . however , as global economic activity slows down , the demand for our gear could decline despite these trends . moreover , travel restrictions , factory closures and disruptions in our supply chain are likely to happen and we or our suppliers may not be able to obtain adequate inventory to sell . the dynamic nature and uncertainty of the circumstances surrounding covid-19 pandemic may have adverse consequences on our results of operations for 2020 and may negatively impact future fiscal periods in the event of prolonged disruptions associated with the outbreak . in contrast , if the covid-19 pandemic subsides in 2021 , resulting in shelter-in-place and other similar restrictions being eased , it could result in consumers returning to other alternative forms of entertainment and interaction . this in turn could result in a decline in demand for our products . we continue to evaluate the nature and extent of the impact of the covid-19 pandemic to our business and we have implemented various measures to attempt to mitigate the disruptive logistic impact specifically around managing inventory stocking level at our distribution hubs and determining the mode of shipment used to deploy our gear to the customers , and we are also ready to implement adjustments to our expenses and cash flow in the event of declines in revenues . impact of fluctuations in integrated circuits pricing . integrated circuits , or ics , account for most of the cost of producing our high-performance memory products . ic prices are subject to pricing fluctuations which can affect the average sales prices of memory modules , and thus impact our net revenue , and can have an effect on gross margins . the impact on net revenues can be significant as our high-performance memory products , included within our gaming components and systems segment , represent a significant portion of our net revenue . components of our operating results net revenue we generate materially all of our net revenue from the sale of gamer and creator peripherals and gaming components and systems to retailers , including online retailers , gamers and distributors worldwide . our revenue is recognized net of allowances for returns , discounts , sales incentives and any taxes collected from customers . cost of revenue cost of revenue consists of product costs , including costs of contract manufacturers , inbound freight costs from manufacturers to our distribution hubs as well as inter-hub shipments , cost of materials and overhead , duties and tariffs , warranty replacement cost to process and rework returned items , depreciation of tooling equipment , warehousing costs , excess and obsolete inventory write-downs , 49 and certain allocated costs related to facilities and information technology , or it , and personnel-related expenses and other operating expenses related to supply chain logistics . operating expenses operating expenses consist of sales , general and administrative expenses and product development expenses . sales , general and administrative . sales , general and administrative , or sg & a expenses represent the largest component of our operating expenses and consist of distribution costs , sales , marketing and other general and administrative costs . distribution costs include outbound freight and the costs to operate our distribution hubs . sales and marketing costs relate to the costs to operate our global sales force that works in conjunction with our channel partners , gaming team and event sponsorships , advertising and marketing promotions of our products and services , costs of maintaining our web store and credit card processing fees related to sales on our webstore , and personnel-related cost . general and administrative costs consist primarily of personnel-related expenses for our finance , legal , human resources , it and administrative personnel , as well as the costs of professional services related to these functions . we expect our total sales , general and administrative expenses to increase in absolute dollars as we continue to actively promote and distribute a higher volume of our products and also due to the anticipated growth of our business and related infrastructure , including increase in legal , accounting , insurance , compliance , investor relations and other costs associated with becoming a public company . product development . product development costs are generally expensed as incurred and reported in the combined consolidated statements of operations . product development costs consist primarily of the costs associated with the design and testing of new products and improvements to existing products .
| components of results of operations net revenue replace_table_token_5_th net revenue increased $ 605.2 million , or 55.2 % , in 2020 as compared to 2019. this increase was due to strong revenue growth in both our gaming components and systems segment and gamer and creator peripherals segment . we believe the increased demand of our products is generally due to a larger number of consumers gaming and working from home due to the covid-19 pandemic , in addition to existing customers upgrading their systems and gear for a better gaming and or streaming experience , and to a lesser extent , the inclusion of post-acquisition revenues from the scuf acquisition and the origin acquisition . 51 net revenue increased $ 159.6 million , or 17 .0 % , in 2019 as compared to 2018 , due to strong growth in both of our segments largely as a result of higher sales of corsair -branded products and also from the addition of the elgato product portfolio after its acquisition in july 2018. gross profit and gross margin replace_table_token_6_th gross margin for 2020 increased to 27.3 % from 20.4 % for 2019. the increase in gross margin was primarily driven by increased sales volume , an improved product mix with more higher margin products being sold in 2020 as compared to 2019 and less promotional activity , and was partially offset by increased air freight costs driven primarily by tightness in inventory supply due to the covid-19 pandemic .
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forward-looking statements statements in this report and the annual report to stockholders that are not purely historical facts , including , without limitation , statements about our expected future financial position , results of operations or cash flows , as well as other statements including , without limitation , words such as “ anticipate , ” “ forecast ” , “ believe , ” “ plan , ” “ estimate , ” “ expect , ” “ intend , ” “ should , ” “ could , ” “ goal , ” “ may , ” “ target , ” “ designed , ” “ on track , ” “ comfortable with , ” “ optimistic ” and other similar expressions , constitute forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the exchange act . because forward-looking statements relate to the future , they are subject to inherent uncertainties , risks and changes in circumstances that are difficult to predict and many of which are outside of our control . actual results , our financial condition , and the timing of some events could differ materially from those projected in or contemplated by the forward-looking statements . therefore you should not rely on any of these forward-looking statements . important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include , among others : the composition and market value of our assets under management ; regulations adversely affecting the financial services industry ; competition in the investment management industry ; our assets under management includes investments in foreign companies ; our ability to develop and market new investment strategies successfully ; our relationships with current and potential customers ; our ability to retain qualified personnel ; our ability to maintain effective cyber security ; our ability to maintain effective information systems ; our ability to pursue and properly integrate acquired businesses ; litigation risks ; our ability to properly address conflicts of interest ; our ability to maintain adequate insurance coverage ; our ability to maintain an effective system of internal controls ; our ability to maintain our fee structure in light of competitive fee pressures ; our relationships with investment consulting firms ; and the significant concentration of our revenues in a small number of customers . additional factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements are discussed under the section entitled “ item 1a . risk factors ” and elsewhere in this report . the forward-looking statements are based only on currently available information and speak only as of the date of this report . we are not obligated and do not undertake an obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events or otherwise . 25 overview we manage investment assets and provide services for our clients through our subsidiaries , westwood management , westwood trust and westwood international . westwood management and westwood international provide investment advisory services to institutional clients , the westwood funds® , other mutual funds , an ireland-domiciled fund organized pursuant to the european union 's undertakings for collective investment in transferable securities ( “ ucits ” ) , individuals and clients of westwood trust . westwood trust provides trust and custodial services and participation in common trust funds to institutions and high net worth individuals . our revenues are generally derived from fees based on a percentage of assets under management , and at december 31 , 2016 westwood management , westwood international and westwood trust collectively managed assets valued at approximately $ 21.2 billion . we believe we have established a track record of delivering competitive , risk-adjusted returns for our clients . with respect to the bulk of our client assets under management , we utilize a “ value ” investment style focused on achieving superior long-term , risk-adjusted returns by investing in companies with high levels of free cash flow , improving returns on equity , strengthening balance sheets and that are well positioned for growth but whose value is not fully recognized in the marketplace . this investment approach is designed to preserve capital during unfavorable periods and provide superior real returns over the long term . our investment teams have significant industry experience . our investment team members have average investment experience of sixteen years . we have focused on building a foundation in terms of personnel and infrastructure to support a potentially much larger business . we have also developed investment strategies that we believe will be desirable within our target institutional , private wealth and mutual fund markets . the cost of developing new products and growing the organization as a whole has resulted in our incurring expenses that , in some cases , do not currently have significant offsetting revenues . while we continue to evolve our products , we believe that the appropriate foundation and products are in place such that investors will recognize the value in these products , thereby generating new revenue streams for westwood . 2016 highlights the following items are highlights for the year ended december 31 , 2016 : assets under management as of december 31 , 2016 were $ 21.2 billion , a 2 % increase compared to december 31 , 2015 . quarterly average assets under management decreased 2 % to $ 21.2 billion for 2016 compared to 2015 , which contributed to the 6 % decrease in total revenue in 2016. strong performance of our emerging markets , small cap value and global convertible securities strategies . our concentrated largecap strategy reached its three-year anniversary with performance well ahead of its benchmark over the three-year period . story_separator_special_tag institutional includes separate accounts of corporate pension and profit sharing plans , public employee retirement funds , taft-hartley plans , endowments , foundations and individuals ; subadvisory relationships where westwood provides investment management services for funds offered by other financial institutions ; pooled investment vehicles , including ucits funds and collective investment trusts ; and managed account relationships with brokerage firms and other registered investment advisors that offer westwood products to their customers . private wealth includes assets for which westwood trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements and assets for which westwood management provides advisory services in ten limited liability companies to high net worth individuals . investment subadvisory services are provided for the common trust funds by westwood management , westwood international and external , unaffiliated subadvisors . for certain assets in this category , westwood trust currently provides limited custody services for a minimal or no fee , but views these assets as potentially converting to fee-generating managed assets in the future . as an example , some assets in this category consist of low-basis stock currently held in custody for clients where we believe such assets may convert to fee-generating managed assets upon an inter-generational transfer of wealth at a future date . mutual funds include the westwood funds® , a family of mutual funds for which westwood management serves as advisor . these funds are available to individual investors , as well as offered as part of our investment strategies for institutional and private wealth accounts . 28 roll-forward of assets under management replace_table_token_8_th ( 1 ) institutional outflows include approximately $ 30 million in an account that transitioned to our model portfolio , for which we no longer have direct discretionary investment authority . this account is now included in aua aggregating $ 1.0 billion as of december 31 , 2016 . the increase in assets under management for the year ended december 31 , 2016 was due to market appreciation of $ 2.0 billion , partially offset by net outflows of $ 1.5 billion . flows were primarily related to net outflows in our smidcap , income opportunity , largecap value , allcap value and market neutral income strategies , partially offset by net inflows in our emerging markets plus and smallcap value strategies . replace_table_token_9_th ( 1 ) institutional inflows include approximately $ 330 million of assets related to our global convertibles strategy , which transitioned from aua to aum during the fourth quarter of 2015. the increase in assets under management for the year ended december 31 , 2015 was due to the acquisition of woodway , which contributed $ 1.6 billion of assets under management , and net inflows of $ 174 million , partially offset by market depreciation of $ 1.2 billion . inflows were primarily inflows into institutional accounts in our emerging markets plus , income opportunity , mlp and smallcap value strategies and inflows into our emerging markets , mlp and smallcap value mutual funds , as well as the movement of an account in our market neutral income strategy from assets under advisement to assets under management during the fourth quarter of 2015. outflows were primarily related to withdrawals and rebalancing by certain clients in our largecap value , smidcap and emerging markets strategies and our westwood income opportunity , smidcap and short duration high yield mutual funds . 29 replace_table_token_10_th the increase in assets under management for the year ended december 31 , 2014 was primarily due to market appreciation of $ 1.3 billion and neutral net client flows . inflows were primarily inflows into institutional accounts in our emerging markets strategies and the westwood income opportunity mutual fund . outflows were primarily related to withdrawals and rebalancing by certain clients in our largecap value strategy . 30 story_separator_special_tag reinvest these funds outside of the u.s. and our current plans do not demonstrate a need to repatriate them to fund our u.s. operations . at december 31 , 2016 and 2015 , working capital aggregated $ 86.3 million and $ 72.8 million , respectively . as required by the finance code , westwood trust is subject to a minimum capital requirement of $ 4.0 million . at december 31 , 2016 , westwood trust had approximately $ 13.4 million in excess of its minimum capital requirement . we had no debt at december 31 , 2016 or december 31 , 2015 . 33 replace_table_token_14_th historically we have funded our operations and cash requirements with cash generated from operating activities . we may also use cash from operations to pay dividends to our stockholders . as of december 31 , 2016 and december 31 , 2015 , we had no debt . the changes in net cash provided by operating activities generally reflect the changes in earnings plus the effects of non-cash items and changes in working capital . changes in working capital , especially accounts receivable and accounts payable , generally result from timing differences between collection of fees billed and payment of operating expenses . during 2016 , cash flow provided by operating activities , principally our advisory segment , aggregated $ 47.4 million compared to cash provided by operations of $ 55.2 million during 2015 and $ 26.5 million during 2014 . the decrease of $ 7.8 million in 2016 was primarily due to changes in operating assets and liabilities and net income , partially offset by cash transferred from our investment accounts . the increase of $ 28.7 million from 2014 to 2015 was primarily due to cash transferred from our investment accounts and working capital . cash flow used in investing activities during 2016 and 2014 of $ 1.8 million and $ 0.5 million , respectively , was primarily related to purchases of property and equipment . cash flow used in investing activities during 2015 of $ 25.1 million was due to the acquisition of woodway .
| results of operations the following table and discussion of our results of operations is based upon data derived from our consolidated statements of income contained in our consolidated financial statements and should be read in conjunction with these statements , which are included elsewhere in this report . replace_table_token_11_th year ended december 31 , 2016 compared to year ended december 31 , 2015 total revenues . total revenues decreased $ 7.9 million , or 6 % , to $ 123.0 million for fiscal 2016 compared with $ 130.9 million for fiscal 2015 . the decrease was attributable to a $ 7.8 million decrease in asset-based advisory fees and a $ 2.1 million decrease in performance-based fees , offset by a $ 1.5 million increase in trust fees . advisory-based fees decreased as a result of lower average assets under management in 2016 compared to 2015. trust fees increased as a result of a full year of revenue generated by woodway . employee compensation and benefits . employee compensation and benefit costs decreased $ 2.1 million , or 3 % , to $ 61.5 million in fiscal 2016 compared with $ 63.6 million in fiscal 2015 . this decrease was primarily due to a $ 3.0 million decrease in incentive compensation due to lower results for fiscal 2016 and a one-time $ 1.6 million restricted stock charge primarily related to a non-cash charge for acceleration of stock-based compensation expense for a particular grant in 2015. these decreases were partially offset by an increase in compensation costs attributable to increased average headcount and merit increases . we had 174 full-time employees as of december 31 , 2016 compared to 168 at december 31 , 2015. information technology .
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risk factors ” for a discussion of important factors that could cause our actual results to differ materially from our expectations . 22 our fiscal year ends on june 30 , and references to a specific fiscal year are the twelve months ended june 30 of such year ( for example , `` fiscal 2020 `` refers to the year ended june 30 , 2020 ) . business overview we are a global leader in asset optimization software that optimizes asset design , operations and maintenance in complex , industrial environments . we combine decades of process modeling and operations expertise with big data , artificial intelligence , and advanced analytics . our purpose-built software improves the competitiveness and profitability of our customers by increasing throughput , energy efficiency , and production levels , reducing unplanned downtime , plant emissions , and safety risks , enhancing capital efficiency , and decreasing working capital requirements over the entire asset lifecycle to support operational excellence . our software incorporates our proprietary mathematical and empirical models of manufacturing and planning processes and reflects the deep domain expertise we have amassed from focusing on solutions for the process and other capital-intensive industries for over 35 years . we have developed our applications to design and optimize processes across three principal business areas : engineering , manufacturing and supply chain , and asset performance management . we are a recognized market and technology leader in providing process optimization and asset performance management software for each of these business areas . we have established sustainable competitive advantages based on the following strengths : innovative products that can enhance our customers ' profitability and productivity ; long-term customer relationships ; large installed base of users of our software ; and long-term license contracts . we have approximately 2,400 customers globally . our customers consist of companies engaged in the process and other capital-intensive industries such as energy , chemicals , engineering and construction , as well as pharmaceuticals , food and beverage , transportation , power , metals and mining , pulp and paper , and consumer packaged goods . business segments we have two operating and reportable segments , which are consistent with our reporting units : ( i ) subscription and software and ( ii ) services and other . the subscription and software segment is engaged in the licensing of process optimization and asset performance management software solutions and associated support services , and includes our license and maintenance revenue . the services and other segment includes professional services and training , and includes our services and other revenue . recent events in december 2019 , the novel sars-cov-2 virus and associated covid 19 disease ( “ covid-19 ” ) were reported in china , and in march 2020 the world health organization declared a pandemic . since the beginning of march 2020 , the sudden decrease in demand for oil due to the covid-19 pandemic , compounded by the excess supply arising from producers ' failure to agree on production cuts , resulted in a drop in oil prices . during fiscal 2020 , our business was negatively impacted by these factors . specifically , in the last four months of the fiscal year , we saw a slowdown in closing customer contracts , a slight increase in our customer attrition rate due to non-renewals and renewals at lower entitlement level and , to a lesser extent , a slowdown in customer payments . we are continuing to assess the impact of these items on global markets and the various industries of our customers . the extent of the impact on our operational and financial performance going forward will depend on developments such as the duration and spread of the pandemic and other factors affecting oil prices , the impact of these items on our customers and our sales cycles , as well as on our employees , all of which are uncertain and can not be predicted . we are continuing to monitor the potential impacts related to the current disruption of covid-19 and uncertainty in the global markets on the various industries of our customers . these factors could potentially impact the signing of new agreements , as well as the recoverability of assets , including accounts receivable and contract costs . 23 key components of operations revenue we generate revenue primarily from the following sources : license revenue . we sell our software products to end users , primarily under fixed-term licenses , through a subscription offering which we refer to as our aspenone licensing model . the aspenone licensing model includes software maintenance and support , known as our premier plus sms offering , for the entire term . our aspenone products are organized into three suites : 1 ) engineering ; 2 ) manufacturing and supply chain ; and 3 ) asset performance management . the aspenone licensing model provides customers with access to all of the products within the aspenone suite ( s ) they license . customers can change or alternate the use of multiple products in a licensed suite through the use of exchangeable units of measurement , called tokens , licensed in quantities determined by the customer . this licensing system enables customers to use products as needed and to experiment with different products to best solve whatever critical business challenges they face . customers can increase their usage of our software by purchasing additional tokens as business needs evolve . we also license our software through point product arrangements with our premier plus sms offering included for the contract term . maintenance revenue . we provide customers technical support , access to software fixes and updates and the right to any new unspecified future software products and updates that may be introduced into the licensed aspenone software suite . our technical support services are provided from our customer support centers throughout the world , as well as via email and through our support website . services and other revenue . we provide training and professional services to our customers . story_separator_special_tag 25 annual spend is adversely affected by term license and standalone sms agreements that are renewed at a lower entitlement level or not renewed and , to a lesser extent , by customer agreements that become inactive during the agreement 's term because , in our determination , amounts due ( or which will become due ) under the agreement are not collectible . because the annual spend calculation includes all of our active term license agreements , the reported balance may include agreements with customers that are delinquent in paying invoices , that are in bankruptcy proceedings , or where payment is otherwise in doubt . as of june 30 , 2020 , approximately 90 % of our term license agreements ( by value ) are denominated in u.s. dollars . for agreements denominated in other currencies , the company uses a fixed historical exchange rate to calculate annual spend in dollars rather than using current exchange rates , so that our calculation of growth in annual spend is not affected by fluctuations in foreign currencies . beginning in fiscal 2019 and for all future periods , for term license agreements that contain professional services or other products and services , we have included in the annual spend calculation the portion of the invoice allocable to the term license under topic 606 rather than the portion of the invoice attributed to the license in the agreement . we believe that methodology more accurately allocates any discounts or premiums to the different elements of the agreement . we have not applied this methodology retroactively for agreements entered into in prior fiscal years . we estimate that annual spend grew by approximately 9.6 % during fiscal 2020 , from $ 541.0 million as of june 30 , 2019 to $ 593.1 million as of june 30 , 2020 . we estimate that annual spend grew by approximately 10.6 % during fiscal 2019 , from $ 489.3 million as of june 30 , 2018 to $ 541.0 million as of june 30 , 2019 . total contract value total contract value ( `` tcv '' ) is the aggregate value of all payments received or to be received under all active term license agreements , including maintenance and escalation . tcv was $ 2.8 billion and $ 2.6 billion as of june 30 , 2020 and 2019 , respectively . bookings bookings is the total value of customer term license contracts signed in the current period , less the value of such contracts signed in the current period where the initial licenses are not yet deemed delivered , plus term license contracts signed in a previous period for which the initial licenses are deemed delivered in the current period . bookings was $ 610.1 million during fiscal 2020 , compared to $ 651.8 million and $ 502.3 million during fiscal 2019 and 2018 , respectively . the change in bookings during fiscal 2020 , 2019 , and 2018 is related to the timing of renewals . free cash flow we use a non-gaap measure of free cash flow to analyze cash flows generated from our operations . management believes that this financial measure is useful to investors because it permits investors to view our performance using the same tools that management uses to gauge progress in achieving our goals . we believe this measure is also useful to investors because it is an indication of cash flow that may be available to fund investments in future growth initiatives or to repay borrowings under the amended and restated credit agreement , and it is a basis for comparing our performance with that of our competitors . the presentation of free cash flow is not meant to be considered in isolation or as an alternative to cash flows from operating activities as a measure of liquidity . free cash flow is calculated as net cash provided by operating activities adjusted for the net impact of ( a ) purchases of property , equipment and leasehold improvements , ( b ) payments for capitalized computer software costs , ( c ) non-capitalized acquired technology , and ( d ) other nonrecurring items , such as acquisition and litigation related payments . the following table provides a reconciliation of gaap cash flow from operating activities to free cash flow for the indicated periods : 26 replace_table_token_3_th in fiscal 2018 we have excluded litigation related payments of $ 4.5 million . fiscal 2020 compared to fiscal 2019 total free cash flow increased $ 6.3 million during fiscal 2020 as compared to the prior fiscal year primarily due to changes in working capital . for a more detailed description of these changes refer to `` liquidity and capital resources . '' fiscal 2019 compared to fiscal 2018 total free cash flow increased $ 24.7 million during fiscal 2019 as compared to the prior fiscal year primarily due to changes in working capital . for a more detailed description of these changes refer to `` liquidity and capital resources . '' non-gaap income from operations non-gaap income from operations excludes certain non-cash and non-recurring expenses , and is used as a supplement to income from operations presented on a gaap basis . we believe that non-gaap income from operations is a useful financial measure because removing certain non-cash and other items provides additional insight into recurring profitability and cash flow from operations . the following table presents our income from operations , as adjusted for stock-based compensation expense , amortization of intangibles , and other items , such as the impact of litigation judgments and acquisition related fees , for the indicated periods : replace_table_token_4_th in fiscal 2018 , we incurred an expense associated with a litigation judgment in the amount of $ 1.7 million .
| results of operations 27 the following table sets forth the results of operations , percentage of total revenue and the year-over-year percentage change in certain financial data for fiscal 2020 , 2019 and 2018 : replace_table_token_5_th revenue fiscal 2020 compared to fiscal 2019 total revenue increased by $ 2.0 million during fiscal 2020 as compared to the prior fiscal year . the increase of $ 2.0 million was due to an increase in maintenance revenue of $ 14.6 million and an increase in services and other revenue of $ 3.9 million , partially offset by a decrease in license revenue of $ ( 16.4 ) million , as compared to the prior fiscal year . fiscal 2019 compared to fiscal 2018 total revenue increased by $ 89.1 million during fiscal 2019 as compared to the prior fiscal year . the increase of $ 89.1 million was due to an increase in license revenue of $ 86.1 million and an increase in maintenance revenue of $ 4.7 million , partially offset by a decrease in services and other revenue of $ ( 1.8 ) million as compared to the prior fiscal year . 28 license revenue replace_table_token_6_th fiscal 2020 compared to fiscal 2019 the decrease in license revenue of $ ( 16.4 ) million during fiscal 2020 as compared to the prior fiscal year was primarily attributable to a decrease in bookings related to the timing of renewals . fiscal 2019 compared to fiscal 2018 the increase in license revenue of $ 86.1 million during fiscal 2019 as compared to the prior fiscal year was primarily due to an increase in bookings and the timing of renewals .
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discussion and analysis of our 2018 fiscal year , as well as the year-to-year comparison between 2019 and 2018 , are included `` management 's discussion and analysis of financial condition and results of operations '' in part ii , item 7 in our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on march 2 , 2020. forward-looking statements this report contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. these statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements concerning , among other things , the anticipated economic and business environment in our service area and elsewhere , credit quality and other financial and business matters in future periods , our future results of operations and financial position , our business strategy and plans and our objectives and future operations . we also may make forward-looking statements in our other documents filed with or furnished to the u.s. securities and exchange commission ( the “ sec ” ) . in addition , our senior management may make forward-looking statements orally to analysts , investors , representatives of the media and others . our forward-looking statements are based on numerous assumptions , any of which could prove to be inaccurate , and actual results may differ materially from those projected because of a variety of risks and uncertainties , including , but not limited to : 1 ) general economic conditions either nationally , internationally , or locally may be different than expected , and particularly , any event that negatively impacts the tourism industry in hawaii ; 2 ) the compounding effects of the covid-19 pandemic , including reduced tourism in hawaii , the duration and scope of government mandates or other limitations of or restrictions on travel , volatility in the international and national economy and credit markets , worker absenteeism , quarantines or other travel or health-related restrictions , the length and severity of the covid-19 pandemic , the pace of recovery following the covid-19 pandemic , and the effect of government , business and individual actions intended to mitigate the effects of the covid-19 pandemic ; 3 ) changes in market interest rates that may affect credit markets and our ability to maintain our net interest margin ; 4 ) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses ; 5 ) the impact of legislative and regulatory initiatives , particularly the dodd-frank wall street reform and consumer protection act of 2010 ( the “ dodd-frank act ” ) and economic growth , regulatory relief , and consumer protection act of 2018 ; 6 ) changes to the amount and timing of proposed common stock repurchases ; 7 ) unanticipated changes in the securities markets , public debt markets , and other capital markets in the u.s. and internationally , including , without limitation , the anticipated elimination of the london interbank offered rate ( “ libor ” ) as a benchmark interest rate ; 8 ) changes in fiscal and monetary policies of the markets in which we operate ; 9 ) the increased cost of maintaining or the company 's ability to maintain adequate liquidity and capital , based on the requirements adopted by the basel committee on banking supervision and u.s. regulators ; 10 ) changes in accounting standards ; 11 ) changes in tax laws or regulations , including public law 115-97 , commonly known as the tax cuts and jobs act , or the interpretation of such laws and regulations ; 12 ) any failure in or breach of our operational systems , information systems or infrastructure , or those of our merchants , third party vendors and other service providers ; 13 ) any interruption or breach of security of our information systems resulting in failures or disruptions in customer account management , general ledger processing , and loan or deposit systems ; 14 ) natural disasters , public unrest or adverse weather , public health , disease outbreaks , and other conditions impacting us and our customers ' operations or negatively impacting the tourism industry in hawaii ; 15 ) competitive pressures in the markets for financial services and products ; 16 ) actual or alleged conduct which could harm our reputation ; and 17 ) the impact of litigation and regulatory investigations of the company , including costs , expenses , settlements , and judgments . given these risks and uncertainties , investors should not place undue reliance on any forward-looking statement as a prediction of our actual results . a detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under the section entitled “ risk factors ” in part i of this report . words such as “ believes , ” “ anticipates , ” “ expects , ” “ intends , ” “ targeted , ” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements . we undertake no obligation to update forward-looking statements to reflect later events or circumstances , except as may be required by law . 22 critical accou nting policies our consolidated financial statements were prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and follow general practices within the industries in which we operate . the most significant accounting policies we follow are presented in note 1 to the consolidated financial statements . application of these principles requires us to make estimates , assumptions , and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . most accounting policies are not considered by management to be critical accounting policies . several factors are considered in determining whether or not a policy is critical in the preparation of the consolidated financial statements . story_separator_special_tag for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgment may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . the fair value hierarchy defines level 1 valuations as those based on quoted prices , unadjusted , for identical instruments traded in active markets . level 2 valuations are those based on quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , or model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market , or significant management judgment or estimation , some of which may be internally developed . financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities , loans held for sale , mortgage servicing rights , investments related to deferred compensation arrangements , and derivative financial instruments . as of december 31 , 2020 , and december 31 , 2019 , $ 4.0 billion or 20 % and $ 2.7 billion or 15 % , respectively , of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third-party pricing service . these investments in debt securities and mortgage-backed securities were all classified in either levels 1 or 2 of the fair value hierarchy . financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2020 , and december 31 , 2019 , $ 17.4 million and $ 6.4 million , respectively , or less than 1 % of our total liabilities consisted of financial liabilities recorded at fair value on a recurring basis . as of december 31 , 2020 , and december 31 , 2019 , level 3 financial assets recorded at fair value on a recurring basis were $ 96.4 million and $ 29.7 million , respectively , or less than 1 % of our total assets , and were comprised of mortgage servicing rights and derivative financial instruments . as of december 31 , 2020 , and december 31 , 2019 , level 3 financial liabilities recorded at fair value on a recurring basis were $ 17.4 million and $ 6.1 million , respectively , or less than 1 % of our total liabilities , and were comprised of derivative financial instruments . our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors , omissions , or defects . as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . 2 ) on a quarterly basis , management also selects a sample of securities priced by the company 's third-party pricing service and reviews the significant assumptions and valuation methodologies used by the pricing service with respect to those securities . the information provided is comprised of market reference data , which may include reported trades ; bids , offers , or broker-dealer dealer quotes ; benchmark yields and spreads ; as well as other reference data as appropriate . periodically , based on these reviews , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 3 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to a second source . 4 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . generally , we do not adjust the price from the third-party service provider . 5 ) on an annual basis , we obtain and review the third-party 's most recently issued service organization controls report related to controls placed in operation and tests of operating effectiveness , to update our understanding of the third-party pricing service 's control environment . see note 21 to the consolidated financial statements for more information on our fair value measurements . 24 income taxes we determine our liabilities for income taxes based on current tax regulations and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns for federal , six state and local domestic jurisdictions , and three foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes .
| earnings summary net income for 2020 was $ 153.8 million , a decrease of $ 72.1 million or 32 % compared to 2019. diluted earnings per share were $ 3.86 in 2020 , a decrease of $ 1.70 or 31 % compared to 2019. our return on average assets was 0.79 % in 2020 , a decrease of 50 basis points from 2019 , and our return on average shareholders ' equity was 11.38 % in 2020 , compared to 17.65 % in 2019. our lower net income in 2020 was primarily due to the following : we recorded a $ 117.8 million provision for credit losses in 2020 compared to a $ 16.0 million provision recorded in 2019. this increase was primarily due to management 's best estimate of losses over the life of loans in our portfolio in accordance with the cecl approach , given the economic outlook and forecasts for covid-19 pandemic driven market changes , as well as the impact of unprecedented intervention of fiscal , monetary and regulatory programs . fees , exchange , and other service charges was $ 47.1 million in 2020 , a decrease of $ 10.8 million or 19 % compared to 2019. this decrease was primarily due to lower debit and credit card transaction volume and the bank 's suspension of atm surcharge fees from april 1 , 2020 , through june 30 , 2020. in addition , merchant income decreased due to lower sales volume . net equipment expense was $ 35.4 million in 2020 , an increase of $ 6.2 million or 21 % compared to 2019. this increase was primarily due to a $ 2.5 million increase in software license fees and maintenance , coupled with a $ 2.2 million increase in depreciation expense .
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the intangible assets are being amortized for book purposes and are tax deductible . at the date of the acquisition , the weighted average book amortization period of the intangible assets was 5.2 years story_separator_special_tag this report contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these statements include , among other things , statements concerning our future operations , financial condition and prospects , and business strategies . the words believe , expect , anticipate and other similar expressions generally identify forward-looking statements . investors in the registrant 's common stock are cautioned not to place undue reliance on these forward-looking statements . these forward-looking statements are subject to substantial risks and uncertainties that could cause our future business , financial condition , or results of operations to differ materially from the historical results or currently anticipated results . investors should carefully review the information contained in item 1a : risk factors and elsewhere in , or incorporated by reference into , this report . our 2011 revenues increased by $ 7.6 million , or 11.0 % , to $ 76.8 million as compared to 2010 , primarily due to overall improvements in the global economy and the resulting increase in spending by our customers . we recorded an operating loss of $ 0.3 million in 2011 , $ 5.7 million lower than the operating loss recorded in 2010. the improvement in our operating result was due an increase in our gross profit of $ 4.8 million and decreased operating expenses of $ 0.9 million . we recorded net income of $ 0.1 million in 2011 compared to a net loss of $ 3.5 million for 2010. our income before taxes was approximately $ 0.1 million in 2011 compared to a net loss before income taxes of $ 5.3 million in 2010 , but because of a higher tax expense of $ 0.2 million in 2011 , we incurred a net loss in 2011. introduction pctel is a global leader in propagation and optimization solutions for the wireless industry . we design and develop software-based radios ( scanning receivers ) for wireless network optimization and develop and distribute innovative antenna solutions . additionally , we have licensed our intellectual property , principally related to a discontinued modem business , to semiconductor , pc manufacturers , modem suppliers , and others . revenue growth for antenna products is driven by emerging wireless applications in the following markets : public safety , military , and government applications ; scada , health care , energy , smart grid and agricultural applications ; indoor wireless , wireless backhaul , and cellular applications . revenue growth for scanning receiver and interference management products is driven by the deployment of new wireless technology and the need for wireless networks to be tuned and reconfigured on a regular basis . we have an intellectual property portfolio related to antennas , the mounting of antennas , and scanning receivers . these patents are being held primarily for defensive purposes and are not part of an active licensing program . we operate in two segments for reporting purposes . beginning with the formation of pctel secure in january 2011 , we report the financial results of pctel secure as a separate operating segment . because pctel secure is a joint venture , we make decisions regarding allocation of resources separate from the rest of the company . our codm uses the profit and loss results and the assets in deciding how to allocate resources and assess performance between the segments . we did not report segment information for pctel secure in this section because pctel secure was in the development stage during 2011. story_separator_special_tag equivalent employees in general and administrative functions at december 31 , 2011 , 2010 , and 2009 , respectively . 18 amortization of other intangible assets replace_table_token_11_th the amortization of other intangible assets relates to our acquisitions from 2004 through 2011. amortization expense decreased approximately $ 0.1 million in 2011 compared to 2010 because intangible assets acquired from andrew were fully amortized in 2010 and due to the fact that certain intangible assets related to the wider settlement and the acquisition of products from ascom were impaired during the fourth quarter 2010. these decreases in amortization were partially offset by additional amortization of $ 0.6 million related to the intangible assets contributed by eclipse for pctel secure and the intangible assets acquired from envision . amortization expense increased by $ 0.7 million in 2010 compared to 2009 due to $ 1.5 million of additional amortization expense from our acquisitions in 2009 and 2010 , offsetting $ 0.8 million of lower amortization expense because assets from the maxrad acquisition and from the product lines acquired from andrew became fully amortized in 2010. the additional amortization expense of $ 1.5 million in 2010 consists of $ 0.7 million related to the assets acquired from ascom in december 2009 , $ 0.6 million related to the assets acquired from sparco in january 2010 , and $ 0.2 million related to the assets acquired as part of the settlement of the intellectual property dispute with wider in december 2009. at december 31 , 2010 we also impaired certain intangible assets related to the ascom acquisition and the wider settlement . see the impairment of goodwill and other intangible assets in item 7 for additional information . restructuring charges replace_table_token_12_th the 2011 restructuring expense relates to reduction in headcount in our germantown engineering organization . during 2011 , we eliminated six positions due to the completion of several projects for scanning receivers . the restructuring expense of $ 0.1 million consisted of severance and payroll related benefits . the 2010 restructuring expense consists of $ 0.8 million related to our functional reorganization and $ 0.1 million for the shutdown and relocation of our sparco operations . story_separator_special_tag for the year ended december 31 , 2009 , other income , net consisted of approximately $ 0.6 million of interest income , approximately $ 0.3 million on realized investment gains , and foreign exchange losses of $ 57. the realized gains were from liquidations of our positions in the columbia strategic cash portfolio fund with bank of america ( cscp ) . we recorded investment gains from the cscp of $ 0.3 million in the year ended december 31 , 2009 and investment losses from the cscp of $ 2.4 million in the year ended december 31 , 2008. the cscp fund was closed to new subscriptions or redemptions in december 2007 , resulting in our inability to immediately redeem our investments for cash . the fund was fully liquidated in december 2009. expense ( benefit ) for income taxes replace_table_token_17_th the effective tax rate differed from the statutory federal rate of 34 % by approximately 171 % during 2011 primarily because of the noncontrolling interest of pctel secure . in addition , we recorded income tax benefits related to state rate changes on our deferred tax assets and the release of our valuation allowance on our deferred tax assets subject to chinese income taxes . the effective tax rate was approximately equal to the statutory federal rate of 35 % during 2010. the effective tax rate differed from the statutory federal rate of 35 % by approximately 20 % during 2009 primarily due to foreign taxes , a rate change to our deferred tax assets , and the non-tax deductibility for the wi-sys goodwill impairment . these items accounted for 6 % , 6 % , and 8 % of this rate difference , respectively . our statutory rate was 35 % in 2009 and 2010 because we paid u.s. taxes in 2008 at the 35 % rate , and we carried back our 2010 and 2009 tax losses against the 2008 taxes paid . 21 at december 31 , 2011 , we had net deferred tax assets of $ 10.3 million and a valuation allowance of $ 0.6 million against the deferred tax assets . we maintain a valuation allowance due to uncertainties regarding realizability . the valuation allowance at december 31 , 2011 relates to deferred tax assets in tax jurisdictions in which we no longer have significant operations . significant management judgment is required to assess the likelihood that our deferred tax assets will be recovered from future taxable income , and the carryback available to offset against prior year gains . on a regular basis , management evaluates the recoverability of deferred tax assets and the need for a valuation allowance . net loss attributable to noncontrolling interests replace_table_token_18_th we have a 51 % interest in pctel secure . the net loss attributable to noncontrolling interests represents 49 % of the net loss of pctel secure . liquidity and capital resources replace_table_token_19_th liquidity and capital resources overview at december 31 , 2011 , our cash , cash equivalents , and investments were approximately $ 68.8 million , of which $ 7.2 million are classified as long term assets as they have maturities from 13 to 24 months , and we had working capital of approximately $ 80.3 million . our primary source of liquidity is cash provided by operations , with short term swings in liquidity supported by a significant balance of cash and short-term investments . the balance has fluctuated with cash from operations , acquisitions and divestitures , implementation of a new erp system and the repurchase of our common shares . within operating activities , we are historically a net generator of operating funds from our income statement activities and a net user of operating funds for balance sheet expansion . we expect this historical trend to continue in the future . fiscal year 2009 was an exception as we generated operating funds from the balance sheet as working capital declined with revenues . within investing activities , capital spending historically ranges between 3 % and 5 % of our revenue . the primary use of capital is for manufacturing and development engineering requirements . our capital expenditures during 2011 were approximately 6 % of revenues because we spent $ 2.8 million related to the implementation of a new erp system . we historically have significant transfers between investments and cash as we rotate our cash and short-term investment balances between money market funds , which are accounted for as cash equivalents , 22 and other investment vehicles . we have a history of supplementing our organic revenue growth with acquisitions of product lines or companies , resulting in significant uses of our cash and investments from time to time . we expect the historical trend for capital spending and the variability caused by moving money between cash and investments and periodic merger and acquisition activity to continue in the future . within financing activities , we have historically generated funds from the exercise of stock options and proceeds from the issuance of common stock through our employee stock purchase plan ( espp ) and used funds to repurchase shares of our common stock through our share repurchase programs . whether this activity results in our being a net user of funds versus a net generator of funds largely depends on our stock price during any given year . we believe that the existing sources of liquidity , consisting of cash , short-term investments and cash from operations , will be sufficient to meet our working capital needs for the foreseeable future . we continue to evaluate opportunities for development of new products and potential acquisitions of technologies or businesses that could complement the business . we may use available cash or other sources of funding for such purposes .
| results of operations years ended december 31 , 2011 , 2010 , and 2009 ( all amounts in tables , other than percentages , are in thousands ) revenues replace_table_token_6_th 16 revenues were approximately $ 76.8 million for the year ended december 31 , 2011 , an increase of 11.0 % from the prior year . in the year ended december 31 , 2011 versus the prior year , approximately 6 % of the increase in revenues is attributable to antenna products and approximately 5 % of the increase in revenues is attributable to scanning products . the increase in antenna product revenues in 2011 compared to 2010 reflects continued success in penetrating our targeted vertical markets and higher gps antenna sales . the increase in revenues of our scanning products in 2011 was primarily due the launch of our new mx scanning receiver and the lte rollout in the u.s. revenues were approximately $ 69.3 million for the year ended december 31 , 2010 , an increase of 23.7 % from the prior year . in the year ended december 31 , 2010 versus the prior year , approximately 20 % of the increase in revenues is attributable to antenna products and approximately 4 % of the increase in revenues is attributable to scanning products . revenue from our acquisitions as well as organic growth contributed to the increases in revenues . the improvement in antenna revenues in 2010 compared to 2009 reflected significantly stronger volume in our targeted vertical markets . antenna sales improved to both our large distributors and to oem resellers of our antennas . the increase in revenues of our scanning products in 2010 was primarily due to a general recovery in wireless test and measurement spending levels . we saw sales increases through our value added resellers , such as ascom , anite plc , and swissqual ag .
| 3,838 |
63 note 3. loans not covered by fdic shared-loss agreements ( non-covered loans ) and related allowance for loan losses the company 's non-covered loans at december 31 , 2014 and 2013 were comprised of the following ( dollars in thousands ) : replace_table_token_43_th the company held $ 18.3 million and $ 38.5 million in balances of loans guaranteed by the united states department of agriculture ( usda ) , which are included in various categories in the table above , at december 31 , 2014 and 2013 , respectively . as these loans are 100 % guaranteed by the usda , no loan loss provision is required . these loan balances included story_separator_special_tag the following discussion and analysis of the financial condition at december 31 , 2014 and results of operations for the year ended december 31 , 2014 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 the company is a bank holding company that was originally incorporated in 2005. on january 1 , 2014 , the company completed a reincorporation from delaware , its original state of incorporation , to virginia . the form of the reincorporation was the merger of the then existing delaware corporation into a newly created virginia corporation . the company retained the same name and conducts business in the same manner as before the reincorporation . the company is headquartered in richmond , virginia and is the holding company for essex bank ( the “ bank ” ) , a virginia state bank with 21 full-service offices in virginia and maryland . the bank also operates two loan production offices in virginia . the bank engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses , including individual and commercial demand 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 . prior to november 8 , 2013 , the bank also had four full-service offices in georgia . the bank sold those offices and related deposits to community & southern bank on november 8 , 2013. 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 may 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 : 24 · 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 interest rate environment ; · competitive pressures among banks and financial institutions or from companies outside the banking industry ; · real estate values ; · the demand for deposit , loan , and investment products and other financial services ; · the demand , development and acceptance of new products and services ; · the performance of vendors or other parties with which the company does business ; · time and costs associated with de novo branching , acquisitions , dispositions and similar transactions ; · the realization of gains and expense savings from acquisitions , dispositions and similar transactions ; · assumptions and estimates that underlie the accounting for loan pools under the shared-loss agreements ; · consumer profiles and spending and savings habits ; · levels of fraud in the banking industry ; · the level of attempted cyber attacks in the banking industry ; · the securities and credit markets ; · costs associated with the integration of banking and other internal operations ; · 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 . story_separator_special_tag the company 's acquired loans from the sfsb transaction ( the “ covered loans ” ) , subject to fasb asc topic 805 , business combinations , are recorded at fair value and no separate valuation allowance was recorded at the date of acquisition . fasb asc 310-30 , loans and debt securities acquired with deteriorated credit quality , 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 transaction . the company has grouped loans together based on common risk characteristics including product type , delinquency status and loan documentation requirements among others . the shared-loss agreement with the federal deposit insurance corporation ( fdic ) related to loans other than those secured by single family , residential 1-4 family mortgages expired march 31 , 2014. these loans will continue to be accounted for in accordance with fasb asc 310-30 as purchased credit impaired loans and were classified as non-covered loans effective april 1 , 2014 ( the “ pci loans ” ) . 26 the covered loans and pci loans are subject to credit review standards described above for non-covered loans . if and when credit deterioration occurs subsequent to their 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 that 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 the allowance for loan losses . 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 . 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 . other intangible assets the company is accounting for other intangible assets in accordance with fasb asc 350 , intangibles - goodwill and others . 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 . 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 net income was $ 7.5 million for the year ended december 31 , 2014 , compared with $ 5.9 million for the 2013 fiscal year . the $ 1.6 million , or 27.3 % , improvement year over year was primarily driven by a $ 2.5 million reduction in noninterest expenses . net income available to common shareholders was $ 7.3 million for the year ended december 31 , 2014 , compared with $ 4.8 million for fiscal year 2013 , an increase of 51.8 % . earnings per common share , basic and fully diluted , were $ 0.33 per share and $ 0.22 per share for the respective time frames . when comparing the 2012 and 2013 years , net income increased $ 324,000 , or 5.8 % , from net income of $ 5.6 million in 2012 to net income of $ 5.9 million in 2013. net income available to common shareholders was $ 4.8 million , or $ 0.22 per common share on a diluted basis , for the year ended december 31 , 2013 compared with net income available to common shareholders of $ 4.5 million , or $ 0.21 per common share on a diluted basis , for the year ended december 31 , 2012. while the net interest margin and net interest earnings were squeezed , as has been typical in the industry , the company benefitted from no provision for loan losses during 2013 as asset quality improved . net interest income the company 's operating results depend primarily on its net interest income , which is the difference between interest income on interest earning assets , including securities and loans , and interest expense incurred on interest bearing liabilities , including deposits and other borrowed funds . net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities , referred to as a “ volume change.
| 3,839 |
facilities terminate on september 30 , 2014. fluidigm singapore intends to consolidate its manufacturing operations in the new space in the third quarter of 2014. see note 16 . 78 fluidigm corporation notes to consolidated financial statements december 31 , 2013 as of december 31 , 2013 , we also leased office story_separator_special_tag the following discussion and analysis should be read together with our consolidated financial statements and the notes to those statements included elsewhere in this form 10-k. this discussion contains forward-looking statements based on our current expectations , assumptions , estimates and projections about fluidigm and our industry . these forward-looking statements involve risks and uncertainties . our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors , as more fully described in “ risk factors ” in item 1a of this form 10-k , in this item 7 , and elsewhere in this form 10-k. except as may be required by law , we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur in the future . on february 13 , 2014 , we completed the acquisition of dvs sciences , inc. , or dvs , which develops , manufactures , markets , and sells multi-parameter single-cell protein analysis systems . the information set forth in the following discussion and analysis relates principally to our business of manufacturing , marketing , and selling microfluidic systems for single-cell genomics , applied genotyping , and sample preparation for targeted resequencing . for information relating to the acquisition of dvs and dvs 's business , please refer to the sections entitled `` business—recent developments—acquisition of dvs sciences , inc. '' and `` —business of dvs. ” overview we develop , manufacture , and market microfluidic systems to academic institutions , clinical laboratories , and pharmaceutical , biotechnology , and agricultural biotechnology ( ag-bio ) companies in growth markets , such as single-cell genomics , applied genotyping , and sample preparation for targeted resequencing . our proprietary microfluidic systems consist of instruments and consumables , including integrated fluidic circuits ( ifcs ) , assays , and reagents . we actively market four microfluidic systems , including 18 different commercial ifcs , and three families of assay chemistries . our systems are designed to significantly simplify experimental workflow , increase throughput , and reduce costs , while providing excellent data quality . in addition , our proprietary technology enables genetic analysis that in many instances was previously impractical . as of december 31 , 2013 , we sold approximately 920 systems to customers in 35 countries worldwide . we have launched several product lines , including our biomark system for gene expression analysis , genotyping , and digital polymerase chain reaction , or digital pcr , in 2006 ; our ep1 system for single nucleotide polymorphism , or snp , genotyping , and digital pcr in 2008 ; our access array system for target enrichment in 2009 ; our biomark hd system for high-throughput gene expression analysis , single-cell targeted gene expression analysis , snp genotyping , and digital pcr in 2011 ; and our c 1 single-cell auto prep system for single cell sample preparation in june 2012. in addition , in may 2011 , we launched assay products , including our deltagene assays for gene expression ; our snptype assays for snp genotyping ; and our access array target-specific primers for targeted next-generation dna sequencing . our systems utilize one or more ifcs designed for particular applications and include specialized instrumentation and software , as well as assays and other reagents for certain applications . we distribute our microfluidic systems through our direct sales force and support organizations located in north america , europe , and asia-pacific , and through distributors or sales agents in several european , latin american , middle eastern , and asia-pacific countries . our manufacturing operations are primarily located in singapore . our facility in singapore manufactures our instruments , several of which are assembled at facilities of our contract manufacturers in singapore , with testing and calibration of the assembled products performed at our singapore facility . all of our ifcs for commercial sale and some ifcs for our research and development purposes are fabricated at our singapore facility . our south san francisco facility fabricates ifcs for our research and development purposes , and manufactures our assays and produces other reagents for commercial sale . our total revenue grew from $ 42.9 million in 2011 to $ 71.2 million in 2013. we have incurred significant net losses since our inception in 1999 and , as of december 31 , 2013 , our accumulated deficit was $ 257.3 million . critical accounting policies , significant judgments and estimates our consolidated financial statements and the related notes included elsewhere in this form 10-k are 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 , liabilities , revenue , costs , and expenses and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . changes in accounting estimates may occur from period to period . accordingly , actual results could differ significantly from the estimates made by our management . we evaluate our estimates and assumptions on an ongoing basis . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations , and cash flows will be affected . 45 we believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies . accordingly , these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations . story_separator_special_tag our common stock has a limited trading history because our common stock was not publicly traded until our initial public offering , or ipo , in february 2011. accordingly , the expected volatility of our common stock is derived from the historical volatilities of several unrelated public companies within the life science industry . when selecting our industry peer companies , we consider our stage of development , size , and financial leverage . these historical volatilities are weighted based on certain qualitative factors and combined to produce a single volatility factor . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of grant for zero coupon u.s. treasury notes with maturities approximately equal to each grant 's expected life . we estimate the expected lives of employee options using the “ simplified ” method as the midpoint of the expected time-to-vest and the contractual term . the calculated fair value of our stock options could change significantly if we determine that another method is more reasonable , or if another method for calculating these input assumptions is prescribed by authoritative guidance . higher volatility and longer expected lives result in an increase in stock-based compensation expense determined at the date of grant . stock-based compensation expense affects our cost of product revenue , research and development expense , and selling , general and administrative expense . we estimate our forfeiture rate based on an analysis of our actual forfeitures and we will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior , and other factors . quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense , as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed . if a revised forfeiture rate is higher than the previously estimated forfeiture rate , an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements . if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements . the effect of forfeiture adjustments was insignificant during 2013 , 2012 , and 2011 . we will continue to use judgment in evaluating the expected term , volatility , and forfeiture rate related to our stock-based compensation . also required to compute the fair value calculation of options is the fair value of the underlying common stock . we grant stock options at exercise prices not less than the fair value of our common stock at the date of grant . prior to our ipo , our board of directors obtained contemporaneous valuations from an unrelated third-party valuation firm to determine the estimated fair value of common stock based on an analysis of relevant metrics , such as the price of the most recent convertible preferred stock sales to outside investors , the rights , preferences , and privileges of the convertible preferred stock , our operating and financial performance , the hiring of key personnel , the introduction of new products , the lack of marketability of the common stock , and additional factors relating to our business . there is inherent uncertainty in these estimates and if we or the valuation firm had made different assumptions , the amount of our stock-based compensation expense , net loss , and net loss per share amounts could have been significantly different . following the completion of our ipo in february 2011 , the fair value of options granted is based on the closing price of our common stock on the date of grant as quoted on the nasdaq global market . historically , certain of our stock options were granted to officers with vesting acceleration features based upon the achievement of certain performance milestones . the timing of the attainment of these milestones affected the timing of expense recognition since we recognize compensation expense only for the portion of stock options that are expected to vest . we recorded stock-based compensation of $ 6.4 million , $ 4.1 million , and $ 2.8 million during 2013 , 2012 , and 2011 , respectively . as of december 31 , 2013 , we had $ 15.7 million of unrecognized stock-based compensation costs , which are expected to be recognized over an average period of 2.6 years . 47 income taxes we use the asset and liability method to account for income taxes . 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 basis . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . significant management judgment is required in determining our provision for income taxes , our deferred tax assets and liabilities , and any valuation allowance recorded against our deferred tax assets . our provision for income taxes generally consists of tax expense/benefit related to current period earnings/losses . as part of the process of preparing our consolidated financial statements , we continuously monitor the circumstances impacting the expected realization of our deferred tax assets for each jurisdiction . we consider all available evidence , including historical operating results in each jurisdiction , 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 . to the extent a deferred tax asset can not be recognized , a valuation allowance is established to reduce our deferred tax assets to the amount that is more likely than not to be realized .
| results of operations revenue we generate revenue from sales of our products , license and collaboration agreements , and government grants . our product revenue consists of sales of instruments and related services , and consumables , including ifcs , assays , and other reagents . we have entered into license and collaboration agreements and have received government grants to conduct research and development activities . 48 the following table presents our revenue by source for each period presented ( in thousands ) : replace_table_token_4_th the following table presents our product revenue by geography and as a percentage of total product revenue by geography based on the billing address of our customers for each period presented ( in thousands ) : replace_table_token_5_th our license and collaboration and grant revenue is primarily generated in the united states . our customers include academic research institutions , clinical laboratories , and pharmaceutical , biotechnology and ag-bio companies worldwide . total revenue from our five largest customers in each of the periods presented comprised 18 % , 17 % , and 16 % of revenue in 2013 , 2012 , and 2011 , respectively . comparison of the years ended december 31 , 2013 and december 31 , 2012 total revenue total revenue increased by $ 18.8 million , or 36 % , to $ 71.2 million for 2013 , compared to $ 52.3 million for 2012 primarily due to product revenue . product revenue product revenue increased by $ 18.7 million , or 36 % , to $ 70.2 million for 2013 , compared to $ 51.5 million for 2012 . instrument revenue increased by $ 11.9 million , or 41 % , primarily driven by increases in unit sales of our preparatory systems , which include our c 1 single-cell auto prep system , first sold as a new product in the third quarter of 2012 , and to a lesser extent , increases in unit sales of our biomark hd system .
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you should read the following discussion and analysis in conjunction with the financial statements and related notes appearing elsewhere herein . this md & a contains forward-looking statements that involve risks and uncertainties . our actual results may differ from those indicated in the forward-looking statements . see “ forward-looking statements ” for a discussion of the risks , uncertainties and assumptions associated with these statements . overview evertec is a leading full-service transaction processing business in latin america , providing a broad range of merchant acquiring , payment services and business process management services . according to the august 2017 nilson report , we are one of the largest merchant acquirers in latin america based on total number of transactions and we believe we are the largest merchant acquirer in the caribbean and central america . we serve 26 countries in the region from our base in puerto rico . we manage a system of electronic payment networks that process more than two billion transactions annually , and offer a comprehensive suite of services for core bank processing , cash processing and technology outsourcing . in addition , we own and operate the ath network , one of the leading personal identification number ( “ pin ” ) debit networks in latin america . we serve a diversified customer base of leading financial institutions , merchants , corporations and government agencies with “ mission-critical ” technology solutions that enable them to issue , process and accept transactions securely . we believe our business is well-positioned to continue to expand across the fast-growing latin american region . we are differentiated , in part , by our diversified business model , which enables us to provide our varied customer base with a broad range of transaction-processing services from a single source across numerous channels and geographic markets . we believe this single-source capability provides several competitive advantages that will enable us to continue to penetrate our existing customer base with complementary new services , win new customers , develop new sales channels and enter new markets . we believe these competitive advantages include : our ability to provide in one package a range of services that traditionally had to be sourced from different vendors ; our ability to serve customers with disparate operations in several geographies with integrated technology solutions that enable them to manage their business as one enterprise ; and our ability to capture and analyze data across the transaction processing value chain and use that data to provide value-added services that are differentiated from those offered by pure-play vendors that serve only one portion of the transaction processing value chain ( such as only merchant acquiring or payment services ) . our broad suite of services spans the transaction processing value chain and includes a range of front-end customer-facing solutions such as the electronic capture and authorization of transactions at the point-of-sale , as well as back-end support services such as the clearing and settlement of transactions and account reconciliation for card issuers . these include : ( i ) merchant acquiring services , which enable point of sales ( “ pos ” ) and e-commerce merchants to accept and process electronic methods of payment such as debit , credit , prepaid and electronic benefit transfer ( “ ebt ” ) cards ; ( ii ) payment services , which enable financial institutions and other issuers to manage , support and facilitate the processing for credit , debit , prepaid , automated teller machines ( “ atm ” ) and ebt card programs ; and ( iii ) business process management solutions , which provide “ mission-critical ” technology solutions such as core bank processing , as well as it outsourcing and cash management services to financial institutions , corporations and governments . we provide these services through a highly scalable , end-to-end technology platform that we manage and operate in-house and that generates significant operating efficiencies that enable us to maximize profitability . we sell and distribute our services primarily through a proprietary direct sales force with established customer relationships . we are also building a variety of indirect sales channels that enable us to leverage the distribution capabilities of partners in adjacent markets , including value-added resellers . we continue to pursue joint ventures and merchant acquiring alliances . we benefit from an attractive business model , the hallmarks of which are recurring revenue , scalability , significant operating margins and low capital expenditure requirements . our revenue is predominantly recurring in nature because of the mission-critical and embedded nature of the services we provide . in addition , we generally negotiate multi-year contracts with our customers . our business model enables us to continue to grow our business organically without significant incremental capital expenditures . 36 separation from and key relationship with popular prior to the merger on september 30 , 2010 , evertec group was 100 % owned by popular , the largest financial institution in the caribbean , and operated substantially as an independent entity within popular . after the consummation of the merger , popular retained an approximately 49 % indirect ownership interest in evertec group and is our largest customer . in connection with , and upon consummation of , the merger , evertec group entered into a 15-year master services agreement , and several related agreements with popular . under the terms of the master services agreement , popular agreed to continue to use evertec services on an ongoing exclusive basis , for the duration of the agreement , on commercial terms consistent with those of our historical relationship . additionally , popular granted us a right of first refusal on the development of certain new financial technology products and services for the duration of the master services agreement . as of december 31 , 2017 , popular retained a 16.1 % interest in evertec . story_separator_special_tag the destruction brought on by these hurricanes affected infrastructure and telecommunication services , necessary elements for electronic transacting . electronic transacting primarily affects our merchant acquiring segment and payments services segments , including our ath network in puerto rico . while our ath network remained operational continuously , the lack of power , water and telecommunications limited merchants ' ability to either open for business or transact electronically and , as a result , our revenue has decreased . since the hurricanes , merchants have gradually reopened their businesses as power distribution has been restored , however it is unclear how many merchants will fail to repoen . currently , our merchant mix reflects a greater percent of large merchants as compared to prior to the hurricanes . consumer spending patterns have been erratic in the aftermath of the hurricanes . we earn less revenue per transaction from these merchants and this mix of merchants has negatively impacted our net revenue yield and margins . businesses have gradually reopened and accepted payments and we have experienced an increase in transaction and sales volume , approaching prior year volumes , but there is uncertainty as to when or whether or not volumes will sustain pre-hurricane levels of growth . cash use has also risen significantly due to the lack of ability to accept electronic payments and merchant steering . additionally , it has been reported that a large number of residents have left puerto rico for the united states and that more residents may leave in the continuing aftermath of the hurricanes . in addition to the macroeconomic trends described above , management currently estimates that we will continue to experience a revenue attrition in latin america of approximately $ 5 million to $ 8 million for previously disclosed migrations anticipated in 2018. the clients decisions , which were made prior to 2015 , for these anticipated migrations were driven by a variety of historical factors , most importantly customer service experience . management believes that these customer decisions are unlikely to change , however timing is subject to change based on customer 's conversion schedules . critical accounting estimates our consolidated financial statements are prepared in accordance with gaap . in connection with the preparation of our financial statements , we are required to make estimates and assumptions about future events , and apply judgments that affect the reported amounts of certain assets and liabilities , and in some instances , the reported amounts of revenues and expenses during the period . we base our assumptions , estimates , and judgments on historical experience , current events and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . however , because future events are inherently uncertain and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . a summary of significant accounting policies is included in note 1 of the notes to audited consolidated financial statements appearing elsewhere in this annual report on form 10-k. we believe that the following accounting estimates are the most critical ; require the most difficult , subjective or complex judgments ; and thus result in estimates that are inherently uncertain . revenue recognition the company 's revenue recognition policy follows the guidance from accounting standards codification ( “ asc ” ) 605 revenue recognition ; asc 605-25 , revenue recognition—multiple element arrangements ; and ; asc 985 , software , which provide guidance on the recognition , presentation , and disclosure of revenue in consolidated financial statements . 38 the company recognizes revenue when the following four criteria are met : ( i ) persuasive evidence of an agreement exists , ( ii ) delivery and acceptance has occurred or services have been rendered , ( iii ) the selling price is fixed or determinable , and ( iv ) collection is reasonably assured . for multiple deliverable arrangements , evertec evaluates each arrangement to determine if the elements or deliverables within the arrangement represent separate units of accounting pursuant to asc 605-25. if the deliverables are determined to be separate units of accounting , revenues are recognized as units of accounting are delivered and the revenue recognition criteria are met . if the deliverables are not determined to be separate units of accounting , revenues for the delivered services are combined into one unit of accounting and recognized ( i ) over the life of the arrangement if all services are consistently delivered over such term , or if otherwise , ( ii ) at the time that all services and deliverables have been delivered . the selling price for each deliverable is based on vendor specific objective evidence ( “ vsoe ” ) if available , third party evidence ( “ tpe ” ) if vsoe is not available , or management best estimate of selling price ( “ besp ” ) if neither vsoe nor tpe is available . evertec establishes vsoe of selling price using the price charged when the same element is sold separately . evertec bifurcates or allocates the arrangement consideration to each of the deliverables based on the relative selling price of each unit of accounting . the company has two main categories of revenues according to the type of transactions evertec enters into with the company 's customers : ( a ) transaction-based fees and ( b ) fixed fees and time and material . transaction-based fees the company provides services that generate transaction-based fees . typically transaction-based fees depend on factors such as number of accounts or transactions processed . these factors typically consist of a fee per transaction or item processed , a percentage of dollar volume processed or a fee per account on file , or some combination thereof . revenue derived from the transaction-based fee contracts are recognized when the underlying transaction is processed , which constitutes delivery of service .
| results of operations replace_table_token_5_th revenues total revenues in 2017 increased by $ 17.6 million or 5 % when compared with the prior year . the increase in revenues was driven by increases in ath debit network transaction volumes and card processing volumes , revenue generated from the paygroup acquisition , increased revenue from our accuprint acquisition in the fourth quarter of 2016 and an increase in core banking revenue . revenues in 2017 were negatively impacted by the two hurricanes that made landfall in puerto rico and the caribbean in september of 2017. we estimate the hurricanes reduced revenues by approximately $ 13 to $ 14 million . revenues in 2016 increased by $ 16.0 million or 4 % when compared with 2015 . the increase in revenue in 2016 was driven by the addition of the firstbank of puerto rico ( “ firstbank ” ) merchant portfolio in the fourth quarter of 2015 , an increase in transactions processed over the ath debit network and revenue related to the processa acquisition and an increase in revenue from core banking activities related to an increase in volume and new services provided . these increases were partially offset by a decrease in revenues due to a delayed project amounting to approximately $ 4.5 million and lower revenues from the puerto rico government lottery tax contract terminated in the fourth quarter of 2015. cost of revenues cost of revenues in 2017 increased $ 24.8 million or 14 % when compared with the prior year . the increase in cost of revenue is primarily related to $ 12.8 million in charges taken in connection with an exit activity for a third party software solution that is 42 no longer commercially viable and a $ 5.0 million impairment loss related to a software asset under development . the remaining increase was primarily attributable to the paygroup acquisition .
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risk factors ” and the “ special note about forward-looking statements ” . references to “ notes ” are notes included in our consolidated financial statements appearing elsewhere in this annual report on form 10-k. overview we are a technology company that empowers buyers of advertising . through our self-service , cloud-based platform , ad buyers can create , manage , and optimize more expressive data-driven digital advertising campaigns across ad formats , including display , video , audio , native and social , on a multitude of devices , such as computers , mobile devices , and ctv . our platform 's integrations with major data , inventory , and publisher partners provides ad buyers reach and decisioning capabilities , and our enterprise apis enable our customers to develop on top of the platform . we commercially launched our platform in 2011 targeting display advertising . we have since extended our platform to address additional advertising formats , and in 2018 , approximately 72 % of gross spend on our platform was for mobile , video , audio , native and social . our clients are primarily the advertising agencies and other service providers for advertisers , with whom we enter into ongoing msas . we generate revenue by charging our clients a platform fee based on a percentage of a client 's total spend on advertising . we also generate revenue from providing data and other value added services and platform features . executive summary highlights for the years ended december 31 , 2018 and 2017 : our revenue was $ 477.3 million and $ 308.2 million , respectively , representing an increase of 55 % ; and our net income was $ 88.1 million and $ 50.8 million , respectively . trends , opportunities and challenges the growing digitization of media and fragmentation of audiences has increased the complexity of advertising , and thereby increased the need for automation in ad buying , which we provide on our platform . in order to grow , we will need to continue to develop our platform 's programmatic capabilities and advertising inventory . we believe that key opportunities include our ongoing global expansion , continuing development of our ctv , video , audio , and native ad inventory , and continuing development of data usage and advertising targeting capabilities . we believe that growth of the programmatic advertising market is important for our ability to grow our business . adoption of programmatic advertising by advertisers allows us to acquire new clients and grow revenue from existing clients . although our clients include some of the largest advertising agencies in the world , we believe there is significant room for us to expand further within these clients and gain a larger amount of their advertising spend through our platform . we also believe that the industry trends noted above will lead to advertisers adopting programmatic advertising through platforms such as ours . similarly , the adoption of programmatic advertising by inventory owners and content providers allows us to expand the volume and type of advertising inventory that we present to our clients . for example , we have expanded our ctv , native and audio advertising offerings through our recent integrations with supply-side partners . 38 we invest for long-term growth . we anticipate that our operating expenses will continue to increase significantly in the foreseeable future as we invest in platform operations and technology and development to enhance our product features , including programmatic buying of ctv ad inventory , and in sales and marketing to acquire new clients and r einforce our relationships with existing clients . in addition , we expect to continue making investments in our infrastructure , including our information technology , financial and administrative systems and controls , to support our growing operations . in addition , we believe the markets outside of the u.s. offer an opportunity for growth , and we intend to make additional investments in sales and marketing and product development to expand in these markets , including china , where we are making significant investments in our platform and growing our team . we believe that these investments will contribute to our long-term growth , although they may negatively impact profitability in the near term . our business model has allowed us to grow significantly , and we believe that our operating leverage enables us to support future growth profitably . factors affecting our performance growth in and retention of client spend our recent growth has been driven by expanding our share of spend by our existing clients and adding new clients . our clients include some of the largest advertising agencies in the world , and we believe there is significant room for us to expand further within these clients . as a result , future revenue growth depends upon our ability to retain our existing clients and to gain a larger amount of their advertising spend through our platform . in order to analyze the contribution to the growth of our business driven by the increase in gross spend from existing clients , we measure annual gross spend for th e set of clients , or cohort , that commenced spending on our platform in a specific year relative to subsequent periods . the gross spend from each of our cohorts has increased over subsequent periods . however , over time we will likely lose clients from each cohort , clients may spend less on our platform and the growth rate of gross spend may change . any such change could have a significant negative impact on gross spend and operating results . ability to expand our omnichannel reach , including ctv and digital radio we enable the purchase of advertising inventory in a wide variety of formats . non-display advertising such as mobile , video , audio , social and native are significant and increasing components of our gross spend . story_separator_special_tag as a result , we expect sales and marketing expenses to increase in absolute dollars in future periods . sales and marketing expense as a percentage of revenue may fluctuate from period to period based on revenue levels and the timing of our investments in our sales and marketing functions as these investments may vary in scope and scale over periods and are impacted by the revenue seasonality in our industry and business . 40 technology and development . our technology and development expense consist s primarily of personnel costs , including salarie s , bonuses , stock-based compensation and employee benefits costs , third-party consultant costs associated with the ongoing development and maintenance of our platform and integrations with our advertising and data inventory suppliers , amortization of capit alized third-party software used in the development of our platform and allocated overhead . we allocate overhead such as information technology infrastructure , rent and occupancy charges based on headcount . technology and development costs are expensed as incurred , except to the extent that such costs are associated with software development that qualifies for capitalization , which are then recorded as capitalized software development costs included in other assets , non-current on our consolidated balance s heet . we amortize capitalized software development costs relating to our platform to platform operations expense . we believe that continued investment in our platform is critical to attaining our strategic objectives and long-term growth . we therefore expect technology and development expense to increase as we continue to invest in the development of our platform to support additional features and functions , increase the number of advertising and data inventory suppliers and ramp up the volume of advertising spend on our platform . our development efforts also include additional platform functionality to support our international expansion . we also intend to invest in technology to further automate our business processes . general and administrative . our general and administrative expense consists primarily of personnel costs , including salaries , bonuses , stock-based compensation , and employee benefits costs associated with our executive , finance , legal , human resources , compliance , and other administrative personnel , as well as accounting and legal professional services fees , bad debt expense and allocated overhead . we allocate overhead such as information technology infrastructure , rent and occupancy charges based on headcount . we expect to continue to invest in corporate infrastructure to support growth . we expect general and administrative expenses to increase in absolute dollars in future periods . other expense , net interest expense . interest expense is mainly related to our debt , which carries a variable interest rate . interest income . interest income is mainly related to our cash and cash equivalents , which carry variable interest rates . change in fair value of preferred stock warrant liabilities . prior to our ipo in september 2016 , we had two outstanding warrants to purchase shares of our convertible preferred stock . these convertible preferred stock warrants were subject to remeasurement at each balance sheet date , and any change in fair value was recognized as a component of other expense , net . in connection with the closing of our ipo , the warrants converted into warrants to purchase shares of common stock and were net exercised by the holders . as a result , we no longer remeasure the value of warrants after our ipo . foreign currency exchange loss , net . foreign currency exchange loss , net consists primarily of gains and losses on foreign currency transactions . we have foreign currency exposure related to our accounts receivable and , to a much lesser extent , accounts payable that are denominated in currencies other than the u.s. dollar , principally the euro , british pound , australian dollar , canadian dollar , indonesian rupiah , japanese yen and thai baht . provision for income taxes the provision for income taxes consists primarily of u.s. federal , state , and foreign income taxes . our income tax provision may be significantly affected by changes to our estimates for tax in jurisdictions in which we operate and other estimates utilized in determining the global effective tax rate . actual results may also differ from our estimates based on changes in economic conditions . such changes could have a substantial impact on the income tax provision . we evaluate the judgments surrounding our estimates and make adjustments , as appropriate , each reporting period . our effective tax rate differs from the u.s. federal statutory income tax rate due to stock-based compensation , research and development tax credits , federal and foreign tax rate differences , state taxes , fair value adjustments associated with our warrant liabilities , and adjustments to our valuation allowance . realization of our deferred tax assets is dependent primarily on the generation of future taxable income . in considering the need for a valuation allowance , we consider our historical , as well as future , projected taxable income along with other objectively verifiable evidence . objectively verifiable evidence includes our realization of tax attributes , assessment of tax credits and utilization of net operating loss carryforwards during the year . 41 story_separator_special_tag style= '' margin-top:6pt ; margin-bottom:0pt ; text-indent:4.54 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > the decrease in other expense , net was primarily related to a decrease of $ 2.1 million in foreign currency exchange loss , net , a $ 1.8 million increase in interest income , and a $ 0.2 million decrease in interest expense . the increase in interest income was primarily attributable to an increase in cash and cash equivalents during 2018 , including an increase in higher interest-bearing money market funds .
| results of operations the following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for the periods presented : replace_table_token_5_th replace_table_token_6_th * percentages may not sum due to rounding . comparison of the years ended december 31 , 2018 , 2017 and 2016 revenue replace_table_token_7_th 2018 compared to 2017 the increase in revenue was primarily due to a 51 % increase in gross spend on our platform . gross spend on our platform by existing clients added prior to 2018 increased by 44 % in the aggregate in 2018 , and these existing clients represented approximately 94 % of the total gross spend in 2018. in 2018 , 61 % of existing clients added prior to 2018 increased their gross spend on our platform and their average increase in gross spend was approximately $ 2.5 million . 42 2017 compared to 2016 the increase in revenue was primarily due to a 51 % increase in gross spend on our platform . gross spend on our platform by existing clients added prior to 2017 increased by 40 % in the aggregate in 2017 , and these existing clients represented approximately 91 % of the total gross spend in 2017. in 2017 , 59 % of existing clients added prior to 2017 increased their gross spend on our platform and their average increase in gross spend was approximately $ 2.0 million . revenue as a percentage of gross spend in the aggregate may fluctuate from period to period based on our client mix and the extent to which clients utilize our platform 's features . platform operations replace_table_token_8_th 2018 compared to 2017 the increase in platform operations expense was primarily due to increases of $ 34.8 million in hosting costs and $ 8.6 million in personnel costs , including $ 1.8 million of stock-based compensation .
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our actual results could differ materially from those discussed below . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly in the “ risk factors ” in part i. item 1a of this form 10-k. overview we are a leading global operator of premium online dating sites and mobile applications . our focus is on catering to the 40+ age demographic and religious minded singles looking for serious relationships in north america and other international markets . since our inception , we have had nearly 87 million users register with our dating platforms ( which includes inactive accounts ) . we currently operate one or more of our brands worldwide . our strategy is to become the social dating for meaningful relationships leader . we will continue to expand our presence in north america through significant marketing investment in this region as we look to drive both organic growth of our existing brand portfolio and expansion through the launch of new or acquired brands . we intend to incorporate more social features in our products with content , community and social discovery functionality to allow our users to meet in more informal ways and to provide new ways to date online . our portfolio of strong brands along with our improved financial strength positions us to deliver a superior user experience to our customers and drive long-term value to shareholders . our ability to compete effectively will depend upon our ability to address the needs of our members and paying subscribers , on the timely introduction and performance of innovative features and services associated with our brands , and our ability to respond to services and features introduced by competitors . we must also achieve these objectives within the parameters of our consolidated and operating segment profitability targets . we are focused on enhancing and augmenting our portfolio of services while also continuing to improve the efficiency and effectiveness of our operations . we believe we have sufficient available cash resources on hand to accomplish the enhancements currently contemplated . transition to u.s. generally accepted accounting principles ( `` u.s. gaap '' ) and change in reporting currency effective january 1 , 2021 , we no longer qualify as a foreign private issuer under the exchange act and began reporting as a domestic registrant on january 1 , 2021. furthermore , we are now required under sec rules to prepare our financial statements in accordance with u.s. gaap , rather than international financial reporting standards ( `` ifrs '' ) . therefore , our consolidated financial statements for fiscal years 2020 and 2019 included in this annual report on form 10-k were prepared in accordance with u.s. gaap . in addition , the reporting currency used in the consolidated financial statements has changed from the euro to u.s. dollars . the change in reporting currency has been applied retrospectively in the consolidated financial statements . covid-19 update during 2020 , the novel coronavirus ( `` covid-19 '' ) outbreak spread worldwide and was declared a global pandemic in march 2020. despite challenging economic conditions on consumers , we maintained stable churn levels during the period and experienced positive user engagement . additionally , we were able to capitalize on reduced acquisition costs , most notably in marketing costs . in this pandemic , our product fulfills people 's need to connect with others and forge new and meaningful relationships , at a safe social distance . 35 operations overview we offer services both via websites and mobile applications and utilize a `` subscription '' business model , where certain basic functionalities are provided free of charge , while providing premium features ( such as interacting with other community members via messages ) only to paying subscribers . we generate revenues primarily through paid membership subscriptions . we manage our operations through one reportable segment . we entered into the following transactions that have impacted our results of operations and comparability among the years , including our 2021 expectations as compared to 2020 as discussed below : on july 1 , 2019 , we acquired all of the outstanding capital stock of zoosk , inc. ( `` zoosk '' ) in a stock and cash transaction . the combination created the second largest online dating platform in north america based on revenues and second largest publicly listed dating company in the world . zoosk , now a wholly-owned subsidiary of spark networks , is included in all financial and other metrics from july 1 , 2019 ( the date of acquisition ) , unless otherwise noted . as the result of the acquisition of zoosk and the change in management team , we have realigned the segment presentation to reflect the organizational changes . during the third quarter of fiscal 2020 , our chief operating decision maker ( `` codm '' ) changed how we assess performance and allocate resources . based on this change , we determined we have two operating segments , zoosk and spark , which are aggregated together as one reportable segment . we revised prior comparative periods to conform to the current period segment presentation . see note 1—basis of presentation and summary of significant accounting policies in the notes to our consolidated financial statements included in part ii , item 8 of this form 10-k for additional information regarding our reportable segments . in addition to operating in the united states ( `` u.s. '' ) , we also operate in various markets outside the u.s. , primarily in various jurisdictions within the european union ( “ eu ” ) , and as a result , are exposed to foreign exchange risk for the euro , u.s. dollar , great british pound , australian dollar , canadian dollar , and israeli new shekel ( “ ils ” ) . financial statements of subsidiaries outside the u.s. are generally measured using the local currency as the functional currency . story_separator_special_tag we believe this measure provides management and investors with a consistent view , period to period , of the core earnings generated from the ongoing operations and excludes the impact of items that we do not consider representative of our ongoing performance . this includes : depreciation and amortization , share-based compensation , asset impairments , gains or losses on foreign currency transactions and net interest expense , acquisition related costs and other costs . adjusted ebitda has inherent limitations in evaluating the performance of the company , including , but not limited to the following : adjusted ebitda does not reflect the cash capital expenditures during the measurement period ; adjusted ebitda does not reflect any changes in working capital requirements during the measurement period ; adjusted ebitda does not reflect the cash tax payments during the measurement period ; adjusted ebitda may be calculated differently by other companies in our industry , thus limiting its value as a comparative measure ; because of these limitations , adjusted ebitda should be considered in addition to other financial performance measures , including net income and our other u.s. gaap results . the following table reconciles net loss to adjusted ebitda for the periods presented : replace_table_token_2_th ( 1 ) acquisition related costs primarily consist of transaction costs , including legal , consulting , advisory fees , and severance and retention costs . ( 2 ) includes primarily consulting and advisory fees related to special projects , as well as non-compete compensation , post-merger integration activities and executive search costs . story_separator_special_tag style= '' padding-left:36pt ; text-align : justify '' > other income ( expense ) other expense , net , consist primarily of interest income and expenses , foreign exchange gains and losses , and other related finance costs . other expense , net , remained relatively flat at $ 8.4 million for the year ended december 31 , 2020 , compared to $ 9.5 million for the year ended december 31 , 2019. the increase in interest expense on borrowings under the senior secured facilities agreement was offset by net foreign exchange gain . income tax benefit ( expense ) for the year ended december 31 , 2020 , we recorded a provision for income taxes of $ 5.0 million , which reflects an effective tax rate of ( 12.0 ) % . the effective tax rate for the year ended december 31 , 2020 differed from the statutory rate in germany of 30.2 % ( consisting of the federal , trade and solidarity surcharge taxes ) primarily due to a valuation allowance on the losses of the german parent company in part due to our inability to offset its losses against the profits of our german subsidiary , foreign u.s. state and local income taxes on u.s. profits , non-deductible goodwill impairment , foreign rate differential and non-deductibility of stock-based compensation . for the year ended december 31 , 2019 we recorded an income tax benefit of $ 3.6 million , which reflects an effective tax rate of 9.4 % . the effective tax rate for the year ended december 31 , 2019 differed from the statutory rate of 30.2 % again primarily due to a valuation allowance on the losses of the german parent company in part due to our inability to offset its losses against the profits of our german subsidiary , release of the foreign u.s. federal and state valuation allowance , non-deductible goodwill impairment and non-deductibility of stock-based compensation . 40 our effective tax rate in the future will depend upon the proportion of our income before provision for income taxes earned in the germany and in jurisdictions with a tax rate lower than the german statutory rate , our continuing inability to offset german parent company losses against german subsidiary profits , settlement of tax contingency items , and the impact of new legislation . liquidity and capital resources our ongoing liquidity requirements arise primarily from working capital needs , research and development requirements and the debt service . in addition , we may use liquidity to fund acquisitions or make other investments . sources of liquidity are cash balances and cash flows from operations and borrowings under the senior secured facilities agreement ( as defined below ) . from time to time , we may obtain additional liquidity through the issuance of equity or debt . as of december 31 , 2020 , we had cash and cash equivalents of $ 19.3 million . we have determined that our offshore earnings will be indefinitely reinvested outside of germany . as a result , we have not recorded a deferred tax liability related to undistributed earnings of foreign subsidiaries as of december 31 , 2020 and december 31 , 2019. the company will continue to evaluate its reinvestment policy on a quarterly basis and will adjust its deferred tax liability accordingly to the extent there is a change and adjustment is required . as of december 31 , 2020 , the amount of undistributed earnings was $ 48.0 million . upon distribution of these earnings , we would be subject primarily to german income taxes and foreign withholding taxes . assuming the indefinitely reinvested earnings were repatriated under the laws and rates applicable at december 31 , 2020 , the incremental taxes are estimated to be $ 3.0 million . we believe that our current cash and cash flow from operations will be sufficient to meet our anticipated cash needs for financial liabilities , capital expenditures and contractual obligations , for at least the next 12 months . our future capital requirements and the adequacy of available funds will depend on many factors , including those described in our `` risk factors '' in this report . we do not anticipate requiring additional capital ; however , if required or desirable , we may utilize our revolving credit facility ( as defined below ) or issue additional equity in the private or public markets .
| results of operations the following table shows our results of operations for the periods presented . the period-over-period comparison of our historical results are not necessarily indicative of the results that may be expected in the future . 38 replace_table_token_3_th comparison of years ended december 31 , 2020 and december 31 , 2019 revenue revenue during the year ended december 31 , 2020 increased by 36.4 % to $ 233.0 million from $ 170.9 million during the year ended december 31 , 2019. the higher revenue was primarily attributable to the addition of zoosk following the spark networks / zoosk merger in july 2019. for the half year and full year ended december 31 , 2020 , zoosk contributed revenue of $ 63.2 million and $ 126.2 million , respectively , compared to $ 61.2 million during the half year ended december 31 , 2019. the increase of 3.3 % , or $ 2.0 million , in zoosk revenue for the second half of 2020 compared to the prior period was the result of a fair value purchase price adjustment of $ 12.9 million related to the deferred revenue acquired from zoosk in the second half of 2019. as such , on a comparable basis , zoosk revenue in the second half of 2020 decreased by 13.8 % or $ 10.2 million . the decrease was primarily due to the lower direct marketing investments on zoosk . the number of average paying subscribers for zoosk in the same period declined by the 11.9 % . non-zoosk revenue during the year ended december 31 , 2020 decreased by 2.6 % , or $ 2.9 million , to $ 106.8 million from $ 109.7 million during 2019 to due to the 6.6 % decrease in the number of average paying subscribers , offset by the 4.3 % increase in monthly arpu .
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some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . as used in this report , unless the context suggests otherwise , “ we , ” “ us , ” “ our , ” “ the company ” or “ aeglea ” refer to aeglea biotherapeutics , inc. overview we are a clinical-stage biotechnology company redefining the potential of human enzyme therapeutics to benefit people with rare metabolic diseases with limited treatment options . we believe our expertise in enzyme science , bioengineering and rare disease drug development coupled with an approach focused on diseases with unmet medical needs enables us to develop medicines with the potential to transform the lives of patients and families with rare metabolic diseases . we employ a distinctive platform to fuel our innovative pipeline of human enzymes , which we believe reduces key risks throughout the development process and provides a greater likelihood of clinical success and commercial adoption . our mission is to provide transformative therapies to patient communities who have inadequate or no therapeutic options available to address these debilitating diseases . driven by this purpose and urgent patient need , we have taken a focused approach to the selection and development of novel assets into clinical evaluation that is guided by defined strategic considerations : - clear , urgent unmet medical need - rigorous preclinical data and strong scientific rationale - mechanistic opportunity to create or enhance enzymatic activity through novel engineering - meaningful and sustainable commercial opportunities - potential to be first in class or best in class , with little competition our lead product candidate , pegzilarginase , is a recombinant human arginase 1 that enzymatically degrades the amino acid arginine to lower arginine levels in patients with arginase 1 deficiency . we engineered pegzilarginase with modifications that enhance the stability and arginine-degrading activity of the enzyme in human plasma . for arginase 1 deficiency , which is a rare genetic progressive disease , that presents in early childhood and results in severe complications and early mortality , we believe pegzilarginase may reduce the harmful metabolic effects caused by the accumulation of high levels of arginine and other arginine-derived metabolites . we are currently evaluating pegzilarginase in a global pivotal phase 3 peace ( pegzilarginase effect on arginase 1 deficiency clinical endpoints ) trial and in a phase 2 open-label extension study for patients with arginase 1 deficiency . our product candidate , agle-177 , is a novel pegylated , or polyethylene glycol modified , human enzyme engineered to degrade free homocysteine and homocystine in patients with homocystinuria , a serious metabolic disorder characterized by elevated plasma homocysteine which leads to a wide range of life-altering complications and reduced life expectancy . we engineered agle-177 by directed mutagenesis of amino acid residues within the active site of human cystathionine γ-lyase , resulting in a molecule that has high substrate specificity for homocysteine and homocystine but not for the native substrate , cystathionine . for homocystinuria due to cystathionine β-synthase , or cbs , enzyme deficiency , which is the most common form of an inherited disorder of methionine metabolism that results in elevated homocysteine and homocystine , we believe agle-177 may reduce the adverse impact of cbs enzyme deficiency in the transsulfuration pathway by providing an alternate pathway for enzymatic degradation of high plasma total homocysteine levels . we have initiated a phase 1/2 clinical trial for the treatment of patients with homocystinuria . cystinuria is a rare genetic disease characterized by frequent and recurrent kidney stone formation requiring multiple procedural interventions , and by an increased risk of chronic kidney disease . cystinuria occurs due to genetic mutations in amino acid transporters that lead to increased amounts of cystine in the urine . this results in high cystine concentrations in the urine and formation of kidney stones . as such , we engineered our cystinuria program candidate to reduce plasma cystine and cysteine levels with accompanying reductions in urine cystine concentrations as an approach 75 to inhibit both cystine crystal and kidney stone formation . due to the impact of covid-19 on laboratory work schedules , we have not provided a timeline for advancement of a therapeutic candidate into the clinic . since inception , we have devoted substantially all of our efforts and resources to identifying and developing product candidates , conducting nonclinical studies , initiating and conducting clinical trials , recruiting personnel and raising capital . to date , we have financed our operations primarily through private placements of our preferred stock , the initial public offering of our common stock , follow-on public offerings of our common stock , and collection of a research grant . we have incurred net losses in each year since inception . our net losses were $ 80.9 million , $ 78.3 million , and $ 44.3 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively , and have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations . as of december 31 , 2020 , we had an accumulated deficit of $ 276.0 million . we expect to continue to incur operating losses over the next several years . our net losses may fluctuate significantly from quarter to quarter and from year to year . story_separator_special_tag a valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized . the deferred tax assets and liabilities are classified as noncurrent along with the related valuation allowance . due to our lack of earnings history , the net deferred tax assets have been fully offset by a valuation allowance . we recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on the technical merits , as the largest amount of benefits that is more likely than not to be realized upon the ultimate settlement . our policy is to recognize interest and penalties related to the unrecognized tax benefits as a component of income tax expense . 77 on march 27 , 2020 , the coronavirus aid , relief and economic security , or cares , act was enacted and signed into law in response to covid-19 . the cares act includes changes to the tax provisions that benefit business entities and makes certain technical corrections to the 2017 tax cuts and jobs act . the tax relief measures for businesses include a five-year net operating loss carryback , suspension of annual deduction limitation of 80 % of taxable income from net operating losses generated in a tax year beginning after december 31 , 2017 , changes in the deductibility of interest , acceleration of alternative minimum tax credit refunds , payroll tax relief , technical corrections on net operating loss carryforwards for fiscal year taxpayers and allowing accelerated deductions for qualified improvement property . the cares act also provides other non-tax benefits to assist those impacted by the pandemic . we have evaluated the impact and determined the cares act did not have a material impact on our consolidated financial condition or results of operations as of and for the year ended december 31 , 2020 . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . these estimates form the basis for judgments we make about the carrying values of our assets and liabilities , which are not readily apparent from other sources . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ materially from these estimates under different assumptions or conditions . our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements . we believe that the assumptions and estimates associated with our most critical accounting policies are those relating to accrued research and development costs . we define our critical accounting policies as those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are more fully described in note 2 to our audited consolidated financial statements appearing elsewhere in this annual report . accrued research and development costs we record the costs associated with research nonclinical studies , clinical trials , and manufacturing development as incurred . these costs are a significant component of our research and development expenses , with a substantial portion of our on-going research and development activities conducted by third-party service providers , including contract research organizations , or cros , and contract manufacturing organizations , or cmos . we accrue for expenses resulting from obligations under agreements with cros , cmos , and other outside service providers for which payment flows do not match the periods over which materials or services are provided to us . we record accruals based on estimates of services received and efforts expended pursuant to agreements established with cros , cmos , and other outside service providers . these estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services . we make significant judgments and estimates in determining the accrual balance in each reporting period . in the event advance payments are made to a cro , cmo , or outside service provider , the payments will be recorded as a prepaid asset which will be amortized as the contracted services are performed . as actual costs become known , we adjust our accruals . inputs , such as the services performed , the number of patients enrolled , or the study duration , may vary from our estimates , resulting in adjustments to research and development expense in future periods . changes in these estimates that result in material changes to our accruals could materially affect our results of operations . 78 story_separator_special_tag style= '' font-family : arial ; color : # 000000 ; '' > funding the advancement of additional product candidates ; and funding working capital , including general operating expenses . due to our significant research and development expenditures , we have generated substantial losses in each period since inception . we have an accumulated deficit of $ 276.0 million as of december 31 , 2020. we anticipate that we will continue to generate losses into the foreseeable future as we develop our product candidates , seek regulatory approval of those candidates and begin to commercialize any approved products .
| results of operations comparison of the years ended december 31 , 2020 and 2019 a discussion and analysis of our financial condition and results of operations for the year ended december 31 , 2018 is included in item 7 of part ii , “ 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 24 , 2020. the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 , together with the changes in those items in dollars and as a percentage : replace_table_token_1_th research and development expenses . research and development expenses decreased by $ 5.0 million , or 8 % , to $ 59.6 million for the year ended december 31 , 2020 from $ 64.6 million for the year ended december 31 , 2019. the change in research and development expenses was due to : lower clinical and nonclinical development expenses , which decreased by $ 6.9 million as a result of completing our phase 1/2 clinical trial for pegzilarginase in patients with arginase 1 deficiency and cancer related trials , along with completing supporting toxicology studies for the homocystinuria program ; and lower manufacturing expenses , which decreased by $ 0.6 million as a result of completing certain manufacturing and pre-commercial activities for pegzilarginase , which was partially offset by a ramp-up in manufacturing activities for our homocystinuria program ; offset by higher personnel-related expenses , which increased by $ 2.5 million as a result of additional headcount to expand our medical and biometrics support . general and administrative expenses .
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it is important to note that our fiscal year 2017 and fiscal year 2015 included 52 weeks , whereas fiscal year 2016 included 53 weeks . the additional week in fiscal year 2016 was included in our fourth quarter . this management 's discussion and analysis reflects results for only our continuing operations , unless otherwise noted . during fiscal 2014 , we marketed for sale our youth furniture business , lea industries , a division of la-z-boy casegoods , inc. ( formerly known as la-z-boy greensboro , inc. ) . we were unable to find a buyer for the lea industries business , and consequently we ceased its operations and liquidated all of its assets , consisting mostly of inventory , during fiscal 2015. in the accompanying financial statements , we reported the operating results of lea industries as discontinued operations for all periods presented . for the fiscal year ended april 25 , 2015 , we recorded a pre-tax loss of $ 6.0 million ( $ 3.8 million after tax ) in discontinued operations related to lea industries . we previously reported the results of lea industries as a component of our casegoods segment . in fiscal 2015 , we also recorded $ 4.2 million of pre-tax income ( $ 2.7 million after tax ) in discontinued operations related to the continued dumping and subsidy offset act of 2000 ( `` cdsoa '' ) . before the cdsoa was revised in 2007 , it provided that duties collected on wooden bedroom furniture imported from china were to be distributed to domestic producers that supported the antidumping petition that resulted in the duties . of the $ 4.2 million pre-tax income we received , $ 3.8 million related to our previously owned subsidiary , american furniture company , incorporated . we sold this subsidiary in fiscal 2007 and reported it as discontinued operations at that time . when we sold the assets of american furniture company , incorporated our contract provided that we would receive a portion of any such duties to which that entity was entitled . the remainder of the cdsoa pre-tax income reported in discontinued operations related to lea industries . introduction our business we manufacture , market , import , export , distribute , and retail upholstery furniture products . in addition , we import , distribute , and retail accessories and casegoods ( wood ) furniture products . we are the leading global producer of reclining chairs and the second-largest manufacturer/distributor of residential furniture in the united states . the la-z-boy furniture galleries® stores retail network is the third-largest retailer of single-branded furniture in the united states . we have seven major north american manufacturing locations and six regional distribution centers in the united states to support our speed-to-market and customization strategy . we sell our products , primarily in the united states and canada , to furniture retailers and directly to consumers through stores that we own and operate . the centerpiece of our retail distribution strategy is our network of 347 la-z-boy furniture galleries® stores and 557 comfort studio® locations , each dedicated to marketing our la-z-boy branded products . we consider this dedicated space to be `` branded outlets '' or `` proprietary . '' we own 143 of the la-z-boy furniture galleries® stores . the remainder of the la-z-boy furniture galleries® stores , as well as all 557 comfort studio® locations , are independently owned and operated . la-z-boy furniture galleries® stores help consumers furnish their homes by combining the style , comfort , and quality of la-z-boy furniture with our available design services . la-z-boy comfort studio® locations are defined spaces within larger independent retailers that are dedicated to displaying and selling la-z-boy branded products . our other brands , 25 which include england , kincaid , american drew , and hammary , enjoy distribution through many of the same outlets , with approximately half of hammary 's sales originating through the la-z-boy furniture galleries® store network . kincaid and england have their own dedicated proprietary in-store programs with 527 outlets and over 1.7 million square feet of proprietary floor space . in total , our proprietary floor space includes approximately 9.7 million square feet . during fiscal 2017 , we acquired the la-z-boy wholesale business in the united kingdom and ireland . we sell products in the united kingdom , ireland and about 60 other countries outside of north america . our goal is to deliver value to our shareholders with improved sales and earnings over the long term through executing our strategic initiatives . the foundation of our strategic initiatives is driving profitable sales growth in all areas of our business , but most importantly in our flagship la-z-boy brand . we are striving for this growth in four ways : we are expanding our branded distribution channels by executing our 4-4-5 store growth initiative , through which we plan to expand the la-z-boy furniture galleries® stores network to 400 stores averaging $ 4 million in annual sales per store , over the five-year period that began with fiscal 2014. through this initiative , we intend not only to increase the number of stores but also to improve their quality , including upgrading old format stores to our new concept design through remodels and relocations . at the end of fiscal 2017 , less than seven percent of the la-z-boy furniture galleries® stores in the network were in the old format . with improved store performance we believe the network may deliver our targeted economic value over time with fewer stores . we now expect the build-out of our store network to extend beyond five years . in addition , we plan to increase our la-z-boy comfort studio® locations , our store-within-a-store format , as another avenue to expand our branded distribution channels , with a target of 600 la-z-boy comfort studio® locations . story_separator_special_tag upholstery segment replace_table_token_12_th sales our upholstery segment 's sales decreased $ 24.4 million in fiscal 2017 compared with fiscal 2016 , following an increase of $ 64.0 million in fiscal 2016 compared with fiscal 2015. the additional week in fiscal 2016 resulted in approximately $ 23 million of additional sales based on the average weekly sales for the year . 29 the sales decline in fiscal 2017 when compared with the prior year was mostly due to fiscal 2017 including only 52 weeks while fiscal 2016 included 53 weeks . lower unit volume drove a 2.4 % decrease in sales in fiscal 2017 when compared with fiscal 2016. we believe the decreased unit volume during fiscal 2017 reflected weaker demand throughout the home furnishings sector . in addition , higher promotional activity in fiscal 2017 resulted in a 0.5 % decrease in sales compared with fiscal 2016. the higher promotional activity was due to our strategic decision to discount product to drive sales against the weaker demand , and in connection with our phasing out certain frames and fabrics . these items were partially offset by favorable changes in our product mix which resulted in a 0.7 % increase in sales in fiscal 2017 compared with the prior year . our product mix shifted to more motion units and more units with power in fiscal 2017 , compared with the prior year . motion units have a higher average selling price than stationary units , and units with power have a higher average selling price than units without power . lastly , fiscal 2017 included the benefit of four months of sales from our recently-acquired la-z-boy wholesale business in the united kingdom and ireland , which contributed $ 8.9 million of sales in fiscal 2017. the sales increase in fiscal 2016 when compared with fiscal 2015 was due to several factors . higher unit volume drove a 4.3 % increase in sales in fiscal 2016 when compared with fiscal 2015. we believe the increased unit volume during fiscal 2016 was a result of our live life comfortably ® marketing campaign , the strength of our stationary product introductions , and our improved product value and styling . favorable changes in our product mix in fiscal 2016 resulted in a 1.1 % increase in sales compared with the prior year . our product mix in fiscal 2016 shifted to more motion units and more units with power , compared with the prior year . operating margin our upholstery segment 's operating margin increased 1.3 percentage points in fiscal 2017 compared with the prior year , following an increase of 0.5 percentage points in fiscal 2016 compared with the prior year . the segment 's gross margin increased 0.7 percentage points during fiscal 2017 compared with fiscal 2016 , following an increase of 1.9 percentage points during fiscal 2016 compared with fiscal 2015. changes in our product mix resulted in an improvement of 0.7 percentage points in fiscal 2017 compared with fiscal 2016. the improvement was primarily due to a shift to more motion units with power , as well as a shift to more recliners in fiscal 2017 compared with the prior year . improved efficiencies in our supply chain , including procurement , manufacturing operations and logistics , resulted in an improvement of 0.5 percentage points and 1.8 percentage points in the segment 's gross margin during fiscal 2017 and fiscal 2016 , respectively , compared with each of the prior years . higher promotional activity related to our strategic decision to discount product to drive sales against the weaker demand in the home furnishings sector , and in connection with our phasing out certain frames and fabric , resulted in a reduction of 0.3 percentage points in the segment 's gross margin during fiscal 2017 compared with the prior year . 30 favorable legal settlements provided a benefit of 0.2 , 0.3 , and 0.5 percentage points in the segment 's gross margin during fiscal 2017 , fiscal 2016 , and fiscal 2015 , respectively . the segment 's sg & a expense as a percentage of sales decreased 0.6 percentage points during fiscal 2017 compared with fiscal 2016 , following an increase of 1.4 percentage points during fiscal 2016 compared with fiscal 2015. professional fees and legal costs were 0.9 percentage points lower as a percent of sales during fiscal 2017 compared with fiscal 2016 , but were 1.0 percentage point higher as a percentage of sales during fiscal 2016 compared with fiscal 2015. we incurred higher legal costs in fiscal 2016 related to a legal dispute over a contract that the other party contends requires us to pay royalties on certain power units . the legal matter required fewer resources in fiscal 2017 as we awaited a court ruling on our affirmative defenses . in third quarter of fiscal 2017 , the court ruled against us on our affirmative defenses and we subsequently appealed the judgment entered against us . advertising expense was 0.2 percentage points higher as a percentage of sales during fiscal 2017 compared with fiscal 2016 , as we strategically increased spending on our live life comfortably® marketing campaign . warranty expense was 0.3 percentage points higher as a percentage of sales during fiscal 2016 compared with fiscal 2015. our warranty expense was higher primarily due to higher replacement part costs and labor costs from our more complex product lines . additionally , our warranty expense was higher during fiscal 2016 due to favorable accrual adjustments during fiscal 2015 which reflected a change in the prior estimates of our product warranty liability during that time period . casegoods segment replace_table_token_13_th sales our casegoods segment 's sales decreased $ 2.3 million in fiscal 2017 compared with fiscal 2016 , following a decrease of $ 7.2 million in fiscal 2016 compared with fiscal 2015. the additional week in fiscal 2016 resulted in approximately $ 2 million of additional sales based on the average weekly sales for the year .
| results of operations fiscal year 2017 , fiscal year 2016 , and fiscal year 2015 la-z-boy incorporated replace_table_token_11_th 27 sales our consolidated sales decreased $ 5.3 million in fiscal 2017 compared with fiscal 2016 , following an increase of $ 100.0 million in fiscal 2016 compared with fiscal 2015. as a reminder , fiscal 2016 contained 53 weeks , while fiscal 2017 and fiscal 2015 contained 52 weeks . the additional week in fiscal 2016 resulted in approximately $ 29 million of additional sales based on the average weekly sales for the year . sales were essentially flat in fiscal 2017 compared with fiscal 2016 , due to lower sales in our upholstery and casegoods segments which were offset by higher sales in our retail segment . the sales decline in our upholstery and casegoods segments were mostly due to fiscal 2017 including only 52 weeks while fiscal 2016 included 53 weeks . the sales increase in our retail segment was driven by the sales from our new and acquired stores , partially offset by lower sales from stores that had been open a minimum of 12 months , and the impact of fiscal 2017 including one less week than fiscal 2016. sales were higher in fiscal 2016 compared with the prior year , driven by increased sales in our upholstery and retail segments .
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`` ) , united kingdom ( `` u.k. '' ) , and japan with multiple additional approvals granted and applications pending in several geographies around the world . the lead biologics program of our pipeline is amicus therapeutics gaa ( `` at-gaa '' , also known as atb200/at2221 ) , a novel , clinical-stage , potential best-in-class treatment paradigm for pompe disease . in february 2019 , the u.s. food and drug administration ( `` fda '' ) granted breakthrough therapy designation to at-gaa for the treatment of late onset pompe disease . we have established an industry leading gene therapy portfolio of potential therapies for people living with rare metabolic diseases , through a license with nationwide children 's hospital ( `` nch '' ) and an expanded collaboration with the university of pennsylvania ( `` penn '' ) . our pipeline includes gene therapy programs in rare , neurologic lysosomal disorders ( `` lds '' ) , specifically : cln6 , cln3 , cln8 , and cln1 batten disease , pompe disease , fabry disease , cdkl5 deficiency disorder ( `` cdd '' ) , niemann-pick type c ( `` npc '' ) , mucopolysaccharidosis type iiib ( `` mpsiiib '' ) , as well as a next generation program in mucopolysaccharidosis type iiia ( `` mpsiiia '' ) . our expanded collaboration with penn also provides us with exclusive disease-specific access and the option rights to develop potentially disruptive new gene therapy platform technologies and programs for most lds and a broader portfolio of more prevalent rare diseases , including rett syndrome , angelman syndrome , myotonic dystrophy , and select other muscular dystrophies . during the second quarter of 2019 , we completed an underwritten equity offering and issued 18.7 million shares of our common stock at $ 10.75 per share , inclusive of the fully exercised option to purchase additional shares from the initial offering . this transaction resulted in net proceeds of $ 189.0 million , after deducting underwriting discounts and commissions and offering expenses . during the first and second quarters of 2019 , we entered into separate , privately negotiated exchange agreements ( the `` exchange agreements '' ) with a limited number of holders ( the `` holders '' ) of the unsecured convertible senior notes due in 2023 ( `` convertible notes '' ) . under the terms of the exchange agreements , the holders agreed to exchange an aggregate principal amount of $ 247.2 million of convertible notes held by them in exchange for an aggregate of approximately 44.0 million shares of our common stock , par value $ 0.01 per share . additionally , we terminated the capped call confirmations related to the exchange of the convertible notes for cash proceeds of $ 19.9 million . - 70 - story_separator_special_tag categories . the information presented for the periods prior to january 1 , 2019 has not been restated and is reported under the accounting standard in effect for those periods . research and development expenses we expect to continue to incur substantial research and development expenses as we continue to develop our product candidates . research and development expense consists of : internal costs associated with our research and clinical development activities ; fees owed to third-party contract research organizations in connection with preclinical , toxicology studies and clinical trials ; payments we make to contract manufacturers , investigative sites , and consultants in connection with clinical trials ; technology license costs ; manufacturing development costs ; personnel-related expenses , including salaries , benefits , travel , and related costs for the personnel involved in drug discovery and development ; activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . we have multiple research and development projects ongoing at any one time . we utilize our internal resources , employees , and infrastructure across multiple projects . we record and maintain information regarding external , out-of-pocket research and development expenses on a project-specific basis . we expense research and development costs as incurred , including payments made to date under our license agreements . we believe that significant investment in product development is a competitive necessity and plan to continue these investments in order to realize the potential of our product candidates . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing , and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates . as a result , we are not able to reasonably estimate the period , if any , in which material net cash inflows may commence from our product candidates . this uncertainty is due to the numerous risks and uncertainties associated with the conduct , duration , and cost of clinical trials , which vary significantly over the life of a project as a result of evolving events during clinical development , including : the number of clinical sites included in the trials ; the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the results of our clinical trials ; and any mandate by the fda or other regulatory authority to conduct clinical trials beyond those currently anticipated . - 74 - our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending , and enforcing any patent claims or other intellectual property rights . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay , or modify clinical trials of some product candidates or focus on others . story_separator_special_tag increases or decreases in the fair value of the contingent acquisition consideration payable can result from changes in estimated probability adjustments with respect to regulatory approval , changes in the assumed timing of when milestones are likely to be achieved and changes in assumed discount periods and rates . significant judgment is employed in determining the appropriateness of these assumptions each period . accordingly , future business and economic conditions , as well as changes in any of the assumptions described in the accounting for business combinations above can materially impact the amount of contingent consideration expense that we record in any given period . - 76 - liquidity and capital resources as a result of our significant research and development expenditures , as well as expenditures to build a commercial organization to support the launch of galafold ® , we have not been profitable and have generated operating losses since we were incorporated in 2002. we have historically funded our operations through stock offerings , debt issuances , galafold ® revenues , collaborations , and other financing arrangements . sources of liquidity during the first and second quarters of 2019 , we entered into separate , privately negotiated exchange agreements with a limited number of holders of the convertible notes . under the terms of the exchange agreements , the limited number of holders agreed to exchange an aggregate principal amount of $ 247.2 million of convertible notes held by them in exchange for an aggregate of approximately 44.0 million shares of our common stock , par value $ 0.01 per share . additionally , we terminated the capped call confirmations related to the exchange of the convertible notes for cash proceeds of $ 19.9 million . during the second quarter of 2019 , we completed an underwritten equity offering and issued 18.7 million shares of common stock at $ 10.75 per share , inclusive of the fully exercised option to purchase additional shares from the initial offering . this transaction resulted in net proceeds of $ 189.0 million , after deducting underwriting discounts , commissions , and offering expenses . during the third quarter of 2018 , we entered into a loan agreement with biopharma credit plc , as the lender , for a $ 150.0 million non-dilutive senior secured term loan ( the `` senior secured term loan '' ) with an interest rate equal to 3-month libor plus 7.50 % per annum , subject to a floor and ceiling on the rate , which matures in five years . we received net proceeds of $ 146.6 million in september 2018 , after deducting fees and expenses . there are no warrants or any equity conversion features associated with the senior secured term loan . for additional information , see `` —note 12. debt '' in our notes to consolidated financial statements . during the first quarter of 2018 , we issued , through an underwritten offering , 20.2 million shares of our common stock resulting in net proceeds of $ 294.6 million after deducting underwriting discounts and commissions and offering expenses . cash flow discussion as of december 31 , 2019 , we had cash , cash equivalents , and marketable securities of $ 452.7 million . we invest cash in excess of our immediate requirements in regard to liquidity and capital preservation in a variety of interest-bearing instruments , including obligations of u.s. government agencies and money market accounts . wherever possible , we seek to minimize the potential effects of concentration and degrees of risk . although we maintain cash balances with financial institutions in excess of insured limits , we do not anticipate any losses with respect to such cash balances . for more details on the cash , cash equivalents , and marketable securities , refer to `` -note 5. cash , cash equivalents , marketable securities , and restricted cash , '' in our notes to consolidated financial statements . net cash used in operating activities net cash used in operations for the year ended december 31 , 2019 was $ 250.4 million . the components of net cash used in operations included the net loss for the year ended december 31 , 2019 of $ 356.4 million and the net change in operating assets and liabilities of $ 11.6 million . the change in operating assets was primarily due to increases in accounts receivable by $ 11.1 million due to increased commercial sales of galafold ® , an increase in prepaid and other current assets of $ 3.3 million to support commercial activities for galafold ® launch , and an increase in inventory of $ 5.1 million . the net cash used in operations was also impacted by an increase in accounts payable and accrued expenses of $ 46.7 million , mainly related to program expenses and support for the commercial launch of galafold ® . this was partially offset by a decrease in deferred reimbursement of $ 5.5 million . - 77 - net cash used in operations for the year ended december 31 , 2018 was $ 300.0 million . the components of net cash used in operations included the net loss for the year ended december 31 , 2018 of $ 349.0 million , and the net increase in operating assets of $ 16.1 million . the change in operating assets was primarily due to increases in accounts receivable by $ 13.3 million and inventory of $ 4.2 million due to commercial sales of galafold ® , partially offset by a decrease in prepaid and other current assets of $ 2.5 million for spending to support commercial activities for galafold ® launch . the net cash used in operations was also impacted by an increase in accounts payable and accrued expenses of $ 17.1 million , mainly related to program expenses and support for the commercial launch of galafold ® , and a decrease in deferred reimbursement of $ 6.3 million due to payment of a milestone .
| consolidated results of operations the following section generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. year ended december 31 , 2019 compared to year ended december 31 , 2018 the following table provides selected financial information for the company : replace_table_token_5_th net product sales . net product sales increased $ 91.0 million during the year ended december 31 , 2019 compared to the same period in the prior year . the increase was primarily due to galafold ® being approved for sale in the u.s. and japan in the third and second quarters of 2018 , respectively , as well as continued growth in the european market . cost of goods sold . cost of goods sold includes manufacturing costs as well as royalties associated with sales of our product . cost of goods sold as a percentage of net product sales was 12.1 % during the year ended december 31 , 2019 compared to 15.8 % during the same period in the prior year primarily due to the proportion of sales in countries subject to a higher royalty burden . - 71 - research and development expense .
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we offer a comprehensive portfolio of integrated outsourced marketing solutions , including customer loyalty programs , database marketing services , end-to-end marketing services , analytics and creative services , direct marketing services and private label and co-brand retail credit card programs . we focus on facilitating and managing interactions between our clients and their customers through all consumer marketing channels , including in-store , online , email , social media , mobile , direct mail and telephone . we capture and analyze data created during each customer interaction , leveraging the insight derived from that data to enable clients to identify and acquire new customers and to enhance customer loyalty . we believe that our services are more valued as businesses shift marketing resources away from traditional mass marketing toward targeted marketing programs that provide measurable returns on marketing investments . we operate in the following reportable segments : loyaltyone , epsilon , and card services . 2015 highlights and recent developments total revenue increased 21 % to $ 6.4 billion in 2015 compared to $ 5.3 billion in 2014. total adjusted ebitda , net increased 21 % to $ 1.7 billion in 2015 compared to $ 1.4 billion in 2014. earnings per share ( `` eps '' ) increased to $ 8.85 in 2015 compared to $ 7.87 in 2014. we repurchased approximately 3.4 million shares for $ 951.6 million in 2015. effective january 1 , 2015 , we acquired an additional 10 % ownership interest in brandloyalty for approximately $ 87.4 million , bringing our total ownership interest to 70 % . effective january 1 , 2016 , we acquired an additional 10 % ownership interest in brandloyalty for approximately $ 102.2 million , bringing our total ownership interest to 80 % . in january 2016 , we purchased an existing private label credit card portfolio for total consideration paid of $ 547.5 million , subject to customary purchase price adjustments . loyaltyone loyaltyone generates revenue primarily from our coalition and short-term loyalty programs through our air miles reward program and brandloyalty . revenue for the loyaltyone segment decreased 4 % to $ 1.4 billion and adjusted ebitda , net decreased 12 % to $ 270.6 million for the year ended december 31 , 2015 , in each case as compared to the prior year period . the strengthening of the u.s. dollar against both the euro and canadian dollar negatively impacted revenue and adjusted ebitda , net by approximately $ 234.7 million and $ 44.4 million , respectively . excluding foreign currency impacts , revenue and adjusted ebitda , net increased by approximately 13 % and 2 % , respectively , due to growth from both our short-term and coalition loyalty programs . our short-term loyalty programs have expanded into north america , currently operating in canada , with a pilot program expected to launch in the u.s. during the first quarter of 2016. for the air miles reward program , air miles reward miles issued and air miles reward miles redeemed are the two primary drivers of revenue and indicators of success of the program . the number of air miles reward miles issued impacts the number of future air miles reward miles available to be redeemed . this can also impact future revenue recognized with respect to the number of air miles reward miles redeemed and the amount of breakage for those air miles reward miles expected to remain unredeemed . air miles reward miles issued during the year ended december 31 , 2015 increased 4 % compared to 2014 due to the expansion of our relationship with sobeys , a national canadian grocery retailer , increased promotional activity by our sponsors and growth in our instant reward program option , air miles cash . for the year ended december 31 , 2015 , the air miles cash program option represented approximately 20 % of the air miles reward miles issued and 22 % of the air miles reward miles redeemed . air miles reward miles redeemed increased 7 % due to higher redemptions within the air miles cash program option . we expect low- to mid-single digit issuance growth in 2016. during the year ended december 31 , 2015 , loyaltyone announced a multi-year contract renewal with metro ontario inc. , a national grocery retailer in canada , which extends our partnership in the ontario market . in addition , we announced an expansion of our relationship with sobeys to begin to issue air miles reward miles at sobeys , sobeys urban fresh and foodland stores across ontario in 2015. we also announced a multi-year renewal of our agreement with shell canada products as a sponsor in the air miles reward program and signed a new multi-year agreement with shell canada products , as the licensor and franchisor of the jiffylube ® brand in canada , to allow air miles reward miles to be issued at the more than 150 participating jiffylube service centers throughout canada . we also announced a new multi-year agreement with lowe 's canada , a canadian home improvement company , to become a sponsor in the air miles reward program . on august 31 , 2015 , brandloyalty acquired all of the stock of edison international concept & agencies b.v. , or edison , and max holding b.v. , or merison , two netherlands-based loyalty marketers , for cash consideration of approximately $ 45.4 million . the acquisition expands brandloyalty 's short-term loyalty programs into new markets and introduces new brands to existing markets . we also own approximately 37 % of cbsm-companhia brasileira de servicos de marketing , or dotz , the operator of the dotz coalition loyalty program in brazil . our investment in dotz had no impact on our results of operations in 2015 or 2014 , and a de minimis impact on our results of operations in 2013. we do not expect our investment in dotz to have an impact on our results of operations in 2016 . story_separator_special_tag a limitation of this measure , however , is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses . management evaluates the costs of such tangible and intangible assets , such as capital expenditures , investment spending and return on capital and therefore the effects are excluded from adjusted ebitda . adjusted ebitda also eliminates the non-cash effect of stock compensation expense . we believe that adjusted ebitda and adjusted ebitda , net provide useful information to our investors regarding our performance and overall results of operations . adjusted ebitda and adjusted ebitda , net are not intended to be performance measures that should be regarded as an alternative to , or more meaningful than , either operating income or net income as indicators of operating performance or to cash flows from operating activities as a measure of liquidity . in addition , adjusted ebitda and adjusted ebitda , net are not intended to represent funds available for dividends , reinvestment or other discretionary uses , and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with gaap . the adjusted ebitda and adjusted ebitda , net measures presented in this annual report on form 10-k may not be comparable to similarly titled measures presented by other companies , and may not be identical to corresponding measures used in our various agreements . replace_table_token_8_th ( 1 ) represents costs associated with the consent orders with the fdic to provide restitution to eligible customers and $ 2.5 million in civil penalties . ( 2 ) represents additional contingent consideration as a result of the earn-out obligation associated with the acquisition of our 60 percent ownership interest in brandloyalty in 2014 . ( 3 ) represents expenditures directly associated with the acquisition of conversant in 2014 . 27 index story_separator_special_tag with the conversant acquisition as well as an increase in interest associated with our revolving line of credit and amortization of debt issuance costs of $ 7.6 million . interest associated with our senior notes increased $ 20.7 million with the $ 600.0 million senior notes due 2022 issued in july 2014 and the 300.0 million senior notes due 2023 issued in november 2015. these increases were offset by a decrease in interest expense of $ 17.5 million associated with the convertible senior notes that were repaid at maturity in may 2014. taxes . income tax expense increased $ 4.4 million to $ 326.2 million for the year ended december 31 , 2015 from $ 321.8 million for the year ended december 31 , 2014 due to an increase in taxable income , offset by a decline in the effective tax rate . the effective tax rate decreased to 35.0 % for the year ended december 31 , 2015 as compared to 38.4 % for the year ended december 31 , 2014. in 2015 , the effective tax rate was impacted by a favorable tax ruling and a lapse in an applicable statute of limitations whereas the 2014 effective tax rate was negatively impacted by the nondeductible expense related to the earn-out obligation associated with the brandloyalty acquisition . year ended december 31 , 2014 compared to the year ended december 31 , 2013 revenue . total revenue increased $ 1.0 billion , or 23 % , to $ 5.3 billion for the year ended december 31 , 2014 from $ 4.3 billion for the year ended december 31 , 2013. the net increase was due to the following : transaction . revenue increased $ 8.4 million , or 3 % , to $ 337.4 million for the year ended december 31 , 2014 . other servicing fees charged to our credit cardholders increased $ 26.7 million due to increased volumes . this increase was offset by a decline of $ 12.3 million in merchant fees , which are transaction fees charged to the retailer , due to increased royalty payments associated with new clients and an increase in associated credit sales . air miles reward miles issuance fees , for which we provide marketing and administrative services , also decreased $ 7.6 million due to the impact of an unfavorable canadian exchange rate . redemption . revenue increased $ 466.1 million , or 79 % , to $ 1.1 billion for the year ended december 31 , 2014 due to the brandloyalty acquisition , which added $ 538.9 million . these increases were offset by an unfavorable canadian exchange rate , which negatively impacted redemption revenue by $ 36.6 million and the change in estimate of our breakage rate in prior years . finance charges , net . revenue increased $ 347.0 million , or 18 % , to $ 2.3 billion for the year ended december 31 , 2014 due to a 21 % increase in average credit card and loan receivables , which increased revenue $ 417.0 million through a combination of credit card portfolio acquisitions and strong credit cardholder spending . this increase was offset in part by an 80 basis point decline in yield due to the onboarding of new programs , which decreased revenue $ 70.0 million . marketing services . revenue increased $ 149.3 million , or 12 % , to $ 1.4 billion for the year ended december 31 , 2014. revenue was driven by the acquisition of conversant and by marketing technology revenue , which increased $ 35.7 million as a result of both database builds completed for new clients that were placed in production , and an expansion of services provided to existing clients . agency revenue increased $ 43.1 million due to demand in the automotive vertical . marketing analytic services provided by loyaltyone also increased $ 25.1 million due to new client signings . other revenue . revenue increased $ 13.1 million , or 8 % , to $ 169.9 million for the year ended december 31 , 2014 due to the brandloyalty acquisition , which added $ 6.8 million , and additional consulting services provided by epsilon .
| consolidated results of operations replace_table_token_9_th 28 index year ended december 31 , 2015 compared to the year ended december 31 , 2014 revenue . total revenue increased $ 1.1 billion , or 21 % , to $ 6.4 billion for the year ended december 31 , 2015 from $ 5.3 billion for the year ended december 31 , 2014. the net increase was due to the following : transaction . revenue decreased $ 0.6 million to $ 336.8 million for the year ended december 31 , 2015 as air miles reward miles issuance fees , for which we provide marketing and administrative services , decreased $ 12.1 million due to the decline in the canadian dollar relative to the u.s. dollar . this decrease was offset in part by s ervicing fees charged to our credit cardholders , which increased $ 12.7 million due to higher volumes . redemption . revenue decreased $ 24.8 million , or 2 % , to $ 1.0 billion for the year ended december 31 , 2015. redemption revenue was negatively impacted by the decline in both the euro and canadian dollar relative to the u.s. dollar , which resulted in a $ 184.5 mil lion decrease in revenue . this decrease was offset in part by a greater number of short-term loyalty programs in the market during the year ended december 31 , 2015 as compared to the prior year . finance charges , net . revenue increased $ 567.6 million , or 25 % , to $ 2.9 billion for the year ended december 31 , 2015 due to a 30 % increase in average credit card and loan receivables , which increased revenue $ 688.3 million . this increase was offset in part by an approximate 100 basis point decline in finance charge yield , which decreased revenue by $ 120.7 million . our finance charge yield has been negatively impacted by the growth in our co-brand credit card programs . marketing services .
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after the sale of stock , walter lee had no further ownership of any voting securities of the company . on november 30 , 2015 , the company accepted the resignation of walter lee from his positions as president , chief executive officer , chief financial officer and member of the board of directors . the board of directors appointed yong qiang yang as president of the company , and as a member of the board of directors , and wei min jin as chief financial officer and secretary of the company and a member of the board of directors , effective november 30 , 2015. all references above to share and per share data have not been adjusted to give effect of the forward stock split ( see below ) . on february 4 , 2016 , the financial industry regulatory authority approved : ( a ) changing the name of the company to love international group , inc. ( `` name change `` ) ; ( b ) increasing the aggregate number of authorized shares of common stock of the company from one hundred and fifty million ( 150,000,000 ) shares , par value $ 0.001 , to one billion ( 1,000,000,000 ) shares , par value $ 0.0001 per share ( `` authorized share increase `` ) ; ( c ) a 10-for-1 forward stock split ( `` forward split `` ; together with the name change and authorized share increase , the `` corporate actions `` ) of the issued and outstanding shares of common stock of the company ; and ( d ) a new trading symbol of lovv . on february 5 , 2016 , the corporate actions became effective and the issued and outstanding shares of common stock of the company became 289,333,360. on march 7 , 2016 , the trading symbol changed to lovv and a new cusip number ( 54714u107 ) was assigned to the company 's common stock . on may 18 , 2016 , the company shifted its business focus from developing and launching an online , cross-border e-commerce platform to promote and market worldwide premium specialties and other well-known branded products with highly comparable discount pricing to developing and launching an online platform to promote cheap airline tickets and hotels as well as developing and launching a `` do-it-yourself `` ( `` diy `` ) system for the company 's customers to put together a trip with exotic activities such as hunting , flying a plane , or even piloting a submarine . the company anticipates the prices of the airline tickets and hotel rooms promoted on its online platform will be priced competitively , if not lower , than the marketplace as the company plans on partnering with some of the airlines and big airline ticket wholesalers . as for the diy system , the company anticipates gaining market share based on the originality and specialty of the travel activities to be offered on the company 's online platform through local travel companies and or travel specialists that the company is going to partner with . f-7 in the beginning , the company anticipates targeting potential customers in mainland china and hong kong as to the promotion of airline tickets and hotel rooms . the airline tickets and story_separator_special_tag the following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report on form 10-k. 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 , but are not limited to , those discussed in `` item 1a—risk factors '' and elsewhere in this annual report on form 10-k. our audited financial statements are stated in united states dollars and are prepared in accordance with united states generally accepted accounting principles . corporate overview since may 18 , 2016 , love international group , inc. ( formerly known as quintec corp. ) ( the `` company '' or “ we ” or “ us ” or “ our ” ) has shifted its business focus from developing and launching an online , cross-border e-commerce platform to promote and market worldwide premium specialties and other well-known branded products with highly comparable discount pricing to developing and launching an online platform to promote cheap airline tickets and hotels as well as developing and launching a `` do-it-yourself '' ( `` diy '' ) system for the company 's customers to put together a trip with exotic activities such as hunting , flying a plane , or even piloting a submarine . business strategy the company is currently developing and launching the online platform to promote cheap airline tickets and hotels as well as developing and launching the diy system . the company anticipates the prices of the airline tickets and hotel rooms promoted on its online platform will be priced competitively , if not lower , than the marketplace as the company plans on partnering with some of the airlines and big airline ticket wholesalers . as for the diy system , the company anticipates gaining market share based on the originality and specialty of the travel activities to be offered on the company 's online platform through local travel companies and or travel specialists that the company is going to partner with . the company does not yet have any operations and the development of its business is speculative . the company will require additional financing , either through a stock offering , or standard or convertible debt . until and unless the company is able to secure adequate financing , its business development will be curtailed . story_separator_special_tag service offerings through our anticipated online travel service platform , we anticipate connecting consumers with travel service providers of cheap airline tickets and hotel rooms as well as original and special travel activities . the company anticipates partnering with airlines and big airline ticket wholesalers as to providing cheap airline tickets and local travel companies and or travel specialists as to providing original and special travel activities . marketing plan in the beginning , the company anticipates targeting potential customers in mainland china and hong kong as to the promotion of airline tickets and hotel rooms . the airline tickets and hotel booking selections may be limited upon the launch of the company 's online platform . the company anticipates focusing the diy activities upon the launch of the online platform in southeast asia , canada , united states and australia . research and development management plans to develop and launch an online platform to promote cheap airline tickets and hotels as well as develop and launch a `` do-it-yourself '' ( `` diy '' ) system for the company 's customers to put together a trip with exotic activities . 21 competition we will compete with online and traditional providers of airline tickets and hotel rooms as well as operators of tourist activities . the markets for the provision of cheap airline tickets and hotel rooms and provision of tourist activities , are intensely competitive , a trend we expect to continue , and current and new competitors can launch new services at a relatively low cost . some of our potential competitors , such as priceline , google , alibaba , and amazon , have access to significantly greater and more diversified resources than we do , and they may be able to leverage other aspects of their businesses ( e.g. , search or mobile device businesses ) to enable them to compete more effectively with us . potential competitors also include traditional travel agencies , travel management companies , wholesalers and tour operators , many of which combine physical locations , telephone services and online services . in addition , travel service providers , including airlines , hotel chains , and tourism operators with which we conduct business , compete with us in online channels to drive consumers to their own websites in lieu of third-party distributors such as us . travel service providers may charge lower prices and , in some instances , offer advantages such as loyalty points or special discounts to members of closed user groups ( such as loyalty program participants or customers with registered accounts ) , any of which could make their offerings more attractive to consumers than our services . further , consolidation among travel service providers , could result in lower rates of commission paid to online travel companies , increased discounting and greater incentives for consumers to join closed user groups as such travel service providers expand their offerings . intellectual property at the present moment , the company does not own any intellectual property . seasonality we anticipate seasonal fluctuations in our net revenues and net income from our services once we commence operations . we anticipate increased revenues during summer months and holiday peak months due to increased leisure travel . the seasonality of our business may cause fluctuations in our quarterly operating results . as we expand into new markets and geographical locations , we may experience increased or different seasonality dynamics that create fluctuations in operating results . government regulation we must comply with laws and regulations applicable to online commerce . increased regulation of the internet ( “ internet ” ) or different applications of existing laws might slow the growth in the use of the internet and commercial online services , which could decrease demand for our services , increase the cost of doing business or otherwise reduce our sales and revenues . the statutes and case law governing online commerce are still evolving , and new laws , regulations or judicial decisions may impose on us additional risks and costs of operations . in addition , new regulations , domestic or international , regarding the privacy of our users ' personally identifiable information may impose on us additional costs and operational constraints . our office is located at 26 floor , one harbour square , 181 hoi bun road , kwun tong , kowloon , hong kong , and our telephone number is +852 2697 7733. our registered statutory office is located at 2360 corporate circle , suite 400 , henderson , nevada 89074-7722. we do not own or lease any property . we do not yet have any operations and the development of our business is speculative . our auditors have expressed substantial doubt about our ability to continue as a going concern . in our initial public offering , we registered for sale a total of 300,000,000 shares of our common stock on a self-underwritten , `` best efforts '' basis . as of the date of this report , the company has issued 89,333,360 shares of its common stock to investors at a price of $ 0.0003 per share for a total amount raised of $ 26,800. the company 's public offering has been closed and no additional funds will be raised . 22 story_separator_special_tag class= '' pagebreak '' id= '' pagebreak5f396b02-b05b-4c7f-b3c7-e1eeb2c9d267 '' style= '' font : 10pt times new roman '' width= '' 100 % '' > 25 critical accounting policies and estimates we prepare our financial statements in conformity with gaap , which requires management to make certain estimates and apply judgments . we base our estimates and judgments on historical experience , current trends and other factors that management believes to be important at the time the financial statements are prepared . on a regular basis , we review our accounting policies and how they are applied and disclosed in our financial statements . while we believe that the historical experience , current trends and
| results of operations year ended december 31 , 2016 and eleven months ended december 31 , 2015 the following table provides selected financial data about our company as of december 31 , 2016 and 2015. replace_table_token_1_th the following summary of our results of operations should be read in conjunction with our financial statements , as included in this annual report on form 10-k. replace_table_token_2_th revenue we have generated no revenues during the year ended december 31 , 2016 and the eleven months ended december 31 , 2015. expenses operating expenses for the year ended december 31 , 2016 were $ 51,209 , decreasing by $ 4,099 from $ 55,308 for the eleven months ended december 31 , 2015. the decrease in expenses was attributed to decreased professional fees related to ongoing regulatory costs . our professional fees , consisting of legal , audit , accounting and transfer agent fees , for the year ended december 31 , 2016 was $ 50,375 , decreasing by $ 3,698 from $ 54,073 for the eleven months ended december 31 , 2015. net loss net loss for the year ended december 31 , 2016 was $ 51,209 , decreasing by $ 4,099 from a net loss of $ 55,308 for the eleven months ended december 31 , 2015. the decrease in net loss was attributable to a decrease in professional fees for ongoing regulatory requirements . 23 liquidity and capital resources to date we are still preparing to launch our principal plan of operations . thus we have minimal business and our expenses have been primarily for professional fees related to our past registration statement and ongoing regulatory expenses . we anticipate we will need $ 100,000 to fund the next 12 months of our operations . currently we do not have sufficient capital to fund our operations and business development for the next 12 months . management intends to raise additional funds through public or private placement offerings .
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the company , which currently operates 22 schools in 14 states , offers programs in automotive technology , skilled trades ( which include hvac , welding and computerized numerical control and electrical and electronic systems technology , among other programs ) , healthcare services ( which include nursing , dental assistant and medical administrative assistant , among other programs ) , hospitality services ( which include culinary , therapeutic massage , cosmetology and aesthetics ) and information technology ( which includes information technology ) . the schools operate under lincoln technical institute , lincoln college of technology , lincoln culinary institute , and euphoria institute of beauty arts and sciences and associated brand names . most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study . five of the campuses are destination schools , which attract students from across the united states and , in some cases , from abroad . the company 's other campuses primarily attract students from their local communities and surrounding areas . all of the campuses are nationally or regionally accredited and are eligible to participate in federal financial aid programs by the u.s. department of education ( the “ doe ” ) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid . our business is organized into three reportable business segments : ( a ) transportation and skilled trades , ( b ) healthcare and other professions ( “ hops ” ) , and ( c ) transitional , which refers to businesses that have been or are currently being taught out . on july 9 , 2018 , new england institute of technology at palm beach , inc. ( “ neit ” ) , a wholly-owned subsidiary of the company , entered into a commercial contract ( the “ sale agreement ” ) with elite property enterprise , llc , pursuant to which neit agreed to sell to elite property enterprise , llc the real property owned by neit located at 1126 53rd court north , mangonia park , palm beach county , florida and the improvements and certain personal property located thereon ( the “ mangonia park property ” ) , for a cash purchase price of $ 2,550,000. on august 23 , 2018 , neit , consummated the sale of the mangonia park property . at the closing , neit paid a real estate brokerage fee equal to 5 % of the gross sales price and other customary closing costs and expenses . pursuant to the provisions of the company 's credit facility with its lender , sterling national bank , the net cash proceeds of the sale of the mangonia park property were deposited into an account with the lender to serve as additional security for loans and other financial accommodations provided to the company and its subsidiaries under the credit facility . in december 2018 , the funds were used to repay the outstanding principal balance of the loans outstanding under the credit facility and such repayment permanently reduced the revolving loan availability under the credit facility . effective december 31 , 2018 , the company completed the teach-out and ceased operation of its lincoln college of new england ( “ lcne ” ) campus at southington , connecticut . the decision to close the lcne campus followed the previously reported placement of lcne on probation by the college 's institutional accreditor , the new england association of schools and colleges ( “ neasc ” ) . after evaluating alternative options , the company concluded that teaching out and closing the campus was in the best interest of the company and its students . subsequent to formalizing the lcne closure decision in august 2018 , the company partnered with goodwin college , another neasc- accredited institution in the region , to assist lcne students to complete their programs of study . the majority of the lcne students will continue their education at goodwin college thereby limiting some of the company 's closing costs . the revenue , net loss and ending population of lcne , as of december 31 , 2017 , were $ 8.4 million , $ 1.6 million and 397 students , respectively . the company recorded net costs associated with the closure of the lcne campus in 2018 of approximately $ 4.3 million , including ( i ) $ 1.6 million in connection with the termination of the lcne campus lease , which is the net present value of the remaining obligation , to be paid in equal monthly installments through january 2020 , ( ii ) approximately $ 700,000 of severance payments and ( iii ) $ 2.0 million of additional operating losses related to no longer enrolling additional students during 2018. lcne results , previously reported in the hops segment , are now included in the transitional segment as of december 31 , 2018. as of december 31 , 2018 , we had 10,525 students enrolled at 22 campuses . our campuses , a majority of which serve major metropolitan markets , are located throughout the united states . five of our campuses are destination schools , which attract students from across the united states and , in some cases , from abroad . our other campuses primarily attract students from their local communities and surrounding areas . all of our schools are either nationally or regionally accredited and are eligible to participate in federal financial aid programs . 32 index our revenues consist primarily of student tuition and fees derived from the programs we offer . our revenues are reduced by scholarships granted to our students . we recognize revenues from tuition and one-time fees , such as application fees , ratably over the length of a program , including internships or externships that take place prior to graduation . we also earn revenues from our bookstores , dormitories , cafeterias and contract training services . story_separator_special_tag actual results could differ from those estimates . the critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not result in significant management judgment in the application of such principles . we believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management 's estimates , assumptions and judgment in the preparation of our consolidated financial statements . revenue recognition . prior to adoption of asu 2014-09 revenues are derived primarily from programs taught at our schools . tuition revenues , textbook sales and one-time fees , such as nonrefundable application fees and course material fees , are recognized on a straight-line basis over the length of the applicable program as the student proceeds through the program , which is the period of time from a student 's start date through his or her graduation date ( including internships or externships , if any , occurring prior to graduation ) , and we complete the performance of teaching the student entitling us to the revenue . other revenues , such as tool sales and contract training revenues , are recognized as goods are delivered or training completed . on an individual student basis , tuition earned in excess of cash received is recorded as accounts receivable , and cash received in excess of tuition earned is recorded as unearned tuition . we evaluate whether collectability of revenue is reasonably assured prior to the student commencing a program by attending class and reassess collectability of tuition and fees when a student withdraws from a course . we calculate the amount to be returned under title iv and its stated refund policy to determine eligible charges and , if there is a balance due from the student after this calculation , we expect payment from the student . we have a process to pursue uncollected accounts whereby , based upon the student 's financial means and ability to pay , a payment plan is established with the student to ensure that collectability is reasonable . we continuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawn students is realizable . if a student withdraws from a program prior to a specified date , any paid but unearned tuition is refunded . refunds are calculated and paid in accordance with federal , state and accrediting agency standards . generally , the amount to be refunded to a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date . these refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements of income ( loss ) until the related refund provisions have lapsed . based on the application of our refund policies , we may be entitled to incremental revenue on the day the student withdraws from one of our schools . we record revenue for students who withdraw from one of our schools when payment is received because collectability on an individual student basis is not reasonably assured . after adoption of asu 2014-09 on january 1 , 2018 , we adopted the new standard on revenue recognition , asu 2014-09 , using the modified retrospective approach of asu 2016-10. the adoption of the guidance in asu 2014-09 as amended by asu 2016-10 did not have a material impact on the measurement or recognition of revenue in any prior or current reporting periods and there was no adjustment to retained earnings . the core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to students in an amount that reflects the consideration to which the company expects to be entitled in exchange for such goods or services . substantially all of our revenues are considered to be revenues from contracts with students . the related accounts receivable balances are recorded in our balance sheets as student accounts receivable . we do not have significant revenue recognized from performance obligations that were satisfied in prior periods , and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition . we record revenue for students who withdraw from one of our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur . unearned tuition represents contract liabilities primarily related to our tuition revenue . we have elected not to provide disclosure about transaction prices allocated to unsatisfied performance obligations if contract durations are less than one-year , or if we have the right to consideration from a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date . we have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial . allowance for uncollectible accounts . based upon experience and judgment , we establish an allowance for uncollectible accounts with respect to tuition receivables . we use an internal group of collectors in our collection efforts . in establishing our allowance for uncollectible accounts , we consider , among other things , current and expected economic conditions , a student 's status ( in-school or out-of-school ) , whether or not a student is currently making payments , and overall collection history . changes in trends in any of these areas may impact the allowance for uncollectible accounts . the receivables balances of withdrawn students with delinquent obligations are reserved for based on our collection history .
| consolidated results of operations revenue . revenue increased $ 1.3 million to $ 263.2 million for the year ended december 31 , 2018 from $ 261.9 million in the prior year comparable period . the revenue increase was a result of five consecutive quarters of start growth which drove a 9.5 % and 1.2 % increase in average population in both our healthcare and other professions segment and transportation and skilled trades segment . excluding our transitional segment ( which represents campuses that have closed ) which had revenue of $ 5.8 million and $ 16.9 million during the years ended december 31 , 2018 and 2017 , respectively , revenue would have increased by $ 12.4 million , or 5.1 % , year over year . the increase in revenue was despite student population at the beginning of the year being down 77 students compared to the prior year . total student starts increased 5.6 % for the year ended december 31 , 2018 as compared to the prior year comparable period . excluding the transitional segment , student starts would have increased 7.7 % year over year . we continue to attribute this growth to our investments in marketing , enhanced high school programs and improved admissions process driving more consistency from lead to start . for a general discussion of trends in our student enrollment , see “ seasonality and outlook ” below . educational services and facilities expense . our educational services and facilities expense decreased $ 4.0 million , or 3.1 % , to $ 125.4 million for the year ended december 31 , 2018 from $ 129.4 million in the prior year comparable period . the expense reductions were primarily due to the transitional segment , which accounted for $ 7.6 million in cost savings , partially offset by $ 2.1 million in additional books and tools expense and $ 1.2 million in additional instructional expenses .
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however , these rates can vary based upon the negotiated terms . for non-episodic-based revenue , revenue is recorded on an accrual basis based upon the date of service at amounts equal to our estimated per-visit transaction price . price concessions , including contractual allowances for the differences between our standard rates and the applicable contracted rates , as well as estimated uncollectible amounts from patients , are recorded as decreases to the transaction story_separator_special_tag of our annual report on form 10-k for the year ended december 31 , 2018 , filed with the sec on february 27 , 2019. executive overview our business we are a national leader in integrated healthcare services , offering both facility-based and home-based patient care through our network of inpatient rehabilitation hospitals , home health agencies , and hospice agencies . as of december 31 , 2019 , our national footprint spans 37 states and puerto rico . as discussed in this item , “ segment results of operations , ” we manage our operations in two operating segments which are also our reportable segments : ( 1 ) inpatient rehabilitation and ( 2 ) home health and hospice . for additional information about our business and reportable segments , see item 1 , business and 46 item 1a , risk factors , of this report , note 19 , segment reporting , to the accompanying consolidated financial statements , and the “ results of operations ” section of this item . inpatient rehabilitation we are the nation 's largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged , revenues , and number of hospitals . we provide specialized rehabilitative treatment on both an inpatient and outpatient basis . we operate hospitals in 33 states and puerto rico , with concentrations in the eastern half of the united states and texas . as of december 31 , 2019 , we operate 133 inpatient rehabilitation hospitals and manage four inpatient rehabilitation units through management contracts . our inpatient rehabilitation segment represented approximately 76 % of our net operating revenues for the year ended december 31 , 2019 . home health and hospice our home health business is the nation 's fourth largest provider of medicare-certified skilled home health services in terms of revenues . our home health services include a comprehensive range of medicare-certified home nursing services to adult patients in need of care . these services include , among others , skilled nursing , physical , occupational , and speech therapy , medical social work , and home health aide services . our hospice business is the nation 's eleventh largest provider of medicare-certified hospice services in terms of revenues . we provide hospice services to terminally ill patients and their families that address patients ' physical needs , including pain control and symptom management , and to provide emotional and spiritual support . as of december 31 , 2019 , we provide home health services in 245 locations and hospice services in 83 locations across 31 states , with concentrations in the southeast and texas . in addition , two of these home health agencies operate as joint ventures that we account for using the equity method of accounting . our home health and hospice segment represented approximately 24 % of our net operating revenues for the year ended december 31 , 2019 . 2019 overview in 2019 , we focused on the following strategic priorities : providing high-quality , cost-effective care to patients in our existing markets ; achieving organic growth at our existing inpatient rehabilitation hospitals and home health and hospice locations ; expanding our services to more patients who require post-acute healthcare services by constructing and acquiring hospitals in new markets and acquiring and opening home health and hospice locations in new markets ; making shareholder distributions via common stock dividends and repurchases of our common stock ; and positioning the company for success in the evolving healthcare delivery system through key operational initiatives that include increasing clinical collaboration between our inpatient rehabilitation hospitals and home health locations , building stroke market share , developing and implementing post-acute solutions , transitioning to the new inpatient rehabilitation patient assessment measures , commonly referred to as “ section gg ” measures , and preparing for implementation of the home health patient-driven groupings model ( “ pdgm ” ) . during 2019 , net operating revenues increased 7.7 % over 2018 due primarily to pricing and volume growth in our inpatient rehabilitation segment and volume growth in our home health and hospice segment . within our inpatient rehabilitation segment , discharge growth of 3.9 % coupled with a 1.5 % increase in inpatient revenue per discharge in 2019 generated 5.0 % growth in net patient revenue compared to 2018 . discharge growth included a 1.8 % increase in same-store discharges . within our home health and hospice segment , home health admission growth of 16.3 % and hospice admission growth of 39.8 % contributed to 17.3 % growth in home health and hospice revenue compared to 2018 . home health admission growth and hospice admission growth included a 7.7 % and 12.2 % increase , respectively , in same-store admissions . many of our quality and outcome measures remained above both inpatient rehabilitation and home health industry averages . not only did we treat more patients and enhance outcomes , we did so in a cost-effective manner . see the “ results of operations ” and “ segment results of operations ” sections of this item . our growth efforts continued to yield positive results in 2019 . story_separator_special_tag in addition , we believe we can address the demand for facility-based and home-based post-acute care services in markets where we currently do not have a presence by constructing or acquiring new hospitals and by acquiring or opening home health and hospice agencies in those extremely fragmented industries . we are a leading provider of integrated healthcare services , offering both facility-based and home-based patient care through our network of inpatient rehabilitation hospitals , home health agencies , and hospice agencies . we are committed to delivering high-quality , cost-effective , integrated patient care across the healthcare continuum with a primary focus on the post-acute sector . as the nation 's largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and discharged , revenues , and number of hospitals , we believe we differentiate ourselves from our competitors based on the quality of our clinical outcomes , our cost-effectiveness , our financial strength , and our extensive application of technology . as the fourth largest provider of medicare-certified skilled home health services in terms of revenues , we believe we differentiate ourselves from our competitors by the application of a highly integrated technology platform , our ability to manage a variety of care pathways , and a proven track record of consummating and integrating acquisitions . the nature and timing of the transformation of the current healthcare system to coordinated care delivery and payment models is uncertain , as the development and implementation of new care delivery and payment systems will require significant time and resources . furthermore , many of the alternative approaches being explored may not work as intended . however , our goal is to position the company in a prudent manner to be responsive to industry shifts . we have invested in our core business and created an infrastructure that enables us to provide high-quality care on a cost-effective basis . we have been disciplined in creating a capital structure that is flexible with no significant debt maturities prior to 2023. we continue to have a strong , well-capitalized balance sheet , including a substantial portfolio of owned real estate . we have significant availability under our revolving credit facility , and we continue to generate strong cash flows from operations . strong and consistent free cash flow generated by our company , together with the unfunded commitment of our revolving credit facility , provides substantial capacity to pursue growth opportunities in both of our business segments while continuing to invest in our operational initiatives and capital structure strategy . for these and other reasons , we believe we will be able to adapt to changes in reimbursement , sustain our business model , and grow through acquisition and consolidation opportunities as they arise . see also item 1 , business , “ competitive strengths ” and “ strategy and 2020 strategic priorities. ” key challenges healthcare is a highly-regulated industry facing many well-publicized regulatory and reimbursement challenges . the industry also is facing uncertainty associated with the efforts to identify and implement workable coordinated care and integrated delivery payment models as well as post-acute site neutrality in medicare reimbursement . the medicare reimbursement systems for both inpatient rehabilitation and home health are undergoing significant changes . the future of many aspects of healthcare regulation remains uncertain . successful healthcare providers are those able to adapt to changes in the regulatory and operating environments , build strategic relationships across the healthcare continuum , and consistently provide high-quality , cost-effective care . we believe we have the necessary capabilities — change agility , strategic relationships , quality of patient outcomes , cost effectiveness , and ability to capitalize on growth opportunities — to adapt to and succeed in a dynamic , highly regulated industry , and we have a proven track record of doing so . 49 as we continue to execute our business plan , the following are some of the challenges we face . operating in a highly regulated industry . we are required to comply with extensive and complex laws and regulations at the federal , state , and local government levels . these rules and regulations have affected , or could in the future affect , our business activities by having an impact on the reimbursement we receive for services provided or the costs of compliance , mandating new documentation standards , requiring additional licensure or certification , regulating our relationships with physicians and other referral sources , regulating the use of our properties , and limiting our ability to enter new markets or add new capacity to existing hospitals and agencies . ensuring continuous compliance with extensive laws and regulations is an operating requirement for all healthcare providers . we have invested , and will continue to invest , substantial time , effort , and expense in implementing and maintaining training programs as well as internal controls and procedures designed to ensure regulatory compliance , and we are committed to continued adherence to these guidelines . more specifically , because medicare comprises a significant portion of our net operating revenues , failure to comply with the laws and regulations governing the medicare program and related matters , including anti-kickback and anti-fraud requirements , could materially and adversely affect us . the federal government 's reliance on sub-regulatory guidance , such as handbooks , faqs , internal memoranda , and press releases , presents a unique challenge to compliance efforts . for additional details on sub-regulatory guidance , see item 1a , risk factors . reimbursement claims made by healthcare providers , including inpatient rehabilitation hospitals as well as home health and hospice agencies , are subject to audit from time to time by governmental payors and their agents , such as the medicare administrative contractors ( “ macs ” ) , fiscal intermediaries and carriers , as well as the office of inspector general , cms , and state medicaid programs . these audits as well as the ordinary course claim reviews of our billings result in payment denials , including recoupment of previously paid claims from current accounts receivable .
| segment results of operations our internal financial reporting and management structure is focused on the major types of services provided by encompass health . we manage our operations using two operating segments which are also our reportable segments : ( 1 ) inpatient rehabilitation and ( 2 ) home health and hospice . for additional information regarding our business segments , including a detailed description of the services we provide , financial data for each segment , and a reconciliation of total segment adjusted ebitda to income from continuing operations before income tax expense , see note 19 , segment reporting , to the accompanying consolidated financial statements . inpatient rehabilitation during the years ended december 31 , 2019 , 2018 and 2017 , our inpatient rehabilitation segment derived its net operating revenues from the following payor sources : replace_table_token_15_th 56 additional information regarding our inpatient rehabilitation segment 's operating results for the years ended december 31 , 2019 , 2018 and 2017 , is as follows : replace_table_token_16_th * full-time equivalents included in the above table represent our employees who participate in or support the operations of our hospitals and include an estimate of full-time equivalents related to contract labor . we actively manage the productive portion of our salaries and benefits utilizing certain metrics , including employees per occupied bed , or “ epob. ” this metric is determined by dividing the number of full-time equivalents , including an estimate of full-time equivalents from the utilization of contract labor , by the number of occupied beds during each period . the number of occupied beds is determined by multiplying the number of licensed beds by our occupancy percentage . operating expenses as a % of net operating revenues replace_table_token_17_th 57 2019 compared to 2018 net operating revenues revenue growth during 2019 compared to 2018 resulted from volume growth and an increase in net patient revenue per discharge .
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because of the phase-in of various provisions in the legislation , the impact of the 2012 elections , and possible legislative actions , we can not predict what the full effects of this legislation on our business and industry will be . the first impact is expected in the early part of calendar year 2013. in addition , rule-making under the law is not yet complete which could mean a temporary postponement in implementing the tax . in the meantime , we are taking full advantage of every opportunity presented by this legislation to increase sales and to offset any negative effects that may accompany those opportunities . should the tax become effective january 1 , 2013 as anticipated , we will likely be compelled to raise prices as a reflection of that new tax . economic pressures from the recent recession in the united states have affected available credit that would facilitate large capital purchases , and have also reduced demand for discretionary services such as those provided by the purchasers of our aesthetic products . as a result , we reduced our expenses in the synergie department . we believe that our aesthetic devices remain the best value on the market and we are seeking innovative ways to market these products , including strategic partnerships , both domestic and international , to help enhance sales momentum . we have long believed that international markets present an untapped potential for growth and expansion . adding new distributors in several countries will be the key to this expansion effort . we remain committed to finding the most effective ways to expand our markets internationally . over the coming year , our efforts will be focused on partnering with key manufacturers and distributors interested in our product line or technology . our utah facility , where all electrotherapy , ultrasound , traction , light therapy and synergie products are manufactured , is certified to iso 13485:2003 , an internationally recognized standard of excellence in medical device manufacturing . this designation is an important requirement in obtaining the ce mark certification , which allows us to market our products in the european union and in other international locations . refining our business model for supporting sales representatives and distributors also will be a focal point of operations . we will continue to evaluate the most efficient ways to maintain our satellite sales offices and warehouses . the ongoing refinement of this model is expected to yield further efficiencies that will better achieve sales goals while , at the same time , reduce expenses . 17 our efforts to prudently reduce costs in the face of some economic uncertainty have made us a leaner operation . during calendar 2012 , we identified a number of cost saving measures totaling more than $ 750,000 annually that have been or will be implemented to reduce expenses . we will continue to be vigilant in maintaining appropriate overhead costs and operating costs while still providing support for anticipated increases in sales from our new products . based on our defined strategic initiatives , we are focusing our resources in the following areas : · increasing market share of manufactured capital products by promoting sales of our new state-of-the-art dynatron quad7 and dynatron solarisplus products introduced in calendar 2012 . · introducing additional new products to better capitalize on opportunities in our core market including the market for the quad 7 technology . the introduction of additional new products in the coming year is made possible by the technology platform built over the past two years of intense r & d effort . therefore , the new products can be introduced with minimal additional r & d expenditures . · continue to seek ways of petitioning for more business with gpo 's , but redirect focus to more viable and immediate opportunities in the private practice market including customers that may be members of gpo 's , but not required to purchase under a gpo contract . increased focus will be given to developing business with large chains of clinics , including national and regional accounts . · introducing a new 2013-14 product catalog featuring a broader product offering . · using our e-commerce solution in order to facilitate business opportunities and reduce transactional costs . · reinforcing distribution through a strategy of recruiting direct sales representatives and working closely with the most successful distributors of capital equipment . · improving operational efficiencies by reducing costs to be more reflective of current levels of sales . strengthening pricing management and procurement methodologies . · minimizing expense associated in the synergie department until demand for capital equipment re-emerges , and , in the meantime , seeking additional independent distributors and strategic partnerships . · focusing international sales efforts on identifying key distributors and strategic partners who could represent the company 's product line , particularly in europe . · improving efficiencies as a distributor of other manufacturers ' products and considering ways to enhance our role as a distributor and not just a manufacturer . · exploring strategic business alliances that will leverage and complement our competitive strengths , increase market reach and supplement capital resources . item 8. financial statements and supplementary data the consolidated financial statements required to be filed are indexed on page 22. item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures evaluation of disclosure controls and procedures under the supervision and with the participation of our management , including our chief executive officer and chief financial officer , we conducted an evaluation of the effectiveness , as of june 30 , 2012 , of our disclosure controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended , ( the “ exchange act ” ) . the purpose of this evaluation was to determine whether story_separator_special_tag because of the phase-in of various provisions in the legislation , the impact of the 2012 elections , and possible legislative actions , we can not predict what the full effects of this legislation on our business and industry will be . the first impact is expected in the early part of calendar year 2013. in addition , rule-making under the law is not yet complete which could mean a temporary postponement in implementing the tax . in the meantime , we are taking full advantage of every opportunity presented by this legislation to increase sales and to offset any negative effects that may accompany those opportunities . should the tax become effective january 1 , 2013 as anticipated , we will likely be compelled to raise prices as a reflection of that new tax . economic pressures from the recent recession in the united states have affected available credit that would facilitate large capital purchases , and have also reduced demand for discretionary services such as those provided by the purchasers of our aesthetic products . as a result , we reduced our expenses in the synergie department . we believe that our aesthetic devices remain the best value on the market and we are seeking innovative ways to market these products , including strategic partnerships , both domestic and international , to help enhance sales momentum . we have long believed that international markets present an untapped potential for growth and expansion . adding new distributors in several countries will be the key to this expansion effort . we remain committed to finding the most effective ways to expand our markets internationally . over the coming year , our efforts will be focused on partnering with key manufacturers and distributors interested in our product line or technology . our utah facility , where all electrotherapy , ultrasound , traction , light therapy and synergie products are manufactured , is certified to iso 13485:2003 , an internationally recognized standard of excellence in medical device manufacturing . this designation is an important requirement in obtaining the ce mark certification , which allows us to market our products in the european union and in other international locations . refining our business model for supporting sales representatives and distributors also will be a focal point of operations . we will continue to evaluate the most efficient ways to maintain our satellite sales offices and warehouses . the ongoing refinement of this model is expected to yield further efficiencies that will better achieve sales goals while , at the same time , reduce expenses . 17 our efforts to prudently reduce costs in the face of some economic uncertainty have made us a leaner operation . during calendar 2012 , we identified a number of cost saving measures totaling more than $ 750,000 annually that have been or will be implemented to reduce expenses . we will continue to be vigilant in maintaining appropriate overhead costs and operating costs while still providing support for anticipated increases in sales from our new products . based on our defined strategic initiatives , we are focusing our resources in the following areas : · increasing market share of manufactured capital products by promoting sales of our new state-of-the-art dynatron quad7 and dynatron solarisplus products introduced in calendar 2012 . · introducing additional new products to better capitalize on opportunities in our core market including the market for the quad 7 technology . the introduction of additional new products in the coming year is made possible by the technology platform built over the past two years of intense r & d effort . therefore , the new products can be introduced with minimal additional r & d expenditures . · continue to seek ways of petitioning for more business with gpo 's , but redirect focus to more viable and immediate opportunities in the private practice market including customers that may be members of gpo 's , but not required to purchase under a gpo contract . increased focus will be given to developing business with large chains of clinics , including national and regional accounts . · introducing a new 2013-14 product catalog featuring a broader product offering . · using our e-commerce solution in order to facilitate business opportunities and reduce transactional costs . · reinforcing distribution through a strategy of recruiting direct sales representatives and working closely with the most successful distributors of capital equipment . · improving operational efficiencies by reducing costs to be more reflective of current levels of sales . strengthening pricing management and procurement methodologies . · minimizing expense associated in the synergie department until demand for capital equipment re-emerges , and , in the meantime , seeking additional independent distributors and strategic partnerships . · focusing international sales efforts on identifying key distributors and strategic partners who could represent the company 's product line , particularly in europe . · improving efficiencies as a distributor of other manufacturers ' products and considering ways to enhance our role as a distributor and not just a manufacturer . · exploring strategic business alliances that will leverage and complement our competitive strengths , increase market reach and supplement capital resources . item 8. financial statements and supplementary data the consolidated financial statements required to be filed are indexed on page 22. item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures evaluation of disclosure controls and procedures under the supervision and with the participation of our management , including our chief executive officer and chief financial officer , we conducted an evaluation of the effectiveness , as of june 30 , 2012 , of our disclosure controls and procedures , as defined in rules 13a-15 ( e ) and 15d-15 ( e ) under the securities exchange act of 1934 , as amended , ( the “ exchange act ” ) . the purpose of this evaluation was to determine whether
| results of operations fiscal year 2012 compared to fiscal year 2011 net sales net sales in fiscal year 2012 were $ 31,664,181 compared to $ 32,692,859 in fiscal year 2011. the $ 1,028,678 decrease in sales is primarily attributable to the following factors : 1 ) the apparent insolvency of and interruption of purchases by a large , independent distributor that historically purchased between $ 150,000 to $ 250,000 per quarter from the company ; and 2 ) lower sales of capital equipment likely due to continuing weakness of the u.s. economy leading to a postponement of purchases of durable medical equipment . we also believe the uncertainty surrounding healthcare reform in the united states has had the effect of limiting expansion and improvements in our market sector . we expect the introduction of our new solarisplus products and quad 7 devices to stimulate sales in fiscal year 2013. sales of manufactured physical medicine products represented approximately 42 % and 43 % of total physical medicine product sales in fiscal years 2012 and 2011 , respectively . distribution of products manufactured by other suppliers accounted for the balance of our physical medicine product sales in those years . sales of manufactured aesthetic products in fiscal years 2012 and 2011 , represented approximately 73 % and 77 % of total aesthetic product sales , respectively , with distributed products making up the balance . the majority of our sales revenues come from the sale of physical medicine products , both manufactured and distributed . in fiscal years 2012 and 2011 , sales of physical medicine products accounted for 91 % and 92 % of total sales , respectively . chargeable repairs , billable freight revenue , aesthetic product sales and other miscellaneous revenue accounted for approximately 9 % and 8 % of total revenues in 2012 and 2011 , respectively .
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we have three operating divisions : ( a ) security , providing security and inspection systems and turnkey security screening solutions ; ( b ) healthcare , providing patient monitoring , diagnostic cardiology , and connected care systems ; and ( c ) optoelectronics and manufacturing , providing specialized electronic components for our security and healthcare divisions , as well as to third parties for applications in the defense and aerospace markets , among others . security division . through our security division , we provide security screening products and services globally , as well as turnkey security screening solutions . these products and services are used to inspect baggage , parcels , cargo , people , vehicles and other objects for weapons , explosives , drugs , radioactive and nuclear materials and other contraband . revenues from our security division accounted for 64 % of our total consolidated revenues for fiscal 2020. as a result of terrorist attacks and smuggling operations against the u.s. and in other locations worldwide , security and inspection products have increasingly been used at a wide range of facilities other than airports , such as border crossings , railways , seaports , cruise line terminals , freight forwarding operations , sporting venues , government and military installations and nuclear facilities . we believe that our wide-ranging product portfolio together with our ability to provide turnkey screening solutions position us to competitively pursue security and inspection opportunities as they arise throughout the world . currently , the u.s. federal government is discussing various options to address the u.s. federal government 's overall fiscal challenges and we can not predict the outcome of these efforts . while we believe that national security spending will continue to be a priority , u.s. government budget deficits and the national debt have created increasing pressure to examine and reduce spending across many federal agencies . additionally , there continues to be volatility in international markets that has impacted international security spending . we believe that the diversified product portfolio and international customer mix of our security division position us well to withstand the impact of these uncertainties and even benefit from specific initiatives within various governments . however , depending on how future sequestration cuts are implemented and how the u.s. federal government and our other international customers manage their fiscal challenges , including the impact of the covid-19 pandemic , we believe that these actions could have a material , adverse effect on our business , financial condition and results of operations . healthcare division . through our healthcare division , we design , manufacture , market and service patient monitoring , diagnostic cardiology , and connected care systems globally for sale primarily to hospitals and medical centers . our products monitor patients in critical , emergency and perioperative care areas of the hospital and provide information , through wired and wireless networks , to physicians and nurses who may be at the patient 's bedside , in another area of the hospital or even outside the hospital . revenues from our healthcare division accounted for 16 % of our total consolidated revenues for fiscal 2020 . 54 the healthcare markets in which we operate are highly competitive . we believe that our customers choose among competing products on the basis of product performance , functionality , value and service . although there has been an increase in demand for patient monitoring products due to the covid-19 pandemic , there is continued uncertainty regarding the u.s. federal government budget and the affordable care act , either of which may impact hospital spending , third-party payer reimbursement and fees to be levied on certain medical device revenues , any of which could adversely affect our business and results of operations . in addition , hospital capital spending appears to have been impacted by strategic uncertainties surrounding the affordable care act and economic pressures . we also believe that global economic uncertainty has caused some hospitals and healthcare providers to delay purchases of our products and services . during this period of uncertainty , sales of our healthcare products may be negatively impacted . we can not predict when the markets will fully recover or when the uncertainties related to the u.s. federal government will be resolved and , therefore , when this period of delayed and diminished purchasing will end . a prolonged delay could have a material adverse effect on our business , financial condition and results of operations . optoelectronics and manufacturing division . through our optoelectronics and manufacturing division , we design , manufacture and market optoelectronic devices and flex circuits and provide electronics manufacturing services globally for use in a broad range of applications , including aerospace and defense electronics , security and inspection systems , medical imaging and diagnostics , telecommunications , office automation , computer peripherals , industrial automation , and consumer products . we also provide our optoelectronic devices and electronics manufacturing services to oem customers , and our own security and healthcare divisions . revenues from external customers in our optoelectronics and manufacturing division accounted for 20 % of our total consolidated revenues for fiscal 2020. story_separator_special_tag roman ' , 'times ' , 'serif ' ; font-size:10pt ; text-align : justify ; text-indent:36pt ; margin:0pt 0pt 10pt 0pt ; '' > government policies . our net income could be affected by changes in u.s. or foreign government policies . for example , the libor index will be discontinued by the end of calendar year 2021. when the libor index is discontinued , the terms of our revolving credit facility allow for a replacement rate to be determined in accordance with the credit agreement . changes in government policies could impact our financial condition and results of operations . mexico sat contract . story_separator_special_tag in circumstances when a selling price is not directly observable , we will estimate the standalone selling price using information available to us including our market assessment and expected cost plus margin . the timetable for fulfilment of each of the distinct performance obligations can range from completion in a short amount of time and entirely within a single reporting period to completion over several reporting periods . the timing of revenue recognition for each performance obligation may be dependent upon several milestones , including physical delivery of equipment , completion of factory acceptance test , completion of site acceptance test , installation and connectivity of equipment , certification of training of personnel and , in the case of after-market service deliverables , the passage of time ( typically evenly over the post-warranty period of the service deliverable ) . we often provide a guarantee to support our performance under multiple performance obligations . in the event that customers are permitted to terminate such arrangements , the underlying contract typically requires payment for deliverables and reimbursement of costs incurred through the date of termination . we adopted new revenue recognition guidance issued by the fasb effective july 1 , 2018 using the modified retrospective method . see note 1 to the consolidated financial statements . allowance for doubtful accounts . the allowance for doubtful accounts involves estimates based on management 's judgment , review of individual receivables and analysis of historical bad debts . we monitor collections and payments from our customers and we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we also assess current economic trends that might impact the level of credit losses in the future . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances could be required . inventory . inventories are generally stated at the lower of cost ( first-in , first-out ) or net realizable value . we write down inventory for slow-moving and obsolete inventory based on historical usage , orders on hand , assessments of future demands , market conditions among other items . if these factors are less favorable than those projected , additional inventory write-downs may be required . property and equipment . property and equipment are stated at cost less accumulated depreciation and amortization . depreciation and amortization are charged while assets are used in service and are computed using the straight-line method over the estimated useful lives of the assets taking into consideration any estimated salvage value . amortization of leasehold improvements is calculated on the straight-line method over the shorter of the useful life of the asset or the lease term . leased capital assets are included in property and equipment . amortization of property and equipment under capital leases is included with depreciation expense . in the event that property and equipment are idle , as a result of excess capacity or the early termination , non-renewal or reduction in scope of a turnkey screening operation , such assets are assessed for impairment on a periodic basis and when an indication that impairment may exist . 58 income taxes . our annual tax rate is based on our income , statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate . tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities . significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties . we review our tax positions quarterly and adjust the balances as new information becomes available . deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years . such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as from net operating loss and tax credit carryforwards . we evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources , including reversal of taxable temporary differences , forecasted operating earnings and available tax planning strategies . these sources of income inherently rely on estimates . to provide insight , we use our historical experience and our short and long-range business forecasts . we believe it is more likely than not that a portion of the deferred income tax assets may expire unused and therefore have established a valuation allowance against them . although realization is not assured for the remaining deferred income tax assets , we believe it is more likely than not that the deferred tax assets will be fully recoverable within the applicable statutory expiration periods . however , deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable . business combinations . in connection with the acquisition of a business , we allocate the fair value of purchase consideration to the tangible and intangible assets acquired , and liabilities assumed based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . such valuations require management to make significant estimates and assumptions , especially with respect to intangible assets . significant estimates in valuing certain intangible assets include , but are not limited to , future expected cash flows from acquired customers , acquired technology , and trade names , useful lives and discount rates . our estimates of fair value are based upon assumptions believed to be reasonable , but which are inherently uncertain and unpredictable and , as a result , actual results may differ from estimates . during the measurement period , which is up to one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill .
| consolidated results discussion and analysis of our financial condition and results of operations for fiscal 2018 has been omitted from this annual report on form 10-k , and is available in item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the year ended june 30 , 2019. fiscal 2020 compared with fiscal 2019. we reported consolidated sales of $ 1,166.0 million in fiscal 2020 , a 1.4 % decrease over compared to the prior year , which drove a year-over-year decrease in gross profit of $ 10.0 million . our income from operations decreased by 3 % from the prior year to $ 104.9 million in fiscal 2020. this decrease in profitability was driven primarily by an increase in impairment , restructuring and other charges . acquisitions . we acquired several small businesses during fiscal years 2020 and 2019 as described in note 2 to the consolidated financial statements . trends and uncertainties the following is a discussion of certain trends and uncertainties that we believe have influenced , and may continue to influence , our results of operations . 55 coronavirus pandemic . coronavirus disease 2019 ( “ covid-19 ” ) was first reported in late 2019. in march 2020 , the world health organization characterized covid-19 as a global pandemic , and president trump declared a national emergency concerning the pandemic . covid-19 has dramatically impacted the global health and economic environment , with millions of confirmed cases , business slowdowns and shutdowns , and market volatility . the covid-19 outbreak has caused , and is likely to continue to cause , significant economic disruptions and has impacted , and is expected to continue to impact , our operations and the operations of our suppliers and customers as a result of quarantines , facility closures and travel and logistics restrictions .
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some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business and related financing , includes forward-looking statements that involve risks and uncertainties . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . as used in this report , unless the context suggests otherwise , “ we , ” “ us , ” “ our , ” “ the company ” or “ aeglea ” refer to aeglea biotherapeutics , inc. overview we are a clinical-stage biotechnology company that designs and develops innovative human enzyme therapeutics for patients with rare genetic diseases and cancer . we believe our novel approach of utilizing human enzymes offers advantages over bacterial enzyme-based approaches including a more favorable safety profile providing a greater likelihood of clinical success . our capabilities in enzyme engineering , preclinical disease modelling , and drug development in both rare genetic disease and cancer allow us to identify and advance innovative opportunities to address important unmet medical needs for the benefit of patients . our programs and the decisions we make to progress assets into clinical studies are driven by the following considerations : - potential for enhancement of human enzymatic activity - strong preclinical data and rationale - limited or no competition - meaningful commercial opportunities - worldwide commercial rights we are a patient-focused organization conscious of the fact that people with a rare genetic disease or cancer have limited treatment options , and we recognize that their lives and well-being are highly dependent upon our efforts to develop improved therapies . for this reason , we are passionate about designing and developing novel therapeutics to address significant unmet medical need for rare genetic disease and cancer . our lead product candidate , pegzilarginase ( aeb1102 ) , is engineered to degrade the amino acid arginine and is being developed to treat two extremes of arginine metabolism , including arginine excess in patients with arginase 1 deficiency , a rare genetic disease , as well as some cancers which have been shown to have a metabolic dependence on arginine . pegzilarginase is currently being evaluated in three ongoing clinical trials , consisting of one phase 1/2 clinical trial for the treatment of arginase 1 deficiency , one phase 1 clinical trial for the treatment of advanced solid tumors , and one phase 1/2 combination clinical trial of pegzilarginase with prembrolizumab for the treatment of patients with small cell lung cancer . we are also building a pipeline of additional product candidates targeting key amino acids and other metabolites , including homocystine , a target for another rare genetic disease as well as cysteine , and its oxidized form cystine , and methionine , for cancer indications . since inception , we have devoted substantially all of our efforts and resources to identifying and developing product candidates , conducting nonclinical studies , initiating and conducting clinical trials , recruiting personnel and raising capital . to date , we have financed our operations primarily through private placements of our preferred stock , the initial public offering , or ipo , of our common stock , which closed on april 12 , 2016 , a follow-on public offering of our common stock in june 2017 and collection of a research grant . we have not recorded revenue from product sales and all of our revenue to date has been grant revenue . since our inception , and through december 31 , 2017 , we have raised an aggregate of $ 122.8 million to fund our operations through the sale and issuance of convertible preferred and common equity securities and collected $ 12.9 million in grant proceeds . as of december 31 , 2017 , we had cash , cash equivalents , and marketable securities of $ 50.3 million . we have incurred net losses in each year since inception . our net losses were $ 27.2 million , $ 21.7 million , and $ 11.3 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively , and have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations . as of december 31 , 2017 , we had an accumulated deficit of $ 72.5 million . we expect to continue to incur operating losses over the next several years . our net losses may fluctuate significantly from quarter to 67 qua rter and from year to year . we anticipate that our expenses will increase significantly as we continue our clinical and diagnostic development activities for our lead product candidate , pegzilarginase ; concurrently develop our pipeline product candidates ; expand and protect our intellectual property portfolio ; and hire additional personnel . in addition , we have incurred and expect to continue to incur additional costs associated with operating as a public company . components of operating results revenue to date , we have recognized revenue solely from a research grant from the cancer prevention and research institute of texas , or cprit , and have not generated any revenue from the sale of any of our product candidates . our ability to generate product revenues , which we do not expect will occur for several years , if ever , will depend heavily on the successful development , regulatory approval and eventual commercialization of our product candidates . in june 2015 , we entered into a grant agreement with cprit , or the grant contract , for $ 19.8 million for use in developing cancer treatments by exploiting the metabolism of cancer cells . story_separator_special_tag a valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized . the deferred tax assets and liabilities are classified as noncurrent along with the related valuation allowance . due to our lack of earnings history , the net deferred tax assets have been fully offset by a valuation allowance . we recognize benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on the technical merits , as the largest amount of benefits that is more likely than not to be realized upon the ultimate settlement . our policy is to recognize interest and penalties related to the unrecognized tax benefits as a component of income tax expense . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . these estimates form the basis for judgments we make about the carrying values of our assets and liabilities , which are not readily apparent from other sources . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . on an ongoing basis , we evaluate our estimates and assumptions . our actual results may differ materially from these estimates under different assumptions or conditions . 69 our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements . we believe t hat the assumptions and estimates associated with our most critical accounting policies are those relating to accrued research and development costs and stock-based compensation . we define our critical accounting policies as those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations , as well as the specific manner in which we apply those principles . our significant accounting policies are more fully described in note 2 to our audited consolidated financial statements appearing elsewhere in this annual report . accrued research and development costs we record the costs associated with research nonclinical studies , clinical trials , and manufacturing development as incurred . these costs are a significant component of our research and development expenses , with a substantial portion of our on-going research and development activities conducted by third-party service providers , including contract research organizations , or cros , and contract manufacturing organizations , or cmos . we accrue for expenses resulting from obligations under agreements with cros , cmos , and other outside service providers for which payment flows do not match the periods over which materials or services are provided to us . we record accruals based on estimates of services received and efforts expended pursuant to agreements established with cros , cmos , and other outside service providers . these estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services . we make significant judgments and estimates in determining the accrual balance in each reporting period . in the event advance payments are made to a cro , cmo , or outside service provider , the payments will be recorded as a prepaid asset which will be amortized as the contracted services are performed . as actual costs become known , we adjust our accruals . inputs , such as the services performed , the number of patients enrolled , or the study duration , may vary from our estimates , resulting in adjustments to research and development expense in future periods . changes in these estimates that result in material changes to our accruals could materially affect our results of operations . share/stock-based compensation we recognize the cost of share/stock-based awards granted to employees based on the estimated grant-date fair values of the awards . the value of the award is recognized as compensation expense on a straight-line basis over the requisite service period . forfeitures are recognized when they occur , which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise . we recognize the cost of share/stock-based awards granted to nonemployees at their then-current fair values as services are performed , and are remeasured through the counterparty performance date . prior to march 2015 , we operated as a limited liability company , or llc , and issued common b incentive equity awards to employees , consultants and non-employee directors of the company . in march 2015 , upon conversion from a delaware llc to a delaware corporation , the outstanding common b share awards were converted into restricted common stock and options to purchase common stock , or collectively , the replacement awards . we assessed the conversion of the common b share awards as a modification under gaap . because there was no change in vesting timing or conditions and there was no incremental increase in the conversion date fair value as a result of the conversion , we allocated the original common b share values to the restricted common stock and stock options proportionate to their conversion date fair values . we estimate the grant date fair value of the non-replacement award stock options granted using the black-scholes option-pricing model , which requires the use of highly subjective assumptions to determine the fair value of the awards .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 , together with the changes in those items in dollars and as a percentage : replace_table_token_4_th grant revenues . grant revenues increased by $ 0.6 million , or 12 % , to $ 5.2 million for the year ended december 31 , 2017 from $ 4.6 million for the year ended december 31 , 2016. the increase was primarily due to additional research and development costs associated with the clinical trials for pegzilarginase in cancer patients , for which we recognized grant revenue pursuant to the grant contract . 71 research and development expenses . research and development expenses increased by $ 4.7 million , or 26 % , to $ 22.8 million for the year ended december 31 , 2017 from $ 18.1 million for the year ended december 31 , 2016. the change in research and development expenses was due to : higher personnel-related expenses , which increased by $ 3.2 million as a result of additional employee headcount to strengthen our management team and expand our internal regulatory , research laboratory , and clinical development capabilities ; higher manufacturing expenses , which increased by $ 2.2 million as a result of process scale-up for pegzilarginase and additional manufacturing activities for pipeline development ; higher clinical development expenses , which increased by $ 1.6 million as a result of advancing our phase 1/2 clinical trial for pegzilarginase in patients with arginase 1 deficiency , completing our phase 1 dose escalation trial in patients with advanced solid tumors , preparing for three solid tumor single agent cohort expansions , and preparing for our phase 1/2 combination trial in patients with small cell lung cancer ; and lower nonclinical expenses , which decreased by $ 2.3 million as a result of completing toxicology studies in 2016 ,
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in its oversight role , the audit committee necessarily relies on the procedures , work and assurances of our management , which has the primary responsibility for financial statements and reports , and of rothstein , who , in its report , expresses an opinion on the conformity of our audited financial statements to accounting principles generally accepted in the united states of america . in reliance on the reviews and discussions referred to above , the audit committee recommended to our board of directors , and our board of directors has approved , that the audited financial statements be included in our annual report on form 10-k for the fiscal year ended december 31 , 2008 , for filing with the sec . the audit committee also has retained rothstein as our independent auditors for the fiscal year 2009. submitted by the audit committee of shermen wsc acquisition corp. john e. toffolon , jr. joseph f. prochaska donald d. pottinger the foregoing report of the audit committee does not constitute soliciting material and should not be deemed filed with the sec or incorporated by reference into any of our prior or future filings under the securities act of 1933 or the securities exchange act of 1934 , except to the extent we specifically incorporate this report by reference therein . 78 table of contents part iv item 15. exhibits and financial statement schedules 1. financial statements see item 8. financial statements and supplemental data . 2. financial statement schedules all supplemental schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule , or because the required information is included in the consolidated financial statements or notes thereto . 3. exhibits replace_table_token_7_th * incorporated by reference to our registration statement on form s-1 ( file no . 333-133869 ) * * incorporated by reference to our current report on form 8-k filed on january 20 , 2009 portions of such exhibit have been omitted pursuant to a separate confidential treatment request and such information has been filed separately with the securities and exchange commission . 79 signatures pursuant to the requirements of section 13 or 15 ( d ) the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . shermen wsc acquisition corp. francis p. jenkins , jr. name : francis p. jenkins , jr. title : chairman and chief executive officer ( signing in his capacity as a duly authorized officer and as principal executive officer of the registrant ) date : march 13 , 2009 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date francis p. jenkins , jr. chairman , chief executive officer and president march 13 , 200 9 francis p. jenkins , jr. g. kenneth moshenek president , chief operating officer and director march 11 , 200 9 g. kenneth moshenek john e. toffolon , jr. chief financial officer and director ( principal financial and accounting officer ) march 11 , 200 9 john e. toffolon , jr. joseph f. prochaska director march 11 , 200 9 joseph f. prochaska donald d. pottinger director march 13 , 200 9 donald d. pottinger michiel c. mccarty director march 11 , 200 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including , but not limited to , those presented under risk factors included in item 1a and elsewhere in this annual report on form 10-k. story_separator_special_tag style= '' font-size:10.0pt ; margin:0in 0in .0001pt 1.0in ; text-indent : -.5in ; '' > · payment of estimated taxes incurred as a result of interest income earned on funds currently held in the trust account ; · due diligence and investigation of prospective target businesses ; · legal and accounting fees relating to our sec reporting obligations and general corporate matters ; · structuring and negotiating a business combination , including the making of a down payment or the payment of exclusivity or similar fees and expenses ; and · other miscellaneous expenses including the $ 9,950 per month to shermen capital partners , llc . off-balance sheet arrangements , commitments , guarantees and contractual obligations we sold the representatives of the underwriters for our initial public offering , for $ 100 , an option to purchase up to a total of 700,000 units in the aggregate ( 350,000 units for each representative ) at $ 7.50 per unit , commencing on the later of the consummation of the business combination and expiring on may 24 , 2011. the warrants underlying such units have terms that are identical to those issued in our initial public offering , except that each such warrant entitles the holder to purchase one share of common stock at a price of $ 6.25. in connection with our initial public offering , the underwriters agreed to defer payment of the remaining 3 % of the gross proceeds ( approximately $ 5,520,000 ) until completion of a business combination . until a business combination is complete , these funds will remain in the trust account . if we do not complete a business combination by may 30 , 2009 , then the 3 % deferred fee will become part of the funds returned to our initial stockholders . impact of recently issued accounting pronouncements the preparation of financial statements in conformity with u.s. gaap requires management to story_separator_special_tag in its oversight role , the audit committee necessarily relies on the procedures , work and assurances of our management , which has the primary responsibility for financial statements and reports , and of rothstein , who , in its report , expresses an opinion on the conformity of our audited financial statements to accounting principles generally accepted in the united states of america . in reliance on the reviews and discussions referred to above , the audit committee recommended to our board of directors , and our board of directors has approved , that the audited financial statements be included in our annual report on form 10-k for the fiscal year ended december 31 , 2008 , for filing with the sec . the audit committee also has retained rothstein as our independent auditors for the fiscal year 2009. submitted by the audit committee of shermen wsc acquisition corp. john e. toffolon , jr. joseph f. prochaska donald d. pottinger the foregoing report of the audit committee does not constitute soliciting material and should not be deemed filed with the sec or incorporated by reference into any of our prior or future filings under the securities act of 1933 or the securities exchange act of 1934 , except to the extent we specifically incorporate this report by reference therein . 78 table of contents part iv item 15. exhibits and financial statement schedules 1. financial statements see item 8. financial statements and supplemental data . 2. financial statement schedules all supplemental schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule , or because the required information is included in the consolidated financial statements or notes thereto . 3. exhibits replace_table_token_7_th * incorporated by reference to our registration statement on form s-1 ( file no . 333-133869 ) * * incorporated by reference to our current report on form 8-k filed on january 20 , 2009 portions of such exhibit have been omitted pursuant to a separate confidential treatment request and such information has been filed separately with the securities and exchange commission . 79 signatures pursuant to the requirements of section 13 or 15 ( d ) the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized . shermen wsc acquisition corp. francis p. jenkins , jr. name : francis p. jenkins , jr. title : chairman and chief executive officer ( signing in his capacity as a duly authorized officer and as principal executive officer of the registrant ) date : march 13 , 2009 pursuant to the requirements of the securities exchange act of 1934 , this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated . signature title date francis p. jenkins , jr. chairman , chief executive officer and president march 13 , 200 9 francis p. jenkins , jr. g. kenneth moshenek president , chief operating officer and director march 11 , 200 9 g. kenneth moshenek john e. toffolon , jr. chief financial officer and director ( principal financial and accounting officer ) march 11 , 200 9 john e. toffolon , jr. joseph f. prochaska director march 11 , 200 9 joseph f. prochaska donald d. pottinger director march 13 , 200 9 donald d. pottinger michiel c. mccarty director march 11 , 200 story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and notes thereto that appear elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including , but not limited to , those presented under risk factors included in item 1a and elsewhere in this annual report on form 10-k. story_separator_special_tag style= '' font-size:10.0pt ; margin:0in 0in .0001pt 1.0in ; text-indent : -.5in ; '' > · payment of estimated taxes incurred as a result of interest income earned on funds currently held in the trust account ; · due diligence and investigation of prospective target businesses ; · legal and accounting fees relating to our sec reporting obligations and general corporate matters ; · structuring and negotiating a business combination , including the making of a down payment or the payment of exclusivity or similar fees and expenses ; and · other miscellaneous expenses including the $ 9,950 per month to shermen capital partners , llc . off-balance sheet arrangements , commitments , guarantees and contractual obligations we sold the representatives of the underwriters for our initial public offering , for $ 100 , an option to purchase up to a total of 700,000 units in the aggregate ( 350,000 units for each representative ) at $ 7.50 per unit , commencing on the later of the consummation of the business combination and expiring on may 24 , 2011. the warrants underlying such units have terms that are identical to those issued in our initial public offering , except that each such warrant entitles the holder to purchase one share of common stock at a price of $ 6.25. in connection with our initial public offering , the underwriters agreed to defer payment of the remaining 3 % of the gross proceeds ( approximately $ 5,520,000 ) until completion of a business combination . until a business combination is complete , these funds will remain in the trust account . if we do not complete a business combination by may 30 , 2009 , then the 3 % deferred fee will become part of the funds returned to our initial stockholders . impact of recently issued accounting pronouncements the preparation of financial statements in conformity with u.s. gaap requires management to
| overview we were formed on april 18 , 2006 for the purpose of acquiring , through a merger , capital stock exchange , asset acquisition , stock purchase or other similar business combination , an operating business in the agriculture industry . on may 30 , 2007 , we completed our initial public offering . each unit sold in the initial public offering consists of one share of our common stock , and two warrants to purchase shares of our common stock . the public offering price of each unit was $ 6.00 , and we generated gross proceeds of $ 138 million in the offering ( including proceeds from the exercise of the underwriters ' over-allotment option ) . of the gross proceeds : ( i ) we deposited approximately $ 133.2 million into the trust account , which included approximately $ 5.5 million of deferred underwriting fees ; ( ii ) the underwriters received approximately $ 4.1 million as underwriting fees ( excluding the deferred underwriting fees ) ; and ( iii ) we retained $ 607,900 for offering expenses . in addition , we deposited into the trust account approximately $ 3.7 million that we received from the issuance and sale of approximately 5.2 million founder warrants to our sponsor , whose managing member is shermen capital partners , llc , an entity controlled by francis p. jenkins , jr. , our chairman and chief executive officer , on may 30 , 2007 . 65 table of contents we intend to use substantially all of the net proceeds of our initial public offering and the issuance and sale of the founder warrants , including the funds held in the trust account ( excluding deferred underwriting discounts and commissions ) , to consummate the business combination .
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intangible assets and goodwill impairment we record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting . amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition . goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired . goodwill is not amortized , but is reviewed for impairment annually as of may 31 , or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value . a reporting unit , for the purpose of the impairment test , is at or below the operating segment level , and constitutes a business for which discrete financial information is available and regularly reviewed by segment management . the separate businesses included within performance chemicals are considered separate reporting units . the goodwill balance relative to this segment is recorded in the metal oxides reporting unit . for the purpose of the goodwill impairment test , we 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 . if an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value , an additional quantitative evaluation is performed under the two-step impairment test . alternatively , we may elect to proceed directly to the quantitative goodwill impairment test . if based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount , we perform an analysis of the fair value of all assets and liabilities of the reporting unit . if the implied fair value of the reporting unit 's goodwill is determined to be less than its carrying amount , an impairment is recognized for the difference . the fair value of a reporting unit is based on discounted estimated future cash flows . the fair value is also benchmarked against a market approach using the guideline public companies method . the assumptions used to estimate fair value include management 's best estimates of future growth rates , operating cash flows , capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level . should the fair value of any of our reporting units decline below its carrying amount because of reduced operating performance , market declines , changes in the discount rate , or other conditions , charges for impairment may be necessary . based on our most recent annual goodwill impairment test performed as of may 31 , 2015 , the fair values of the reinforcement materials and metal oxides reporting units were substantially in excess of their carrying values . the fair value of the purification solutions reporting unit was less than its carrying amount and an impairment charge was recorded in the third quarter of fiscal 2015 as described below under “ purification solutions goodwill and long-lived assets impairment charges. ” due to the impairment recorded , the fair value of the purification solutions reporting unit was insignificantly higher than its carrying value . no events occurred in the fourth fiscal quarter of 2015 that would suggest that it is more likely than not that the carrying values of any of our reporting units exceeded its fair value . we use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination . the determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model . we estimate the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets . the projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition . 25 definite-lived intangible assets , which are comprised of customer relationships and developed technologies , are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists , such as a significant reduction in cash flows associated with the assets . we evaluate indefinite-lived intangible assets , which are comprised of the trademarks of purification solutions , for impairment annually or when events occur or circumstances change that may reduce the fair value of the asset below its carrying amount . the annual review is performed as of may 31. we may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test or bypass the qualitative assessment and proceed directly to performing the quantitative impairment test . the quantitative impairment test is based on discounted estimated future cash flows . the assumptions used to estimate fair value include management 's best estimate s of future growth rates and discount rates over an estimate of the remaining operating period at the unit of accounting level . refer to the “ purification solutions goodwill and long-lived assets impairment charges ” section below for details on the impair ment test performed on intangible assets of the purification solutions reporting unit and the resulting impairment charges recorded . effective in the third quarter of fiscal year 2015 and as a part of the impairment assessment performed , we determined that the trademarks for purification solutions no longer had an indefinite life . long-lived assets impairment our long-lived assets primarily include property , plant and equipment , intangible assets , long-term investments and assets held for rent . the carrying values of long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be recoverable . story_separator_special_tag therefore , for the year ended september 30 , 2015 , the pre-tax goodwill impairment charge was $ 352 million . based on the same factors leading to goodwill impairment , we also considered whether the reporting unit 's carrying values of definite-lived intangible assets and property , plant and equipment may not be recoverable or whether the carrying value of certain indefinite-lived intangible assets were impaired . we used the income approach to determine the fair value of the indefinite-lived intangible assets represented by the trademarks of purification solutions and determined that the fair value of these intangible assets was lower than their carrying value . as such , an impairment loss was recorded in the amount of $ 39 million . subsequent to this impairment analysis , we concluded that an indefinite life of such assets could no longer be supported and have begun amortizing these assets on their estimated useful life . we also performed an impairment analysis to assess if definite-lived intangible assets and property , plant and equipment were recoverable based on the estimated undiscounted cash flows of the reporting unit , which was determined to be the lowest level of identifiable cash flows , and these cash flows were not sufficient to recover the carrying value of the long-lived assets over their remaining useful lives . accordingly , an impairment charge was recorded based on the lower of the carrying amount or fair value of the long-lived assets . we used the income approach to determine the fair value of the definite-lived intangible assets and a combination of the cost and market approaches to fair value our property , plant and equipment . we recorded impairment charges of $ 119 million and $ 51 million , to our definite-lived intangible assets and property , plant and equipment , respectively , in the quarter ended june 30 , 2015. we completed the impairment analysis in the fourth quarter of fiscal year 2015 which resulted in increasing the property , plant and equipment impairment charge by $ 1 million to $ 52 million . therefore , for the year ended september 30 , 2015 , the long-lived assets impairment charge was $ 210 million . in connection with the long-lived assets impairment charges , we recorded a deferred tax benefit of $ 80 million to our income tax provision . the performance of the purification solutions reporting unit will continue to be monitored . if the reporting unit does not achieve the financial performance that we expect or events or circumstances change , it is possible that additional impairment charges may result . pensions and other postretirement benefits we maintain both defined benefit and defined contribution plans for our employees . in addition , we provide certain postretirement health care and life insurance benefits for our retired employees . plan obligations and annual expense calculations are based on a number of key assumptions . the assumptions , which are specific for each of our u.s. and foreign plans , are related to both the assets we hold to fund our plans ( where applicable ) and the characteristics of the benefits that will ultimately be provided to our employees . the most significant assumptions relative to our plan assets include the anticipated rates of return on these assets . assumptions relative to our pension obligations are more varied ; they include estimated discount rates , rates of compensation increases for employees , and mortality , employee turnover and other related demographic data . projected health care and life insurance obligations also rely on the above mentioned demographic assumptions and assumptions surrounding health 27 care cost trends . actual results that differ from the assumptions are generally accumulated and amortized over future periods and could therefore affect the recognized expense and recorded obligation in such future periods . however , cash flow requirements may be different from the amounts of expense that are recorded in the consolidated financial statements . litigation and contingencies we are involved in litigation in the ordinary course of business , including personal injury and environmental litigation . after consultation with counsel , as appropriate , we accrue a liability for litigation when it is probable that a liability has been incurred and the amount can be reasonably estimated . the estimated reserves are recorded based on our best estimate of the liability associated with such matters or the low end of the estimated range of liability if we are unable to identify a better estimate within that range . our best estimate is determined through the evaluation of various information , including claims , settlement offers , demands by government agencies , estimates performed by independent third parties , identification of other responsible parties and an assessment of their ability to contribute , and our prior experience . litigation is highly uncertain and there is always the possibility of an unusual result in any particular case that may reduce our earnings and cash flows . the most significant reserves that we have established are for environmental remediation and respirator litigation claims . the amount accrued for environmental matters reflects our assumptions about remediation requirements at the contaminated sites , the nature of the remedies , the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites , and the number and financial viability of other potentially responsible parties . these liabilities can be affected by the availability of new information , changes in the assumptions on which the accruals are based , unanticipated government enforcement action or changes in applicable government laws and regulations , which could result in higher or lower costs . our current estimate of the cost of our share of existing and future respirator liability claims is based on facts and circumstances existing at this time .
| financial condition and results of operations critical accounting policies the preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses and related disclosure of contingent assets and liabilities . we consider an accounting estimate to be critical to the financial statements if ( i ) the estimate is complex in nature or requires a high degree of judgment and ( ii ) different estimates and assumptions were used , the results could have a material impact on the consolidated financial statements . on an ongoing basis , we evaluate our estimates and the application of our policies . we base our estimates on historical experience , current conditions and on various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the policies that we believe are critical to the preparation of the consolidated financial statements are presented below . revenue recognition and accounts and notes receivable we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price is fixed or determinable and collectability is reasonably assured . we generally are able to ensure that products meet customer specifications prior to shipment . if we are unable to determine that the product has met the specified objective criteria prior to shipment or if title has not transferred because of sales terms , the revenue is considered “ unearned ” and is deferred until the revenue recognition criteria are met . shipping and handling charges related to sales transactions are recorded as sales revenue when billed to customers or included in the sales price .
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although the company believes its underlying assumptions supporting this assessment are reasonable , if the company 's forecasted sales , mix of product sales , growth rates of recently introduced new products , timing of and growth rates of new product introductions , gross margin , selling , general and administrative expenses , or the discount rate vary marginally from its forecasts , the company may be required to perform a step two analysis that could expose the company to material impairment charges in the future . f-12 alphatec holdings , inc. notes to consolidated financial statements ( continued ) the accounting provisions also require that intangible assets with estimable useful lives be amortized over their respective story_separator_special_tag our management 's discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated . see item 1a -risk factors included elsewhere in this annual report on form 10-k. overview we are a medical technology company focused on the design , development , manufacturing and marketing of products for the surgical treatment of spine disorders , with a focus on products that treat conditions that affect the aging spine . we have a comprehensive product portfolio and pipeline that addresses the cervical , thoracolumbar and intervertebral regions of the spine and covers a variety of major spinal disorders and procedures such as vertebral compression fracture , disorders related to poor bone quality , spinal stenosis and minimally invasive access techniques . our principal product offerings are focused on the global market for orthopedic spinal disorder solution products . our surgeons ' culture emphasizes collaboration with spinal surgeons to conceptualize , design and co-develop a broad range of products . we have a state-of-the-art , in-house manufacturing facility that provides us with a unique competitive advantage , and enables us to rapidly deliver solutions to meet surgeons ' and patients ' critical needs . our products and systems are made of titanium , titanium alloy , stainless steel , cobalt chrome , ceramic , and a strong , heat resistant , radiolucent , biocompatible plastic called polyetheretherketone , or peek . we also sell products made of allograft , which is human tissue that surgeons can use in place of metal and peek . we also sell bone-grafting products that are comprised of both human tissue and synthetic materials . we believe that our products and systems have enhanced features and benefits that make them attractive to surgeons and that our broad portfolio of products and systems provide a comprehensive solution for the safe and successful surgical treatment of spine disorders . all of our implants that are sold in the u.s. that require fda clearance have been cleared by the fda . revenue and expense components the following is a description of the primary components of our revenues and expenses : revenues . we derive our revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders . spinal implant products include spine screws and complementary products , vertebral body replacement devices , plates , products to treat vertebral compression fractures and bone grafting materials . our revenues are generated by our direct sales force and independent distributors . our products are requested directly by surgeons and shipped and billed to hospitals or surgical centers . in general , except for those countries where we have a direct sales force ( japan , france , and the united kingdom ) , we use independent distributors that purchase our products and market them to their surgeon customers . a majority of our business is conducted with customers within markets in which we have experience and with payment terms that are customary . if we offer payment terms greater than our customary business terms or begin operating in a new market , revenues are deferred until the sooner of when payments become due or cash is received from the related distributors . cost of revenues . cost of revenues consists of direct product costs , royalties , depreciation of our surgical instruments , and the amortization of purchased intangibles . we manufacture substantially all of the non-allograft implants that we sell . our product costs consist primarily of direct labor , manufacturing overhead , and raw materials and components . the product costs of certain of our biologics products include the cost of procuring and processing human tissue . we incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process . amortization of purchased intangibles consists of amortization of developed product technology . 49 research and development expense . research and development expense consists of costs associated with the design , development , testing , and enhancement of our products . research and development expense also includes salaries and related employee benefits , research-related overhead expenses , fees paid to external service providers , and costs associated with our scientific advisory board and executive surgeon panels . in-process research and development expense , or ipr & d . ipr & d expense consists of acquired research and development assets that were not part of an acquisition of a business and were not technologically feasible on the date we acquired such technology , provided that such technology did not have any alternative future use at that date . at the time of acquisition , we expect all acquired ipr & d will reach technological feasibility , but there can be no assurance that commercial viability of a product will be achieved . the nature of the efforts to develop the acquired technologies into commercially viable products consists principally of planning , designing , and obtaining regulatory clearances . story_separator_special_tag u.s. revenues were $ 119.9 million for the year ended december 31 , 2010 compared to $ 104.5 million for the year ended december 31 , 2009 , representing an increase of $ 15.4 million , or 14.7 % . the growth was due to increased sales of alphatec products of $ 10.2 million and the addition of scient ' x products represent an increase of $ 5.2 million . international revenues were $ 51.7 million for the year ended december 31 , 2010 compared to $ 16.1 million for the year ended december 31 , 2009 , representing an increase of $ 35.6 million , or 221.1 % . the growth was due to increased sales of alphatec products of $ 12.0 million and the addition of scient ' x products represents an increase of $ 25.0 million , partially offset by $ 1.4 million in unfavorable exchange rate effect . cost of revenues . cost of revenues was $ 57.7 million for the year ended december 31 , 2010 compared to $ 39.6 million for the year ended december 31 , 2009 , representing an increase of $ 18.1 million , or 45.6 % . the increase was primarily due to greater product costs associated with the increased sales volume and addition of scient ' x products ( $ 15.6 million ) , an increase in instrument depreciation costs based on a larger installed base of surgical instruments ( $ 3.3 million ) , and inventory step- up expenses related to the scient ' x acquisition ( $ 1.3 million ) , offset by royalty and sales milestone accruals due to sales mix , timing of contractual obligations and the expiration of the certain patents ( $ 0.4 million ) , and a decrease in amortization costs due to the full amortization of older intangible assets ( $ 1.7 million ) . amortization of acquired intangible assets . amortization of acquired intangible assets was $ 1.1 million for the year ended december 31 , 2010. this expense represents amortization in the period for intangible assets associated with product related assets obtained in the scient ' x acquisition . gross profit . gross profit was $ 112.8 million for the year ended december 31 , 2010 compared to $ 81.0 million for the year ended december 31 , 2009 , representing an increase of $ 31.8 million , or 39.3 % . the increase is comprised of the addition of scient ' x products ( $ 12.6 million ) and increased sales of alphatec products in the u.s. ( $ 12.9 million ) and international ( $ 6.3 million ) . gross margin . gross margin was 65.7 % for the year ended december 31 , 2010 compared to 67.2 % for the year ended december 31 , 2009. the decrease of 1.5 percentage points was the result of an increase in alphatec products from 67.2 % to 70.3 % , offset by the addition of scient ' x products at 43.5 % . gross margin for the u.s. region was 74.4 % for the year ended december 31 , 2010 compared to 69.3 % for the year ended december 31 , 2009. the increase of 5.1 percentage points resulted from improved manufacturing efficiencies and favorable mix , partially offset by price erosion ( net 3.9 percentage points ) , reduced royalty expenses ( 2.7 percentage points ) , lower amortization expenses ( 1.8 percentage points ) and lower period expenses ( 0.9 percentage points ) , offset by increased instrument depreciation expense ( 2.1 percentage points ) , increased sales milestone accruals ( 1.2 percentage points ) , and increased excess and obsolete reserves as our inventory balances grow to support increased sales volume ( 0.9 percentage points ) . 54 gross margin for the international region was 45.6 % for the year ended december 31 , 2010 compared to 53.5 % for the year ended december 31 , 2009. the decrease of 7.9 percentage points resulted from the addition of scient ' x products and the associated amortization of costs related to the acquisition and a variation in product mix . research and development expense . research and development expense was $ 16.4 million for the year ended december 31 , 2010 compared to $ 13.5 million for the year ended december 31 , 2009 , representing an increase of $ 2.9 million , or 21.8 % . the increase was primarily related to increased european research and development activities ( $ 2.1 million ) , and increased testing and consulting expenses for new products , specifically , solus , puregen and prototypes ( $ 1.6 million ) , offset by decreased stock based compensation of $ 0.8 million primarily related to the impact of our lower stock price on non-employee r & d-related stock options . in-process research and development expense . ipr & d expense was $ 3.0 million for the year ended december 31 , 2010 compared to $ 6.4 million for the year ended december 31 , 2009 , representing a decrease of $ 3.4 million , or 53.1 % . in the year ended december 31 , 2010 , we incurred expenses of $ 2.5 million related to our acquisition of technology related to stem cells , $ 0.4 million related to our acquisition of bone-anchoring screw technology and $ 0.1 million related to our acquisition of technology related to an anterior cervical plate system .
| results of operations the first table below sets forth our statements of operations data for the periods presented . statements of operations data for the year ended december 31 , 2010 do not include the results of scient ' x for the first quarter 2010 as the acquisition closed on march 26 , 2010. our historical results are not necessarily indicative of the operating results that may be expected in the future . replace_table_token_4_th year ended december 31 , 2011 compared to the year ended december 31 , 2010 revenues . revenues were $ 197.7 million for the year ended december 31 , 2011 compared to $ 171.6 million for the year ended december 31 , 2010 , representing growth of $ 26.1 million , or 15.2 % . the increase was comprised of $ 13.9 million and $ 12.2 million of sales in the u.s. and international regions , respectively . u.s. revenues were $ 133.8 million for the year ended december 31 , 2011 compared to $ 119.9 million for the year ended december 31 , 2010 , representing an increase of $ 13.9 million , or 11.6 % . the growth was due to increased sales of alphatec products ( $ 12.5 million ) from instruments and implants ( $ 8.3 million ) and biologics ( $ 4.2 million ) and sales of scient ' x products ( $ 1.4 million ) . international revenues were $ 63.9 million for the year ended december 31 , 2011 compared to $ 51.7 million for the year ended december 31 , 2010 , representing an increase of $ 12.2 million , or 23.5 % . the growth was due to increased sales of alphatec products of $ 9.9 million and scient ' x products of $ 4.1 million , offset by 51 $ 1.8 million for the recognition of deferred revenue in 2010 related to a european sale that was not repeated in 2011. the increase in revenues is inclusive of $ 4.6 million in favorable exchange rate effect . cost of revenues .
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while mmreis had entered into the agreements to repurchase the stock and settle the sars held by employees upon termination of their employment ( subject to certain conditions as specified in the agreements ) , mmc had historically assumed the obligation to make payments to the former shareholders . while mmreis recognized the compensation expense associated with these share-based payment arrangements , the liability had historically been assumed by mmc through a deemed contribution , which then has paid the former shareholders over time . the accounting for the stock options and sars awards , including mmc 's assumption of mmreis repurchase obligations , is discussed below . restricted common stock since stock options only allowed the grantee the right to acquire shares of unvested restricted common stock at book story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto included elsewhere herein . the following discussion contains , in addition to historical information , forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those factors set forth under item 1a risk factors of this annual report on form 10-k. overview our business we are a leading national brokerage firm specializing in commercial real estate investment sales , financing , research and advisory services . we have been the top commercial real estate investment broker in the united states based on the number of investment transactions over the last 10 years . as of december 31 , 2015 , we had over 1,600 investment sales and financing professionals operating in 79 offices who provide real estate brokerage and financing services to sellers and buyers of commercial real estate . we also offer market research , consulting and advisory services to our clients . during the year ended december 31 , 2015 , we closed 8,715 sales , financing and other transactions with total volume of approximately $ 37.8 billion , an increase from 7,667 sales , financing and other transactions with total volume of approximately $ 33.1 billion in 2014. we generate revenues by collecting real estate brokerage commissions upon the sale and fees upon the financing of commercial properties and by providing consulting and advisory services . real estate brokerage commissions are typically based upon the value of the property , and financing fees are typically based upon the size of the loan . during the year ended december 31 , 2015 , approximately 92 % of our revenues were generated from real estate brokerage commissions , 6 % from financing fees and 2 % from other revenues , including consulting and advisory services . factors affecting our business our business and our operating results , financial condition and liquidity are significantly affected by the number and size of commercial real estate investment sales and financing transactions we close in any period . the number and size of these transactions is affected by our ability to recruit and retain investment sales and financing professionals , identify and contract properties for sale and those that need financing as well as the general trends in the economy and real estate industry , including : economic and commercial real estate market conditions our business is dependent on economic conditions and the demand for commercial real estate and related services in the markets in which we operate . changes in the economy on a national , regional or local basis can have a positive or a negative impact on our business . fluctuations in acquisition and disposition activity , as well as general commercial real estate investment activity , can impact commissions for arranging such transactions , as well as impacting fees for arranging financing for acquirers and property owners that are seeking to recapitalize their existing properties . despite stock market and commodity price volatility , an attractive investment backdrop continued in the commercial real estate market during 2015. we saw the market grow in both transactions and sales volume over 2014. driving this activity is the current strength of the general economy and commercial real estate fundamentals as compared to other asset classes . we saw steady improvement in property fundamentals across all property types and construction balanced with strong demand for space . 37 credit and liquidity in the financial markets because real estate purchases are often financed with debt , credit and liquidity issues in the financial markets have a direct impact on flow of capital to the commercial real estate markets and as a result impact transaction activity and prices . we continue to see disciplined underwriting from lenders as well as ample liquidity in the market . however , we have seen transactions taking longer to close in late 2015. we believe , the additional diligence results in a more stable environment for investors with capital continuing to be available for properties with good fundamentals . fluctuations in interest rates changes in interest rates as well as steady and protracted movements of interest rates in one direction ( increases or decreases ) could adversely or positively affect the operations and income potential of commercial real estate properties , as well as the demand from investors for commercial real estate investments . in particular , increased interest rates may cause prices to decrease due to the increased costs of obtaining financing and could lead to decreases in purchase and sale activities , thereby reducing the amounts of investment sales and loan originations . in contrast , decreased interest rates will generally decrease the costs of obtaining financing , which could lead to increases in purchase and sales activities . in 2015 , long-term interest rates remained fairly stable despite the recent federal reserve increase in short-term interest rates . as a result , financing costs for commercial real estate investments , generally , have not significantly increased and we believe continue to support an active real estate market . story_separator_special_tag we recognize financing fee revenues at the time the loan closes and we have no remaining significant obligations for performance in connection with the transaction . to a lesser extent , we also earn ancillary fees associated with financing activities . 39 other revenues other revenues include fees generated from consulting and advisory services performed by our investment sales professionals , as well as referral fees from other real estate brokers . revenues from these services are recognized as they are performed and completed . operating expenses our operating expenses consist of cost of services , selling , general and administrative expenses and depreciation and amortization and in 2013 , stock-based and other compensation in connection with our ipo . the significant components of our expenses are further described below . cost of services the majority of our cost of services expense is commission expense . commission expenses are directly attributable to providing services to our clients for investment sales and financing services . most of our investment sales and financing professionals are independent contractors and are paid commissions ; however , there are some who are initially paid a salary and certain of our financing professionals are employees and , as such , costs of services also include employee-related compensation , employer taxes and benefits for those employees . the commission rates we pay to our investment sales and financing professionals vary based on individual contracts negotiated and are generally higher for the more experienced professionals . some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual revenue thresholds . these additional commissions are recognized as cost of services in the period in which they are earned . payment of a portion of these additional commissions are generally deferred for a period of three years , at the company 's election and paid at the beginning of the fourth calendar year . cost of services also includes referral fees paid to other real estate brokers where the company is the principal service provider . cost of services can therefore vary based on the commission structure of the independent contractors that closed transactions in any particular period . selling , general & administrative expenses the largest expense component within selling , general and administrative expenses is personnel expenses for our management team and sales and support staff . in addition , these costs include facilities costs ( excluding depreciation and amortization ) , staff related expenses , sales , marketing , legal , telecommunication , network , data sources and other administrative expenses . also included in selling , general and administrative are expenses for non-ipo related stock-based compensation to non-employee directors , employees and independent contractors ( i.e . investment sales and financing professionals ) under the 2013 omnibus equity incentive plan ( 2013 plan ) . depreciation and amortization expense depreciation and amortization expense consists of depreciation and amortization recorded on our computer software and hardware and furniture , fixture and equipment . depreciation and amortization are provided over estimated useful lives ranging from three to seven years for owned assets or over the lesser of the asset estimated useful lives or the related lease term for leasehold improvements . stock-based and other compensation in connection with ipo in 2013 , stock-based and other compensation in connection with the ipo consists of non-cash stock based compensation and other compensation charges incurred in conjunction with our ipo . these changes related to the accelerated vesting , modifications to the restricted stock and sars awards , grants of replacement awards in the form of dsus to mmreis 's managing directors , a dsu grant to william a. millichap , grants of other stock-based compensation awards pursuant to the 2013 plan and other compensation charges incurred in connection with ipo . 40 other income ( expense ) , net other income ( expense ) , net primarily consists of net gains or losses on our deferred compensation plan assets , interest income and realized gains and losses on our marketable securities , available-for-sale , foreign currency gains and losses and other non-operating gains and losses . interest expense interest expense primarily consists of interest expense associated with the sars liability , notes payable to former stockholders and our credit agreement . provision for income taxes we are subject to u.s. and canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate . our effective tax rate fluctuates as a result of the change in the mix of our activities in the jurisdictions we operate due to differing tax rates in those jurisdictions . our provision for income taxes excludes the windfall benefit from shares issued in connection with our 2013 plan and 2013 employee stock purchase plan ( 2013 espp plan ) . prior to the ipo in 2013 , our provision for income taxes was based on a tax-sharing agreement between us and mmc . as specified by the tax-sharing agreement , our effective tax rate was 43.5 % for the pre-ipo period . story_separator_special_tag consolidated financial statements for additional information . 43 provision for income taxes the provision for income taxes was $ 47.0 million for 2015 as compared to $ 33.5 million in 2014 , an increase of $ 13.6 million or 40.6 % . the effective tax rate for 2015 was 41.5 % , compared with 40.3 % in 2014. the increase in the effective tax rate was primarily due to the change in the company 's effective state tax rate on deferred taxes and the valuation allowance related to our canadian net operating loss carryforwards .
| results of operations following is a discussion of our results of operations for the years ended december 31 , 2015 , 2014 and 2013. the tables included in the period comparisons below provide summaries of our results of operations . the period-to-period comparisons of financial results are not necessarily indicative of future results . key operating metrics we regularly review a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . during the years ended december 31 , 2015 , 2014 and 2013 , we closed more than 8,700 , 7,600 and 6,600 sales , financing and other transactions with total volume of approximately $ 37.8 billion , $ 33.1 billion and $ 24.0 billion , respectively . such key metrics for real estate brokerage and financing activities are as follows : replace_table_token_6_th 41 comparison of year ended december 31 , 2015 and 2014 below are key operating results for the year ended december 31 , 2015 compared to the results for the year ended december 31 , 2014 ( dollars in thousands ) : replace_table_token_7_th ( 1 ) adjusted ebitda is not a measurement of our financial performance under u.s. gaap and should not be considered as an alternative to net income , operating income or any other measures derived in accordance with u.s. gaap . for a definition of adjusted ebitda and a reconciliation of adjusted ebitda to net income , see non-gaap financial measure. revenues our total revenues were $ 689.1 million in 2015 compared to $ 572.2 million in 2014 , an increase of $ 116.9 million , or 20.4 % . total revenues increased primarily as a result of increases in real estate brokerage commissions of $ 107.6 million , which contributed 92.1 % of the total increase .
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common stockholders who do not so elect will receive their dividends in cash . common stockholders who receive distributions in the form of stock will be subject to the same federal , state and local tax consequences as stockholders who elect to receive their distributions in cash . we may use newly issued shares under the guidelines of the dividend reinvestment plan , or we may purchase shares in the open market in connection with the obligations under the plan . we do not have a dividend reinvestment plan for our preferred stock stockholders . recent accounting pronouncements in august 2014 , the fasb issued accounting standards update 201415 ( asu 2014-15 ) , presentation of financial statements going concern ( subtopic 205 40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern . asu 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity 's ability to continue as a going concern , and story_separator_special_tag fair value measurements of our investments may involve subjective judgments and estimates and due to the inherent uncertainty of determining these fair values , the fair value of our investments may fluctuate from period to period . additionally , changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned . further , such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities . if we were required to liquidate a portfolio investment in a forced or liquidation sale , we could realize significantly less than the value at which it is recorded . our nav would be adversely affected if the fair value of our investments that are approved by our board of directors are higher than the values that we ultimately realize upon the disposal of such securities . the lack of liquidity of our privately held investments may adversely affect our business . we will generally make investments in private companies whose securities are not traded in any public market . substantially all of the investments we presently hold and the investments we expect to acquire in the future are , and will be , subject to legal and other restrictions on resale and will otherwise be less liquid than publicly traded securities . the illiquidity of our investments may make it difficult for us to quickly obtain cash equal to the value at which we record our investments if the 27 need arises . this could cause us to miss important investment opportunities . in addition , if we are required to liquidate all or a portion of our portfolio quickly , we may record substantial realized losses upon liquidation . we may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we , the adviser , or our respective officers , employees or affiliates have material non-public information regarding such portfolio company . due to the uncertainty inherent in valuing these securities , the adviser 's determinations of fair value may differ materially from the values that could be obtained if a ready market for these securities existed . our nav could be materially affected if the adviser 's determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities . when we are a debt or minority equity investor in a portfolio company , which we expect will generally be the case , we may not be in a position to control the entity , and its management may make decisions that could decrease the value of our investment . we anticipate that most of our investments will continue to be either debt or minority equity investments in our portfolio companies . therefore , we are and will remain subject to the risk that a portfolio company may make business decisions with which we disagree , and the shareholders and management of such company may take risks or otherwise act in ways that do not serve our best interests . as a result , a portfolio company may make decisions that could decrease the value of our portfolio holdings . in addition , we will generally not be in a position to control any portfolio company by investing in its debt securities . this is particularly true when we invest in syndicated loans , which are loans made by a larger group of investors whose investment objectives of the other lenders may not be completely aligned with ours . as of september 30 , 2014 , syndicated loans made up approximately 17.5 % of our portfolio at cost , or $ 61.1 million . we therefore are subject to the risk that other lenders in these investments may make decisions that could decrease the value of our portfolio holdings . we typically invest in transactions involving acquisitions , buyouts and recapitalizations of companies , which will subject us to the risks associated with change in control transactions . our strategy , in part , includes making debt and equity investments in companies in connection with acquisitions , buyouts and recapitalizations , which subjects us to the risks associated with change in control transactions . change in control transactions often present a number of uncertainties . companies undergoing change in control transactions often face challenges retaining key employees and maintaining relationships with customers and suppliers . while we hope to avoid many of these difficulties by participating in transactions where the management team is retained and by conducting thorough due diligence in advance of our decision to invest , if our portfolio companies experience one or more of these problems , we may not realize the value that we expect in connection with our investments , which would likely harm our operating results and financial condition . story_separator_special_tag in connection with the disposition of an investment in private securities , we may be required to make representations about the business and financial affairs of the underlying portfolio company typical of those made in connection with the sale of a business . we may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities . these arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of certain distributions previously made to us . there may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims . even though we have structured some of our investments as senior loans , if one of our portfolio companies were to go bankrupt , depending on the facts and circumstances , including the extent to which we actually provided managerial assistance to that portfolio company , a bankruptcy court might re-characterize our debt investments and subordinate all , or a portion , of our claims to that of other creditors . holders of debt instruments ranking senior to our investments typically would be entitled to receive payment in full before we receive any distributions . after repaying such senior creditors , such portfolio company may not have any remaining assets to use to repay its obligation to us . we may also be subject to lender liability claims for actions taken by us with respect to a borrower 's business or in instances in which we exercised control over the borrower . it is possible that we could become subject to a lender 's liability claim , including as a result of actions taken in rendering significant managerial assistance . 29 portfolio company litigation could result in additional costs and the diversion of management time and resources . in the course of investing in and often providing significant managerial assistance to certain of our portfolio companies , certain persons employed by the adviser may serve as directors on the boards of such companies . to the extent that litigation arises out of our investments in these companies , even if without merit , we or such employees may be named as defendants in such litigation , which could result in additional costs , including defense costs , and the diversion of management time and resources . we may not realize gains from our equity investments and other yield enhancements . when we make a subordinated loan , we may receive warrants to purchase stock issued by the borrower or other yield enhancements , such as success fees . our goal is to ultimately dispose of these equity interests and realize gains upon our disposition of such interests . we expect that , over time , the gains we realize on these warrants and other yield enhancements will offset any losses we experience on loan defaults . however , any warrants we receive may not appreciate in value and , in fact , may decline in value and any other yield enhancements , such as success fees , may not be realized . accordingly , we may not be able to realize gains from our equity interests or other yield enhancements and any gains we do recognize may not be sufficient to offset losses we experience on our loan portfolio . any unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses , which could reduce our income available for distribution . as a bdc we are required to carry our investments at market value or , if no market value is ascertainable , at fair value as determined in good faith by or under the direction of our board of directors . we will record decreases in the market values or fair values of our investments as unrealized depreciation . since our inception , we have , at times , incurred a cumulative net unrealized depreciation of our portfolio . any unrealized depreciation in our investment portfolio could result in realized losses in the future and ultimately in reductions of our income available for distribution to stockholders in future periods . risks related to our regulation and structure we will be subject to corporate-level tax if we are unable to satisfy code requirements for ric qualification . to maintain our qualification as a ric , we must meet income source , asset diversification , and annual distribution requirements . the annual distribution requirement is satisfied if we distribute at least 90.0 % of our investment company taxable income to our stockholders on an annual basis . because we use leverage , we are subject to certain asset coverage ratio requirements under the 1940 act and could , under certain circumstances , be restricted from making distributions necessary to qualify as a ric . warrants we receive with respect to debt investments will create original issue discount , which we must recognize as ordinary income over the term of the debt investment or pik interest which is accrued generally over the term of the debt investment but not paid in cash , both of which will increase the amounts we are required to distribute to maintain ric status . because such oids and pik interest will not produce distributable cash for us at the same time as we are required to make distributions , we will need to use cash from other sources to satisfy such distribution requirements . the asset diversification requirements must be met at the end of each calendar quarter . if we fail to meet these tests , we may need to quickly dispose of certain investments to prevent the loss of ric status . since most of our investments will be illiquid , such dispositions , if even possible , may not be made at prices advantageous to us and , in fact , may result in substantial losses .
| results of operations comparison of the year ended september 30 , 2014 to the year ended september 30 , 2013 replace_table_token_8_th nm = not meaningful investment income total interest income decreased by 4.1 % for the year ended september 30 , 2014 , as compared to the prior year period . this decrease was due primarily to the increase in early payoffs at par during the year , resulting in a lower weighted average principal balance of interest-bearing investments compared to the prior year , offset by new investments funding later in the current year . the level of interest income on our investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the year , multiplied by the weighted average yield . the weighted average principal balance of our interest-bearing investment portfolio during the year ended september 30 , 2014 , was $ 280.4 million , compared to $ 287.3 million for the prior year , a decrease of $ 6.9 million , or 2.4 % . the weighted average yield on our interest-bearing investments is based on the current stated interest rate on interest-bearing investments and remained consistent year over year at 11.5 % for the year ended september 30 , 2014 and 11.6 % for the year ended september 30 , 2013. as of september 30 , 2014 , three portfolio companies were on non-accrual status , with an aggregate debt cost basis of approximately $ 51.4 million , or 16.1 % of the cost basis of all debt investments in our portfolio . as of september 30 , 2013 , two portfolio companies were on non-accrual status , with an aggregate debt cost basis of approximately $ 39.5 million , or 12.6 % , of the cost basis of all debt investments in our portfolio .
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gains or losses from translating the financial statements of these subsidiaries are included in shareholders ' equity as a component of accumulated other comprehensive income story_separator_special_tag story_separator_special_tag gains on equity securities were approximately $ 53.7 billion in 2019 compared to after-tax losses of $ 20.6 billion in 2018. after-tax investment gains in 2019 also included after-tax realized gains on sales of equity and fixed maturity securities of $ 2.6 billion compared to $ 3.1 billion in 2018. we believe that investment and derivative gains/losses , whether realized from dispositions or unrealized from changes in market prices of equity securities , are generally meaningless in understanding our reported results or evaluating the economic performance of our businesses . these gains and losses have caused and will continue to cause significant volatility in our periodic earnings . after-tax other earnings included equity method investment earnings of $ 1.0 billion in 2019 , losses of $ 1.4 billion in 2018 and earnings of $ 1.1 billion in 2017. the losses in 2018 were attributable to kraft heinz , partly offset by earnings from other equity method investments . other earnings also included foreign currency exchange rate gains of $ 58 million in 2019 , $ 289 million in 2018 , and losses of $ 655 million in 2017 related to non-u.s. dollar denominated debt issued by berkshire and its u.s. based financing subsidiary , berkshire hathaway finance corporation ( “ bhfc ” ) . insurance—underwriting our management views our insurance businesses as possessing two distinct activities – underwriting and investing . underwriting decisions are the responsibility of the unit managers , while investing decisions are the responsibility of berkshire 's chairman and ceo , warren e. buffett and berkshire 's corporate investment managers . accordingly , we evaluate performance of underwriting operations without any allocation of investment income or investment gains/losses . we consider investment income as a component of our aggregate insurance operating results . however , we consider investment gains and losses , whether realized or unrealized as non-operating , based on our long-held strategy of acquiring securities and holding those securities for long periods . we believe that such gains and losses are not meaningful in understanding the operating results of our insurance operations . the timing and amount of catastrophe losses can produce significant volatility in our periodic underwriting results , particularly with respect to our reinsurance businesses . generally , we consider pre-tax catastrophe losses in excess of $ 100 million from a current year event as significant . we incurred estimated pre-tax losses of approximately $ 1.0 billion in 2019 , $ 1.6 billion in 2018 and $ 3.0 billion in 2017 from significant catastrophe events . changes in estimates for unpaid losses and loss adjustment expenses , including amounts established for occurrences in prior years , can also significantly affect our periodic underwriting results . unpaid loss estimates , including estimates under retroactive reinsurance contracts , were approximately $ 115.5 billion as of december 31 , 2019. our periodic underwriting results may also include significant foreign currency transaction gains and losses arising from the changes in the valuation of non-u.s. dollar denominated reinsurance liabilities of our u.s. based insurance subsidiaries due to foreign currency exchange rate fluctuations . k-33 management 's discussion and analysis ( continued ) insurance—underwriting ( continued ) we engage in both primary insurance and reinsurance of property/casualty , life and health risks . in primary insurance activities , we assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks . in reinsurance activities , we assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected themselves to in their own insuring activities . our insurance and reinsurance businesses are geico , berkshire hathaway primary group and berkshire hathaway reinsurance group ( “ bhrg ” ) . underwriting results of our insurance businesses are summarized below ( dollars in millions ) . replace_table_token_4_th geico geico writes private passenger automobile insurance , offering coverages to insureds in all 50 states and the district of columbia . geico markets its policies mainly by direct response methods where most customers apply for coverage directly to the company via the internet or over the telephone . a summary of geico 's underwriting results follows ( dollars in millions ) . replace_table_token_5_th 2019 versus 2018 premiums written and earned in 2019 increased 5.5 % and 6.6 % , respectively , compared to 2018. these increases were primarily attributable to voluntary auto policies-in-force growth of 6.4 % over the past twelve months , partially offset by a decrease in average premiums per auto policy due to coverage changes and changes in state and risk mix . the increase in voluntary auto policies-in-force primarily resulted from an increase in new business sales of 10.9 % and a decrease in the number of policies not renewed . voluntary auto policies-in-force increased approximately 1,068,000 during 2019. losses and loss adjustment expenses in 2019 increased 10.1 % to $ 28.9 billion . geico 's losses and loss adjustment expenses ratio in 2019 was 81.3 % , an increase of 2.5 percentage points over 2018. the loss ratio increase in 2019 reflected continuing increases in loss severities , slightly offset by lower storm-related losses . claims frequencies in 2019 declined compared to 2018 for property damage and collision coverages ( two to four percent range ) and personal injury protection coverage ( one to two percent range ) and were relatively unchanged for bodily injury coverage . average claims severities in 2019 were higher versus 2018 for property damage and collision coverages ( four to six percent range ) and bodily injury coverage ( seven to nine percent range ) . losses and loss adjustment expenses regularly include changes in the ultimate claim loss estimates during the period for prior years ' loss events , which produce pre-tax underwriting earnings or losses in the period of the change . story_separator_special_tag bh primary insurers write significant levels of commercial and professional liability and workers ' compensation insurance and the related claim costs may be subject to high severity and long claim-tails . accordingly , we could experience significant increases in claims liabilities in the future attributable to higher than expected claim settlements , adverse litigation outcomes or judicial rulings and other factors not currently anticipated . berkshire hathaway reinsurance group we offer excess-of-loss and quota-share reinsurance coverages on property and casualty risks and life and health reinsurance to insurers and reinsurers worldwide through several subsidiaries , led by national indemnity company ( “ nico ” ) , berkshire hathaway life insurance company of nebraska ( “ bhln ” ) and general reinsurance corporation , general reinsurance ag and general re life corporation ( “ general re ” ) . we also periodically assume property and casualty risks under retroactive reinsurance contracts written through nico . in addition , we write periodic payment annuity contracts predominantly through bhln . generally , we strive to generate underwriting profits . however , time-value-of-money concepts are important elements in establishing prices for retroactive reinsurance and periodic payment annuity businesses due to the expected long durations of the liabilities . we expect to incur pre-tax underwriting losses from such businesses , primarily through deferred charge amortization and discount accretion charges . we receive premiums at the inception of these contracts , which are then available for investment . a summary of bhrg 's premiums and pre-tax underwriting results follows ( dollars in millions ) . replace_table_token_7_th k-36 management 's discussion and analysis ( continued ) insurance—underwriting ( continued ) property/casualty a summary of property/casualty reinsurance underwriting results follows ( dollars in millions ) . replace_table_token_8_th property/casualty premiums written in 2019 of $ 10.4 billion represented an increase of 10.8 % compared to 2018. premiums earned in 2019 increased $ 983 million ( 11.0 % ) versus 2018. the increase in premiums written reflected overall growth in u.s. and international markets . the growth was primarily attributable to new business , net of non-renewals , and increased participations for renewal business , partly offset by the unfavorable foreign currency translation effects of a stronger u.s. dollar . property/casualty premiums written in 2018 were $ 9.4 billion , an increase of 22.0 % over 2017. the increase was primarily attributable to new business and increased participations for renewal business in both property and casualty lines . premiums earned included $ 1.7 billion in 2019 and $ 1.8 billion in both 2018 and 2017 from a 10-year , 20 % quota-share contract with insurance australia group limited , which expires in 2025. losses and loss adjustment expenses were $ 7.3 billion in 2019 , $ 6.9 billion in 2018 and $ 7.2 billion in 2017 and losses and loss adjustment expense ratios were 73.8 % in 2019 , 77.6 % in 2018 and 95.6 % in 2017. losses and loss adjustment expenses included incurred losses from significant catastrophe events occurring each year , including approximately $ 1.0 billion in 2019 ( $ 700 million in the fourth quarter ) , $ 1.3 billion in 2018 ( $ 1.1 billion in the fourth quarter ) and $ 2.4 billion in 2017. losses in 2019 derived from typhoons faxia and hagibis and wildfires in california and australia . losses in 2018 derived from hurricanes florence and michael , typhoon jebi and wildfires in california . losses in 2017 derived from hurricanes harvey , irma and maria , an earthquake in mexico , a cyclone in australia and wildfires in california . before the effects of significant catastrophe events , losses and loss adjustment expense ratios were 64 % in 2019 , 63 % in 2018 and 64 % in 2017. losses and loss adjustment expenses also included gains from net decreases in estimated ultimate claim liabilities attributable to prior years ' loss events of approximately $ 295 million in 2019 , $ 469 million in 2018 and $ 295 million in 2017. such decreases as percentages of the related net unpaid claim liabilities as of the beginning of the applicable year were 1.0 % in 2019 , 1.7 % in 2018 and 1.2 % in 2017. life/health a summary of our life/health reinsurance underwriting results follows ( dollars in millions ) . replace_table_token_9_th k-37 management 's discussion and analysis ( continued ) insurance—underwriting ( continued ) life/health ( continued ) life/health premiums earned were $ 4.9 billion in 2019 , a decrease of $ 460 million ( 8.6 % ) compared to 2018. in the first quarter of 2019 , bhln amended a yearly-renewable-term life reinsurance contract with a major reinsurer . the amendment effectively eliminated bhln 's future exposures under the contract . bhln recorded a reduction in earned premiums on this contract in 2019 of $ 49 million while premiums earned in 2018 related to this contract were $ 954 million . life/health premiums earned in 2019 also included $ 228 million from a single reinsurance contract covering health insurance risks . we also experienced volume growth in several international life markets , partially offset by the unfavorable effects of foreign currency translation attributable to a stronger u.s. dollar and lower u.s. life volumes . the life/health business produced pre-tax underwriting earnings of $ 326 million in 2019. underwriting results for 2019 included a one-time pre-tax gain of $ 163 million attributable to the yearly-renewable-term life reinsurance contract amendment . pre-tax underwriting earnings in 2019 also included losses from increased disability benefit liabilities in australia , attributable to higher claims experience and changes to various underlying assumptions , increased u.s. long-term care liabilities due to discount rate reductions and changes in other actuarial assumptions , and an increase in life claims in north america , partially offset by increased earnings from other international life business . variable annuity guarantee reinsurance contracts produced pre-tax earnings of $ 167 million in 2019. underwriting results from this business reflect changes in estimated liabilities for guaranteed benefits , which derive from changes in securities markets and interest rates and from the periodic amortization of expected profit margins .
| results of operations net earnings attributable to berkshire hathaway shareholders for each of the past three years are disaggregated in the table that follows . amounts are after deducting income taxes and exclude earnings attributable to noncontrolling interests ( in millions ) . replace_table_token_3_th through our subsidiaries , we engage in a number of diverse business activities . we manage our operating businesses on an unusually decentralized basis . there are essentially no centralized or integrated business functions and there is minimal involvement by our corporate headquarters in the day-to-day business activities of the operating businesses . our senior corporate management team participates in and is ultimately responsible for significant capital allocation decisions , investment activities and the selection of the chief executive to head each of the operating businesses . the business segment data ( note 27 to the accompanying consolidated financial statements ) should be read in conjunction with this discussion . beginning in 2018 , our periodic net earnings include changes in unrealized gains and losses on our investments in equity securities . these gains and losses have been very significant given the size of our holdings and the inherent volatility in securities prices , producing extraordinary volatility in our reported net earnings for 2019 and 2018. prior to 2018 , the changes in unrealized gains and losses pertaining to such investments were recorded in other comprehensive income . the new accounting treatment has no effect on our consolidated shareholders ' equity .
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the following table summarizes the revenues recognized under the various arrangements with the nih and niaid , included as grant revenue in our consolidated statements of operations ( in thousands ) : replace_table_token_22_th 10. long-term debt in december 2014 , we entered into a loan and security agreement ( “ loan agreement ” ) with hercules technology growth capital , inc. ( “ hercules ” ) under which we may borrow up to $ 40.0 million in two tranches . we drew down the first tranche of $ 10.0 million upon closing of the transaction on december 23 , 2014. the second tranche , of $ 30.0 million , can be drawn at our option any time prior to september 30 , 2015 , but only if we have achieved certain milestones story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve a number of risks and uncertainties . our actual results could differ materially from those indicated by forward-looking statements as a result of various factors , including but not limited to , the period for which we estimate our cash resources are sufficient , the availability of additional funds , as well as those set forth under “ risk factors ” and those that may be identified from time to time in our reports and registration statements filed with the securities and exchange commission . the following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations . the discussion should be read in conjunction with “ item 6—selected financial data ” and the consolidated financial statements and the related notes thereto set forth in “ item 8—financial statements and supplementary data. ” overview we are a clinical-stage biopharmaceutical company that uses tlr biology to discover and develop novel vaccines and therapeutics . our development programs are organized under our three areas of focus : vaccine adjuvants , cancer immunotherapy , and autoimmune and inflammatory diseases . our vaccine research has focused on the use of tlr9 agonists as novel adjuvants . our lead vaccine product candidate is heplisav-b tm , an investigational adult hepatitis b vaccine in phase 3 clinical development . heplisav-b combines our proprietary tlr9 agonist adjuvant , and recombinant hepatitis b surface antigen ( “ rhbsag ” or “ hbsag ” ) to elicit a response after two doses . in phase 3 trials , heplisav-b demonstrated earlier protection with fewer doses than currently-licensed vaccines and an adverse event profile similar to a licensed hepatitis b vaccine . based on those data , we submitted a biologics license application ( “ bla ” ) to the u.s. food and drug administration ( “ fda ” ) in 2012. in 2013 the fda issued a complete response letter ( “ crl ” ) indicating that it would not approve the bla because hypothetical risks of the novel adjuvant warranted a larger safety database to assess the possibility of rare autoimmune side effects . in april , 2014 we initiated hbv-23 , a phase 3 study of heplisav-b , in order to provide a sufficiently-sized database for the fda to complete its review of our bla . hbv-23 was fully enrolled in september , 2014. we expect follow-up for the last patients to be complete in october , 2015. in the first quarter of 2016 , we intend to submit to fda our revised bla with answers to all questions raised and that submission is expected to be assigned a 6-month prescription drug user fee act ( pdufa ) review period . if approved , we expect to launch heplisav-b in the fourth quarter of 2016. through our expertise in tlr biology we have designed compounds that stimulate multiple innate mechanisms of tumor killing along with developing immune memory associated with antigens found in tumors . our lead cancer immunotherapy candidate is sd-101 , a c class cpg tlr9 agonist that was selected for characteristics optimal for treatment of cancer , including high interferon induction . in animal models , sd-101 demonstrated significant anti-tumor effects at both the injected site and at distant sites . two phase 1 clinical studies of sd-101 have been completed , establishing that it is safe and well-tolerated at a range of doses far exceeding the expected therapeutic level for oncology uses . we have begun a clinical program intended to assess the preliminary efficacy of sd-101 in a range of tumors and in combination with a range of treatments . dynavax has several clinical and preclinical programs focused on therapeutics for autoimmune and inflammatory diseases . our most advanced inflammatory disease candidate is azd1419 , which is partnered with astrazeneca ab ( “ astrazeneca ” ) . azd1419 is designed to change the basic immune response to environmental allergens , such as house dust and pollens , leading to prolonged reduction in asthma symptoms by converting the response from one primarily mediated by type-2 helper t cells ( “ th2 ” ) to type-1 helper t cells ( “ th1 ” ) . a phase 1a study of azd1419 demonstrated its safety and tolerability in healthy subjects . we are currently working with astrazeneca to design a phase 2 study , which astrazeneca will fully fund and we will conduct , beginning in the second half of 2015. there is also strong rationale for the use of tlr inhibitors to treat autoimmune disease . these conditions arise from dysfunction in the innate immune system resulting in the body seeing its own cells and tissues as pathogens and attacking them . various autoimmune diseases are characterized by over-stimulation of endosomal tlrs . promising programs based on this science include dv1179 , our tlr7/9 inhibitor for autoimmune or inflammatory conditions . in three clinical studies in both healthy subjects and patients with autoimmune disease , dv1179 was safe and well tolerated at a range of doses with up to 8 weekly injections . story_separator_special_tag revenue is recognized on a ratable basis , unless we determine that another method is more appropriate , through the date at which our performance obligations are completed . management makes its best estimate of the period over which we expect to fulfill our performance obligations , which may include clinical development activities . given the uncertainties of research and development collaborations , significant judgment is required to determine the duration of the 28 performance period . we recognize cost reimbursement revenue under collaborative agreements as the related research and development costs are incurred , as provided for under the terms of these agreements . contingent consideration received for the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved . a milestone is defined as an event having all of the following characteristics : ( i ) there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved , ( ii ) the event can only be achieved based in whole or in part on either the entity 's performance or a specific outcome resulting from the entity 's performance and ( iii ) if achieved , the event would result in additional payments being due to the entity . our license and collaboration agreements with our partners provide for payments to be paid to us upon the achievement of development milestones . given the challenges inherent in developing biologic products , there is substantial uncertainty whether any such milestones will be achieved at the time we entered into these agreements . in addition , we evaluate whether the development milestones meet the criteria to be considered substantive . the conditions include : ( i ) the development work is contingent on either of the following : ( a ) the vendor 's performance to achieve the milestone or ( b ) the enhancement of the value of the deliverable item or items as a result of a specific outcome resulting from the vendor 's performance to achieve the milestone ; ( ii ) it relates solely to past performance and ( iii ) it is reasonable relative to all the deliverable and payment terms within the arrangement . as a result of our analysis , we consider our development milestones to be substantive and , accordingly , we expect to recognize as revenue future payments received from such milestones as we achieve each milestone . milestone payments that are contingent upon the achievement of substantive at-risk performance criteria are recognized in full upon achievement of those milestone events in accordance with the terms of the agreement and assuming all other revenue recognition criteria have been met . all revenue recognized to date under our collaborative agreements has been nonrefundable . our license and collaboration agreements with certain partners also provide for contingent payments to be paid to us based solely upon the performance of our partner . for such contingent payments we expect to recognize the payments as revenue upon receipt , provided that collection is reasonably assured and the other revenue recognition criteria have been satisfied . revenues from manufacturing services are recognized upon meeting the criteria for substantial performance and acceptance by the customer . revenue from royalty payments is contingent on future sales activities by our licensees . as a result , we recognize royalty revenue when all revenue recognition criteria have been satisfied . revenue from government and private agency grants is recognized as the related research expenses are incurred and to the extent that funding is approved . additionally , we recognize revenue based on the facilities and administrative cost rate reimbursable per the terms of the grant awards . research and development expenses and accruals research and development expenses include personnel and facility-related expenses , outside contracted services including clinical trial costs , manufacturing and process development costs , research costs and other consulting services and non-cash stock-based compensation . research and development costs are expensed as incurred . amounts due under such arrangements may be either fixed fee or fee for service , and may include upfront payments , monthly payments and payments upon the completion of milestones or receipt of deliverables . non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed . we contract with third parties to perform various clinical trial activities in the on-going development of potential products . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows to our vendors . payments under the contracts depend on factors such as the achievement of certain events , successful enrollment of patients , and completion of portions of the clinical trial or similar conditions . our accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations . we may terminate these contracts upon written notice and we are generally only liable for actual effort expended by the organizations to the date of termination , although in certain instances we may be further responsible for termination fees and penalties . the company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to the company at that time . there have been no material adjustments to the company 's prior period accrued estimates for clinical trial activities through december 31 , 2014. stock-based compensation stock-based compensation expense for stock options and other stock awards is estimated at the grant date based on the award 's fair value-based measurement and is recognized on a straight-line basis over the award 's vesting period , assuming appropriate 29 forfeiture rates . our determination of the fair value-based measurement of stock options on the date of grant using an option-pricing model is affected by our stock price , as well as assumptions regarding a number of highly complex and subjective variables .
| results of operations revenues revenues consist of amounts earned from collaborations , grants and services and license fees . collaboration revenue includes amounts recognized under our collaboration agreements . grant revenue includes amounts earned under government and private agency grants . service and license fees include revenues related to research and development and contract manufacturing services , license fees and royalty payments . the following is a summary of our revenues for the years ended december 31 , 2014 , 2013 and 2012 ( in thousands , except for percentages ) : replace_table_token_5_th 2014 versus 2013 total revenues for the year ended december 31 , 2014 , decreased by $ 0.2 million or 2 % as compared to the same period in 2013 , as the increase in collaboration revenue offset the decrease in grant revenue and service and license revenue . collaboration revenue for the year ended december 31 , 2014 , increased by $ 3.0 million due to a $ 5.4 million payment received from astrazeneca in the first quarter of 2014 that is being deferred and recognized over the estimated performance period and recognition of $ 1.1 million of additional revenue resulting from a revision of the estimated period of performance under the gsk collaboration agreement . grant revenue for the year ended december 31 , 2014 , decreased by $ 2.5 million from the same period in 2013 primarily due to a decrease in revenue recognized from our national institute of health 's national institute of allergy and infectious diseases ( “ niaid ” ) contracts for adjuvant development and other programs funded by grants . service and license revenue for the year ended december 31 , 2014 , decreased by $ 0.8 million from the same period in 2013 due to lower royalty revenue received by dynavax europe .
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since its inception , the company has sold more than 2,500 systems to semiconductor manufacturers , semiconductor contract assemblers and burn-in and test service companies worldwide . the company 's principal products currently are the advanced burn-in and test system , the fox full wafer contact parallel test and burn-in system , waferpak contactors , the diepak carrier and test fixtures . the company 's net sales consist primarily of sales of systems , waferpak contactors , test fixtures , die carriers , upgrades and spare parts and revenues from service contracts and engineering development charges . the company 's selling arrangements may include contractual customer acceptance provisions , which are mostly deemed perfunctory or inconsequential , and installation of the product occurs after shipment and transfer of title . significant items impacting comparability of financial statements spansion , the company 's largest customer in fiscal 2009 through 2012 and second largest customer in fiscal 2013 , filed for bankruptcy in japan in february 2009 and in the united states in march 2009. due to the bankruptcy filing and the impact of the weak global economic environment on demand for the company 's products , in the third quarter of fiscal 2009 , we recorded a $ 13.7 million provision for bad debts in selling , general and administrative expenses , a $ 7.2 million provision for excess and obsolete inventory and a $ 0.3 million charge for cancellation charges to cost of sales , a $ 4.9 million charge to income tax expense related to the reinstatement of the valuation allowance against the company 's deferred tax assets , a $ 0.3 million charge to operating expenses related to goodwill impairment and a $ 0.4 million expense related to severance charges . the company filed a claim in the spansion u.s. bankruptcy action . in the first quarter of fiscal 2010 , the company sold a portion , $ 11.4 million , of its spansion u.s. bankruptcy claim to a third party for net proceeds of $ 3.3 million and recorded the amount as a reduction of operating expenses . in the third quarter of fiscal 2010 , the company sold the remaining balance , $ 7.1 million , of its spansion u.s. bankruptcy claim to a third party for net proceeds of $ 4.6 million and recorded $ 2.7 million as net sales related to cancellation charges , $ 1.3 million as deferred revenue and $ 0.6 million as a reduction of operating expenses . in the fourth quarter of fiscal 2010 , the company received the remaining payment of $ 0.1 million due from its bankruptcy claim sale completed in the first quarter of fiscal 2010 and recognized the amount as a reduction of operating expenses . the $ 1.3 million deferred revenue at the end of the third quarter of fiscal 2010 was recognized as product sales during the fourth quarter of fiscal 2010 in connection with the delivery of products . in the first quarter of fiscal 2011 , the company 's japanese subsidiary received approximately $ 0.2 million in proceeds from the spansion japan bankruptcy claim and recorded the amount as a reduction of operating expenses . in the fourth quarter of fiscal 2011 , the company 's japanese subsidiary received approximately $ 0.7 million in proceeds from the spansion japan bankruptcy claim and recorded the amount as a reduction of operating expenses . the company intends to take actions as necessary to maintain sufficient cash to manage through the current period of slow business activity . critical accounting policies and estimates the company 's discussion and analysis of its financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , the company evaluates its estimates , including those related to customer programs and incentives , product returns , bad debts , inventories , investments , intangible assets , income taxes , financing operations , warranty obligations , long-term service contracts , contingencies and litigation . the company 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 under different assumptions or conditions . 20 the company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . revenue recognition the company recognizes revenue upon the shipment of products or the performance of services when : ( 1 ) persuasive evidence of the arrangement exists ; ( 2 ) services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collectibility is reasonably assured . when a sales agreement involves multiple deliverables , such as extended support provisions , training to be supplied after delivery of the systems , and test programs specific to customers ' routine applications , the multiple deliverables are evaluated to determine the unit of accounting . judgment is required to properly identify the accounting units of multiple element transactions and the manner in which revenue is allocated among the accounting units . j udgments made , or changes to judgments made , may significantly affect the timing or amount of revenue recognition . revenue related to the multiple elements are allocated to each unit of accounting using the relative selling price hierarchy . consistent with accounting guidance , the selling price is based upon vendor specific objective evidence ( vsoe ) . story_separator_special_tag income taxes income taxes have been provided using the liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and net operating loss and tax credit carryforwards measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse or the carryforwards are utilized . valuation allowances are established when it is determined that it is more likely than not that such assets will not be realized . the company accounts for uncertain tax positions consistent with authoritative guidance . the guidance prescribes a “ more likely than not ” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . the company does not expect any material change in its unrecognized tax benefits over the next twelve months . the company recognizes interest and penalties related to unrecognized tax benefits as a component of income taxes . although the company files u.s. federal , various state and foreign tax returns , the company 's only major tax jurisdictions are the united states , california , germany and japan . tax years 1996 – 2013 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years . stock-based compensation expense stock-based compensation expense consists of expenses for stock options and employee stock purchase plan , or espp , shares . stock-based compensation cost is measured at each grant date , based on the fair value of the award using the black-scholes option valuation model , and is recognized as expense over the employee 's requisite service period . this model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable . the company 's employee stock options have characteristics significantly different from those of publicly traded options . all of the company 's stock compensation is accounted for as an equity instrument . the fair value of each option grant and the right to purchase shares under the company 's stock purchase plan are estimated on the date of grant using the black-scholes option valuation model with assumptions concerning expected term , stock price volatility , expected dividend yield , risk-free interest rate and the expected life of the award . see note 1 22 to our consolidated financial statements for additional information relating to stock-based compensation . see notes 10 and 11 to our consolidated financial statements for detailed information regarding the stock option plan and the espp . story_separator_special_tag compared with $ 6.5 million for the fiscal year ended may 31 , 2012 , an increase of 5.3 % . the increase in sg & a expenses was primarily due to an increase in sales expenses of $ 0.3 million related primarily to pre-sales support activities , and an increase in commissions of $ 0.3 million . this was offset by a reduction in employment related expenses of $ 0.1 million . research and development . research and development , or r & d , expenses consist primarily of salaries and related costs of employees engaged in ongoing research , design and development activities , costs of engineering materials and supplies and professional consulting expenses . r & d expenses decreased to $ 3.2 million for the fiscal year ended may 31 , 2013 from $ 4.2 million for the fiscal year ended may 31 , 2012 , a decrease of 23.3 % . the decrease in r & d expenses was primarily due to decreases of $ 0.3 million of employment related expenses and $ 0.3 million of project expenses and outside services . certain r & d expenditures related to non-recurring engineering milestones were transferred into cost of goods sold . interest expense . interest expense increased to $ 49,000 for the fiscal year ended may 31 , 2013 from $ 4,000 for the fiscal year ended may 31 , 2012 as a result of higher average borrowings on the line of credit . gain on sale of long-term investment . during the first quarter of fiscal 2012 , the company sold its long-term investment in esa electronics pte ltd , or esa , resulting in a gain of approximately $ 1.0 million . other ( expense ) income , net . other expense , net for the fiscal year ended may 31 , 2013 was $ 33,000 , compared to other income , net of $ 117,000 for the fiscal year ended may 31 , 2012. the change in other ( expense ) income was due to the fluctuation in the value of the dollar compared to foreign currencies . 24 income tax benefit ( expense ) . income tax expense was $ 30,000 for the fiscal year ended may 31 , 2013 , compared with income tax benefit of $ 15,000 for the fiscal year ended may 31 , 2012. the income tax benefits for the fiscal year ended may 31 , 2012 were due to the reversal of tax liabilities previously established , which were no longer required . liquidity and capital resources we consider cash and cash equivalents as liquid and available for use . as of may 31 , 2014 , the company had $ 1.8 million in cash and cash equivalents , compared to $ 2.3 million as of may 31 , 2013. net cash used in operating activities was $ 0.6 million and $ 0.3 million for the fiscal years ended may 31 , 2014 and 2013 , respectively . for the fiscal year ended may 31 , 2014 , net cash used in operating activities was primarily the result of net income of $ 0.4 million , as adjusted to exclude the effect of non-cash charges including stock-based compensation expense of $ 0.8 million , a decrease in customer deposits and deferred revenue of $ 1.0 million and an increase in inventories of $ 0.7 million .
| results of operations the following table sets forth statements of operations data as a percentage of net sales for the periods indicated . replace_table_token_4_th fiscal year ended may 31 , 2014 compared to fiscal year ended may 31 , 2013 net sales . net sales consist primarily of sales of systems , test fixtures , die carriers , upgrades and spare parts as well as revenues from service contracts . net sales increased to $ 19.7 million for the fiscal year ended may 31 , 2014 from $ 16.5 million for the fiscal year ended may 31 , 2013 , an increase of 19.4 % . the increase in net sales in fiscal 2014 was primarily due to an increase in net sales of the company 's wafer-level products . net sales of the wafer-level products for fiscal 2014 were $ 8.3 million , and increased approximately $ 3.2 million from fiscal 2013. gross profit . gross profit consists of net sales less cost of sales . cost of sales consists primarily of the cost of materials , assembly and test costs , and overhead from operations . gross profit increased to $ 10.2 million for the fiscal year ended may 31 , 2014 from $ 6.8 million for the fiscal year ended may 31 , 2013 , an increase of 50.9 % primarily due to an increase in net sales . gross profit margin for the fiscal year ended may 31 , 2014 was 51.9 % , compared with 41.1 % for the fiscal year ended may 31 , 2013. the increase in gross profit margin was primarily due to decreased direct material costs resulting from the sales of certain systems which included previously written-down material . selling , general and administrative . selling , general and administrative , or sg & a , expenses consist primarily of salaries and related costs of employees , customer support costs , commission expenses to independent sales representatives , product promotion , other professional services and bad debt expenses .
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the company has adopted an investment policy which limits the amounts the company may invest in any one type of investment , and requires all investments held by the story_separator_special_tag forward-looking information 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 those financial statements appearing elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under `` risk factors '' in item 1a of this annual report on form 10-k , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a commercial biotechnology company leveraging our proven development and commercial capabilities as we seek to bring multiple medicines to patients . we are advancing two therapeutic platforms , which include product opportunities in areas of large unmet need , including irritable bowel syndrome with constipation , or ibs-c , and chronic idiopathic constipation , or cic , vascular and fibrotic diseases , and refractory gastroesophageal reflux disease , or gerd . our first and to-date only commercial product , linaclotide , is available to adult men and women suffering from ibs-c or cic in the united states , or the u.s. , under the trademarked name linzess® , and is available to adult men and women suffering from ibs-c in certain european 55 countries under the trademarked name constella® . we and our u.s. partner allergan plc ( together with its affiliates ) , or allergan ( formerly actavis plc ) , began commercializing linzess in the u.s. in december 2012. under our collaboration with allergan for north america , total net sales of linzess in the u.s. , as recorded by allergan , are reduced by commercial costs incurred by each party , and the resulting amount is shared equally between us and allergan . our former european partner , almirall , s.a. , or almirall , began commercializing constella in europe for the symptomatic treatment of moderate to severe ibs-c in adults in the second quarter of 2013. in october 2015 , almirall transferred its exclusive license to develop and commercialize linaclotide in europe to allergan , and we and allergan entered into an amendment to the european license agreement to modify the remaining sales-based milestones and royalties payable to us and to provide for allergan 's assumption of responsibility for , and cost of , the manufacturing of linaclotide active pharmaceutical ingredient , or api , for europe from us . this amendment , together with the transfer of the european license for linaclotide from almirall to allergan , is more fully described in note 4 , collaboration , license and co-promotion agreements , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. currently , constella is commercially available in certain european countries , including the united kingdom , italy and spain . within our gastrointestinal , or gi , platform , we and allergan are exploring development opportunities to enhance the clinical profile of linzess by seeking to expand its utility within ibs-c and cic , as well as studying linaclotide in additional indications and populations to assess its potential to treat various gi conditions . in october 2015 , as part of this strategy , we reported positive top-line data from a phase iii clinical trial in the u.s. with allergan evaluating a 72 mcg dose of linaclotide in adult patients with cic . we believe these data support the submission of a supplemental new drug application , or snda , to the fda for approval to market the 72 mcg dose of linaclotide in the u.s. if approved , the 72 mcg dose would provide a broader range of treatment options to physicians and adult cic patients in the u.s. linaclotide is also being developed and commercialized in other parts of the world by certain of our partners . we and allergan are also developing linaclotide colonic release , a targeted oral delivery formulation of linaclotide designed to potentially improve abdominal pain relief in adult ibs-c patients . in addition to ibs-c , we are exploring linaclotide colonic release for use in additional gi disorders where lower abdominal pain is a predominant symptom , including ibs-mixed , or ibs-m , ulcerative colitis and diverticulitis , among others . we are also advancing other gi development programs for multiple indications . for example , we are investigating iw-3718 , a gastric retentive formulation of a bile acid sequestrant that is being evaluated for the potential treatment of refractory gerd . we are also investigating iw-9179 , a guanylate cyclase type-c , or gc-c , agonist designed to target upper gi conditions , for the treatment of gastroparesis and functional dyspepsia . within our vascular/fibrotic platform , we are leveraging our pharmacological expertise in guanylate cyclase , or gc , pathways gained through the discovery and development of linaclotide to advance development programs targeting soluble guanylate cyclase , or sgc . sgc is a validated mechanism with the potential for broad therapeutic utility and multiple opportunities for product development in vascular and fibrotic diseases , as well as other therapeutic areas . to date , we have identified two sgc development candidates , iw-1973 and iw-1701 , which have distinct pharmacologic profiles that we believe may be differentiating and enable opportunities in multiple indications . 56 as part of our strategy , we have also established development and commercial capabilities that we plan to leverage as we seek to bring multiple medicines to patients . we intend to play an active role in the development and commercialization of our internally developed products in the u.s. , and to establish a strong global brand by out-licensing commercialization rights in other territories to high-performing partners . in addition to the u.s. and europe , we have entered into partnerships to develop and commercialize linaclotide in other parts of the world . story_separator_special_tag we have incurred significant operating losses since our inception in 1998. as of december 31 , 2015 , we had an accumulated deficit of approximately $ 1.1 billion . we are unable to predict the extent of any future losses or guarantee when , or if , our company will become cash flow positive . financial overview revenue . revenue to date has been generated primarily through our collaboration agreements for the development and commercialization of linaclotide with allergan for north america and astrazeneca for china , hong kong and macau , our license agreements for the development and commercialization of linaclotide in japan with astellas and the development and commercialization of linaclotide in europe with allergan ( formerly with almirall ) , and our co-promotion agreements with allergan for viberzi and exact sciences for cologuard in the u.s. the terms of these agreements contain multiple deliverables which may include ( i ) licenses , ( ii ) research and development activities , ( iii ) the manufacture of finished drug product , api or development materials for a partner which are reimbursed at a contractually determined rate , and ( iv ) co-promotion activities by our clinical sales specialists . payments to us may include ( i ) up-front license fees , ( ii ) payments for research and development activities , ( iii ) payments for the manufacture of finished drug product , api or development materials , ( iv ) payments based upon the achievement of certain milestones , ( v ) payments for sales detailing , promotional support services and medical education initiatives and ( vi ) royalties on product sales . additionally , we receive our share of the net profits or bear our share of the net losses from the sale of linaclotide in the u.s. and china . linzess launched in the u.s. in december 2012 and constella became commercially available in certain european countries beginning in the second quarter of 2013. linaclotide is also approved in a number of other countries . 58 we record our share of the net profits and losses from the sales of linzess in the u.s. on a net basis and present the settlement payments to and from allergan as collaboration expense or collaborative arrangements revenue , as applicable . net profits or losses consist of net sales to third-party customers and sublicense income in the u.s. less the cost of goods sold as well as selling , general and administrative expenses . although we expect net sales to increase over time , the settlement payments between allergan and us , resulting in collaborative arrangements revenue or collaboration expense , are subject to fluctuation based on the ratio of selling , general and administrative expenses incurred by each party . in addition , our collaborative arrangements revenue may fluctuate as a result of the timing and amount of license fees and clinical and commercial milestones received and recognized under our current and future strategic partnerships as well as timing and amount of royalties from the sales of linaclotide in the european , canadian or mexican markets or any other markets where linaclotide receives approval . in october 2015 , almirall transferred its exclusive license to develop and commercialize linaclotide in europe to allergan . concurrently with the european license transfer , almirall and allergan terminated the sublicense arrangement with respect to mexico , returning the exclusive rights to commercialize constella in mexico to allergan . constella continues to be available to adult ibs-c patients in mexico . additionally , as described above , in october 2015 we and allergan separately entered into an amendment to the license agreement relating to the development and commercialization of linaclotide in europe . this amendment is more fully described in note 4 , collaboration , license and co-promotion agreements , to our consolidated financial statements appearing elsewhere in this annual report on form 10-k. cost of revenue . cost of revenue is recognized upon shipment of linaclotide api to certain of our licensing partners outside of the u.s. our cost of revenue consists of the internal and external costs of producing such api . write-down of inventory to net realizable value and loss on non-cancelable purchase commitments . during the year ended december 31 , 2015 , we recorded expenses of approximately $ 17.6 million for the write-down of inventory and an accrual for excess non-cancelable inventory purchase commitments related to linaclotide api . these charges primarily related to a reduction in the near term demand forecast for constella in the european territory by almirall ; recent regulatory changes made by the cfda to the marketing approval process in china ; and the amendment to the license agreement with allergan pertaining to the development and commercialization of linaclotide for europe executed in october 2015. pursuant to the terms of the amendment , allergan assumed responsibility for the manufacturing of linaclotide api for europe , as well as the associated costs , which resulted in accruing for a loss on non-cancelable inventory purchase commitments during the three months ended september 30 , 2015 , under one of our api supply agreements covering the commercial supply of linaclotide api for the european market . we have evaluated all remaining minimum purchase commitments under our linaclotide api supply agreements through 2023 and concluded that the approximately $ 22.3 million of purchase commitments from the second api supply agreement covering the japan , china , hong kong and macau markets are realizable based on the current forecasts received from our partners in these territories and our internal forecasts . during the year ended december 31 , 2014 , we wrote down approximately $ 20.3 million in inventory to an estimated net realizable value of approximately $ 5.0 million . this write down was primarily attributable to almirall 's reduced inventory demand forecasts , mainly due to the suspension of commercialization of constella in germany and a challenging commercial environment throughout europe .
| results of operations the following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements . replace_table_token_6_th year ended december 31 , 2015 compared to year ended december 31 , 2014 revenue year ended december 31 , change 2015 2014 $ % ( dollars in thousands ) collaborative arrangements revenue $ 149,555 $ 76,436 $ 73,119 96 % collaborative arrangements revenue . the increase in revenue from collaborative arrangements of approximately $ 73.1 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily related to an approximately $ 85.8 million increase in our share of the net profits from the sale of linzess in the u.s. ; an approximately $ 4.4 million increase due to revenues from our co-promotion agreement with exact sciences for cologuard in the u.s. entered into in march 2015 ; an approximately $ 0.8 million increase in royalty revenue based on sales of linaclotide in our partnered territories ; and an approximately $ 0.2 million increase due to revenues from our co-promotion agreement with allergan for viberzi in the u.s. entered into in august 2015. the increases were partially offset by an approximately $ 8.1 million decrease in revenue recognized in connection with the achievement of a development milestone under our astellas license agreement in 2014 ; an approximately $ 7.0 million decrease in revenue from the shipments of linaclotide api to our licensing partners ; an approximately $ 1.9 million decrease in revenue recognized related to the achievement of commercial launch milestones under our license agreement with almirall in 2014 ; and 71 an approximately $ 1.1 million decrease in revenue related to our collaboration agreement with astrazeneca . cost and expenses replace_table_token_7_th cost of revenue .
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91 evolus , inc. notes to financial statements other recent accounting pronouncements issued by the fasb ( including its emerging issues task force ) , the american institute of certified story_separator_special_tag the following discussion contains management 's discussion and analysis of our financial condition and results of operations and should be read together with the selected financial data in item 6 and historical financial statements , the notes thereto included in item 8 “ financial statements and supplementary data ” and included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the item 1a “ risk factors ” section of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . you should carefully read “ special note regarding forward-looking statements ” and item 1a “ risk factors. ” overview we are a performance beauty company with a customer-centric approach focused on delivering breakthrough products in the self-pay aesthetic market . on february 1 , 2019 , the u.s. food and drug administration , or fda , approved our first product jeuveau ( prabotulinumtoxina-xvfs ) . we plan to launch jeuveau commercially in the united states in spring 2019. jeuveau is a proprietary 900 kda purified botulinum toxin type a formulation indicated for the temporary improvement in the appearance of moderate to severe glabellar lines , also known as “ frown lines , ” in adults . we believe we will offer physicians and consumers a compelling value proposition with jeuveau . currently , onabotulinumtoxina ( botox ) is the neurotoxin market leader , and prior to the approval of jeuveau , was the only known 900 kda botulinum toxin type a complex approved in the united states . we believe aesthetic physicians generally prefer the performance characteristics of the complete 900 kda neurotoxin complex and are accustomed to injecting this formulation . since our inception in 2012 , we have devoted substantially all our efforts to identify and recruit personnel , conduct clinical trials , and seek regulatory approval for jeuveau . our resources have largely been devoted to the clinical development of jeuveau . on september 30 , 2013 , we entered into a license and supply agreement , or the daewoong agreement , with daewoong pharmaceuticals co. , ltd. , or daewoong , a south korean pharmaceutical manufacturer , pursuant to which daewoong agreed to manufacture and supply us with jeuveau and granted us an exclusive license to develop , distribute , market and sell the product in the united states , eu , canada , australia , russia , commonwealth of independent states , or c.i.s. , and south africa , or the covered territories . daewoong also granted us a non-exclusive license to do the same in japan . we submitted a new drug submission , or nds , to health canada and in august 2018 we received approval from health canada for the temporary improvement in the appearance of moderate to severe glabellar lines in adult patients under 65 years of age . we plan to market the product in canada in the first half of 2019 through our distribution partner clarion medical technologies , inc. , or clarion , a canadian provider of medical and aesthetic equipment and consumables to hospitals , aesthetic clinics and private medical practices . we also submitted a marketing authorization application , or maa , to the european medicines agency , or ema , and it was accepted for review in july 2017. we expect an opinion from the committee for medicinal products for human use , or chmp , in the first quarter of 2019. if the chmp provides a favorable opinion , we would expect approval of our maa by end of second quarter of 2019. we have never generated revenue from jeuveau and have never been profitable . as of december 31 , 2018 , we had an accumulated deficit of $ 123.0 million . we incurred net losses of approximately $ 46.9 million and $ 4.5 million in the years ended december 31 , 2018 and 2017 , respectively . we expect to continue to incur significant expenses and increasing net operating losses for the foreseeable future as we seek to commercialize jeuveau and seek regulatory approvals outside of the united states . we utilized contract research organizations , or cros , to carry out our clinical development . we expect to incur significant expenses related to building our commercialization infrastructure , including marketing , sales and distribution functions , inventory build prior to commercial launch and training and deploying a specialty sales force and implementing a targeted marketing campaign . we also expect to incur additional costs associated with operating as a public company and in building our internal resources . initial public offering in february 2018 , we completed our initial public offering and sold 5,047,514 shares of our common stock at a public offering price of $ 12.00 per share , inclusive of 47,514 shares of our common stock upon the exercise by the underwriters of their option to purchase additional shares . the net proceeds were approximately $ 56.3 million , after deducting underwriting discounts and commissions , excluding other offering expenses . 65 follow-on public offering in july 2018 , we completed a follow-on public offering , or the july 2018 public offering , in which we sold 3,600,000 shares of our common stock , which included the exercise in full by the underwriters of their option to purchase an additional 600,000 shares of common stock in august 2018 , at a public offering price of $ 20.00 per share . the net proceeds were approximately $ 67.7 million , after deducting underwriting discounts and commissions , excluding other offering expenses . story_separator_special_tag our management believes that the allocations and results are reasonable for all periods presented in our financial statements . however , allocations may not be indicative of the actual expense we would have incurred had we operated as an independent company for the periods presented and do not include additional expenses we expect to incur in connection with the commercialization of jeuveau , including the creation of a commercialization infrastructure and hiring of our sales force . in january 2018 , we entered into a services agreement with alphaeon , or the services agreement , which became effective in connection with our initial public offering . the services agreement sets forth certain terms between alphaeon and us that govern the respective responsibilities and obligations between alphaeon and us , as it relates to the services to be performed between us . the fees charged for any services rendered pursuant to the services agreement are the actual cost incurred by alphaeon or us , as the case may be , in providing the services for the relevant period . in addition , pursuant to the services agreement , upon completion of our initial public offering , we paid alphaeon $ 5.0 million towards the repayment of our related party borrowings and the remaining related party borrowings then outstanding were forgiven and the amount was re-characterized as a capital contribution of alphaeon . as a result , upon the completion of our initial public offering , we were no longer indebted to alphaeon pursuant to our historical related party borrowings from alphaeon . prior to february 12 , 2018 , we incurred obligations to alphaeon for the research and development expenses it incurred on our behalf , which included both external and internal expenses as well as general and administrative support services . external research and development expenses included costs for cros to conduct nonclinical and clinical studies on our product candidate , costs to acquire and evaluate clinical study data such as investigator grants , patient screening fees and laboratory work , and fees paid to consultants . internal development expenses included costs for the work that alphaeon 's research and development employees perform for us . financial overview our historical financial statements for the periods prior to our initial public offering on february 12 , 2018 have been prepared on a standalone basis and are derived from alphaeon 's consolidated financial statements and accounting records in conformity with u.s. generally accepted accounting principles , or gaap . our financial statements reflect our financial position , results of operations , stockholders ' equity ( deficit ) , and cash flows as our business was operated as part of alphaeon prior to the separation . the financial statements include the allocation of certain assets and liabilities that had historically been held at the alphaeon corporate level but which were specifically identifiable or allocable to us . the financial results reflect amounts attributable to our business , including the costs that alphaeon incurred for the development and commercialization of jeuveau and costs and expenses under the daewoong agreement . management believes that the allocations and results are reasonable for all periods presented . however , allocations may not be indicative of the actual expense we would have incurred had the business operated as an independent company for the periods presented . the following is a description of the components of our results of operations : general and administrative expenses our general and administrative expenses consist of salaries and personnel-related costs , including stock-based compensation , for our employees in administrative , commercial and other operating functions . our general and administrative expenses also include professional fees for accounting , auditing and consulting services , legal services , investor relations , travel and facilities . 67 as described above , prior to our initial public offering , alphaeon charged us for many of the expenses associated with these functions , including the grant of stock-based compensation of alphaeon 's stock . pursuant to the services agreement , alphaeon provides us and we provide alphaeon certain administrative and development support services . for example , we received from alphaeon certain general management , communication , intellectual property , human resources , office and information technology services , and we provide general accounting and legal services to alphaeon . the amounts to be charged for services rendered pursuant to the services agreement will be the actual cost incurred by alphaeon or us , as the case may be , in providing the services for the relevant period . alphaeon has historically charged us market rates for the portion of the resources that we use . since our initial public offering date or february 12 , 2018 , we have assumed responsibility from alphaeon for all of our general and administrative functions . we anticipate our general and administrative expenses to increase in the future to support our continued development and commercialization of jeuveau . our general and administrative expenses will also increase due to the costs of operating as a public company and may further increase when we are no longer able to rely on certain “ emerging growth company ” exemptions we are afforded under the jumpstart our business startups act of 2012 , or the jobs act . research and development expenses since our inception , we have focused on developing jeuveau . our research and development expenses primarily consist of : personnel costs , which include salaries and related expenses for research and development personnel , including expenses related to stock-based compensation granted to personnel in development functions ; fees paid to clinical study sites and vendors , including cros , in connection with our clinical studies , costs of acquiring and evaluating clinical study data such as investigator grants , patient screening fees , laboratory work and statistical compilation and analysis , and fees paid to clinical consultants related to the execution of clinical trials ; expenses to acquire clinical study materials ; other consulting fees paid to third parties ; expenses related to compliance with drug development regulatory requirements ; and travel ,
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table summarizes our results of operations for the periods indicated ( in thousands ) : replace_table_token_1_th research and development research and development expenses decrease d by $ 0.2 million to $ 6.5 million for the year ended december 31 , 2018 from $ 6.7 million for the year ended december 31 , 2017 . the decrease was primarily attributable to a reduction of $ 2.3 million in costs related to research and clinical trials which ended in 2017 , and was partially offset by an increase in personnel expenses primarily related to shared-based compensation as we started granting stock-based awards in the first quarter of 2018. general and administrative general and administrative expenses increase d by $ 24.3 million to $ 29.1 million for the year ended december 31 , 2018 from $ 4.8 million for the year ended december 31 , 2017 . the increase was primarily attributable to higher personnel-related expenses as we built out our corporate and commercial infrastructure , higher accounting and legal expenses primarily related to meeting ongoing public company compliance requirements and other legal matters , as well as higher pre-commercialization expenses in the preparation for our product launch . personnel-related expenses increased by $ 12.6 million due to our hiring of additional employees as well as incurring stock-based compensation expenses as we started granting stock-based awards in the first quarter of 2018. the number of general and administrative employees increased to 39 as of december 31 , 2018 from 10 as december 31 , 2017. we expect that general and administrative expenses will increase due to costs related to the implementation of our commercialization strategy as well as costs related to the ongoing compliance and communication requirements of a public company .
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the following table summarized the weighted-average assumptions used to estimate the fair value of rights to acquire stock granted under the company 's espp plan during the periods presented : replace_table_token_35_th 74 model n , inc. notes to consolidated financial statements performance-based restricted stock units on december 6 , 2013 , the compensation committee of the board approved initial grants of an aggregate story_separator_special_tag financial condition and results of operations 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 report . 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 report . overview we are a leader in revenue management solutions for the life science and technology companies . driving mission critical business processes such as configure , price and quote ( cpq ) , rebates management and regulatory compliance , our solutions transform the revenue lifecycle from a series of disjointed operations into a strategic end-to-end process . with deep industry expertise , we support the unique business needs of the world 's leading brands in life sciences and high technology across tens of thousands of users in more than 120 countries . our solutions are comprised of several complementary software applications : revenue enterprise cloud , revenue intelligence cloud and revvy revenue management . sales of our solutions range from individual applications to complete suites , and deployments may vary from specific divisions or territories to enterprise-wide implementations . we derive revenues primarily from the sale of our cloud-based and on premise solutions and related implementation services , as well as maintenance and support and managed support services . we price our solutions based on a number of factors , including revenues under management and number of users . our license and implementation revenues are comprised of sales of perpetual license and related implementation services , which revenues are recognized over the implementation period , which commences when implementation work begins and typically ranges from a few months to three years . maintenance and support revenues are recognized ratably over the support period , which is typically one year . saas revenues for cloud-based solutions are derived from subscription fees from customers accessing our cloud-based solutions , as well as from associated implementation services . the actual timing of revenue recognition may vary based on our customers ' implementation requirements and availability of our services personnel . we market and sell our solutions to customers in the life science and technology industries . while we have historically generated the substantial majority of our revenues from companies in the life science industry , we have also grown our base of technology customers and intend to continue to focus on increasing the revenues from customers in the technology industry . our most significant customers in any given period generally vary from period to period due to the timing of implementation and related revenue recognition over those periods of larger projects . no customer accounted for more than 10 % of total revenues during the fiscal year ended september 30 , 2016. during the fiscal years ended september 30 , 2015 and 2014 , one customer , johnson and johnson , accounted for approximately 11 % and 15 % of our total revenues . for the fiscal year ended september 30 , 2016 , approximately10 % of our total revenues were derived from customers located outside the united states . for the fiscal years ended september 30 , 2016 , 2015 and 2014 , our total revenues were $ 107.0 million , $ 93.8 million and $ 81.8 million , respectively , representing a year-over-year increase of approximately 14 % from 2015 to 2016 and year-over-over increase of approximately 15 % from 2014 to 2015. revenues increased in the 2016 fiscal year primarily due to improvement in sales execution , new product offerings and acquisition of channelinsight . improvement in sales execution in fiscal year 2016 resulted in the acquisition of new customers and an increase in our revenues . key business metrics in addition to the measures of financial performance presented in our consolidated financial statements , we use adjusted ebitda to evaluate and manage our business we use adjusted ebitda internally to manage the business , and we believe it is useful for investors to compare key financial data from various periods . see “ —non-gaap financial measure ” below . key components of results of operations revenues revenues are comprised of license and implementation revenues and saas and maintenance revenues . 39 license and implementation license and implementation revenues are generated from the sale of software licenses for our on premise solutions and related implementation services . we expect our license and implementation revenues for the fiscal year 2017 to be lower both in absolute dollars and as a percentage of total revenue from those recorded in the fiscal year ended on september 30 , 2016 , primarily due to increased focus on subscription revenues , which are recorded in our saas and maintenance line , and which has been gaining wider acceptance as a delivery model . saas and maintenance saas and maintenance revenues primarily include subscription and related implementation fees from customers accessing our cloud-based solutions and revenues associated with maintenance contracts from license customers . also included in saas and maintenance revenues are other revenues , including revenues related to maintenance and support , managed support services ( mss ) , revenue management as a service ( rmaas ) , training and customer-reimbursed expenses . in previous years , we took several steps to transform our business model in order to increase the percentage of our business from saas and maintenance revenues . story_separator_special_tag sales and marketing sales and marketing expenses increased by $ 2.0 million , or 6 % , to $ 32.3 million during the fiscal year ended september 30 , 2016 from $ 30.3 million for the fiscal year ended september 30 , 2015. this increase was primarily due to a $ 1.3 million increase in employee related costs resulting from increased headcount , a $ 0.2 million increase in marketing related activities , a $ 0.4 million increase in travel and other costs , and a $ 0.4 million increase in amortization expense , partially offset by a $ 0.3 million decrease in consulting costs . general and administrative general and administrative expenses increased by $ 7.0 million , or 30 % , to $ 30.2 million during the fiscal year ended september 30 , 2016 from $ 23.1 million for the fiscal year ended september 30 , 2015. the increase was due primarily to higher employee related costs of $ 3.8 million resulting from increased headcount , third party contractor costs of $ 2.3 million , equipment related costs of $ 0.2 million and facility costs and other costs of $ 0.5 million mainly due to higher rent for office lease and travel costs of $ 0.2 million . these increases are in part driven by our channel data management business , which we acquired on october 30 , 2015 , and the additions to our executive team . interest and other expense , net replace_table_token_9_th interest income , primarily related to interest income earned from our invested cash , net of bank service charges . other ( income ) expenses , net primarily related to currency fluctuation recorded for our foreign operations . provision for income taxes replace_table_token_10_th provision for income taxes is primarily related to the state minimum tax and foreign tax on our profitable foreign operations . the change in income tax provision is primarily due to the change in income related to our foreign operations . 44 comparison of the fiscal years ended september 30 , 2015 and 2014 revenues replace_table_token_11_th license and implementation license and implementation revenues increased $ 0.8 million , or 2 % , to $ 36.2 million for the fiscal year ended september 30 , 2015 from $ 35.3 million for the fiscal year ended september 30 , 2014. as a percentage to total revenues , license and implementation revenue decreased from 43 % to 39 % primarily due to increase in saas and maintenance revenue , as we continue to focus on our recurring revenue activities . the increase is a result of a greater amount of revenue generated from projects completed during fiscal year 2015 as compared to fiscal year 2014. saas and maintenance saas and maintenance revenues increased $ 11.2 million , or 24 % , to $ 57.6 million for the fiscal year ended september 30 , 2015 from $ 46.4 million for the fiscal year ended september 30 , 2014. the increase in saas and maintenance revenues was primarily driven by an increase of $ 8.2 million in subscription revenues , $ 0.9 million in revenues from our new offering rmaas , $ 1.0 million in maintenance revenues and $ 1.3 million in managed support services revenues primarily due to acquisition of new customers as we improved our sales execution in fiscal year 2015. these increases were primarily offset by a decrease of $ 0.2 million in training revenues . cost of revenues replace_table_token_12_th license and implementation cost of license and implementation revenues decreased $ 1.1 million , or 7 % , to $ 15.6 million during the fiscal year ended september 30 , 2015 from $ 16.7 million for the fiscal year ended september 30 , 2014. as a percentage of revenue , cost of license and implementation revenues decreased to 43 % in fiscal year 2015 from 47 % in fiscal year 2014. the decrease was primarily the result of a $ 2.7 million reduction in personnel costs primarily associated with the change in our revenue mix . during fiscal year 2015 our workforce incurred more hours on delivery of saas and maintenance revenues . this was partially offset by a $ 0.9 million increase in royalty costs and a $ 0.7 million increase in third-party contractors ' costs . 45 saas and maintenance cost of saas and maintenance revenues increased $ 4.9 million , or 23 % , to $ 26.0 million during the fiscal year ended september 30 , 2015 from $ 21.1 million for the fiscal year ended september 30 , 2014. however , as a percentage of revenues , cost of saas and maintenance revenues was unchanged during the fiscal year 2015 as compared to fiscal year 2014. the increase was primarily due to $ 3.9 million increase in personnel costs due to increase in headcount and change in our revenue mix as our workforce incurred more hours on delivery of saas revenues as compared to license and implementation revenues , a $ 1.2 million increase in third-party contractor costs , a $ 0.6 million increase in equipment related costs and a $ 0.5 of million increase in amortization costs recorded on internally developed software capitalized in the fiscal year 2015 , partially offset by a $ 0.5 million decrease in customer reimbursable expenses and a $ 0.8 million decrease in training and certain other costs . operating expenses replace_table_token_13_th research and development research and development expenses decreased by $ 0.8 million , or 4 % , to $ 17.9 million during the fiscal year ended september 30 , 2015 from $ 18.7 million for the fiscal year ended september 30 , 2014 due to an increase in the amount capitalized in connection with internally-developed software in fiscal year 2015 specifically related to our revvy product offerings , partially offset by a $ 0.5 million increase in personnel costs , a $ 0.5 million increase in third-party contactors costs and a $ 0.2 million increase in travel costs .
| results of operations the following tables set forth our consolidated results of operations for the periods presented and as a percentage of our total revenues for those periods . the period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods . replace_table_token_5_th comparison of the fiscal years ended september 30 , 2016 and 2015 revenues replace_table_token_6_th license and implementation license and implementation revenues decreased $ 15.6 million , or 43 % , to $ 20.6 million for the fiscal year ended september 30 , 2016 from $ 36.2 million for the fiscal year ended september 30 , 2015. as a percentage to total revenues , license and implementation revenue decreased from 39 % to 19 % . the decrease in these revenues as a percentage of revenues and in absolute dollars was primarily due to fewer sales of software licenses for our on-premise solutions and related implementation services in fiscal year 2016 , as our business model continued to focus on sales of our cloud-based solutions in fiscal year 2016 . 42 saas and maintenance saas and maintenance revenues increased $ 28.8 , or 50 % , to $ 86.4 million for the fiscal year ended september 30 , 2016 from $ 57.6 million for the fiscal year ended september 30 , 2015. the increase in saas and maintenance revenues was primarily driven by an increase in the number of subscription contracts and included a $ 18.9 million increase in our saas and revvy subscription , a $ 6.9 million increase in revenue from channel data management , a $ 1.2 million increase in revenues from rmaas , and a $ 1.8 million increase in our maintenance and support , managed support services revenues , training and customer reimbursable expense . . we intend to focus on growing our recurring revenue from saas and maintenance in future periods and also as a percentage of total revenues .
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we currently have two operating business segments—mortgage insurance and financial guaranty . our mortgage insurance segment provides credit-related insurance coverage , principally through private mortgage insurance , and risk management services to mortgage lending institutions . see “ business—mortgage insurance. ” we conduct our business primarily through radian guaranty inc. ( “ radian guaranty ” ) , our principal mortgage insurance subsidiary . our financial guaranty segment previously offered direct insurance and reinsurance on credit-based risks , and also offered credit protection on various asset classes through financial guarantees and credit default swaps ( “ cds ” ) . while we discontinued writing new financial guaranty business in 2008 , we continue to provide financial guaranty insurance on our existing portfolio of public finance and structured finance credits . in addition , our principal financial guaranty subsidiary , radian asset assurance inc. ( “ radian asset assurance ” ) , is a wholly-owned subsidiary of radian guaranty , which allows our financial guaranty business to serve as an important source of capital support for our mortgage insurance business . see “ business—financial guaranty. ” prior to january 1 , 2011 , we also had a third segment—financial services . see “ business—financial services. ” as a seller of credit protection , our results are subject to macroeconomic conditions and specific events that impact the origination environment and the credit performance of our underlying insured assets . the most recent downturn in the housing and related credit markets began in 2007 and had a significant negative impact on the operating environment and results of operations for each of our businesses . this period was characterized by a decrease in mortgage originations , a broad decline in home prices , mortgage servicing and foreclosure delays , and ongoing deterioration in the credit performance of mortgage and other assets originated prior to 2009 together with macroeconomic factors such as limited economic growth and a lack of meaningful liquidity in some sectors of the capital markets . our results of operations continue to be negatively impacted by the mortgage insurance we wrote during the poor underwriting years of 2005 through 2008 ( we refer to this portfolio as our “ legacy portfolio ” ) . in 2012 , the operating environment for our businesses improved . although the u.s. economy and housing market remain weak compared to historical standards , home prices appear to be appreciating on a broad basis throughout the united states ( “ u.s ” ) , foreclosure activity has decreased and the credit quality of overall mortgage market originations continues to be significantly better than the credit quality of our legacy portfolio . in addition , there are signs of a more permanent recovery in the u.s. economy , including importantly , a reduction in unemployment . as a consequence of these and other factors , we have experienced improvement in our results of operations , with a 22 % decline in new mortgage insurance defaults in 2012 and further stabilization of credit performance in our financial guaranty portfolio . we expect these trends to continue in 2013. currently , our business strategy primarily is focused on : ( 1 ) growing our mortgage insurance business by writing high-quality mortgage insurance in the u.s. ; ( 2 ) continuing to manage losses in our legacy mortgage insurance and financial guaranty portfolios ; ( 3 ) continuing to reduce our financial guaranty exposure ; and ( 4 ) pursuing opportunities for increasing radian group inc. 's ( “ radian group ” ) available liquidity and for enhancing radian guaranty 's capital position . although uncertainty remains with respect to the ultimate losses we will experience in our legacy portfolio , as we continue to write new , higher quality mortgage insurance , our legacy portfolio progressively becomes a lesser percentage of our total portfolio . we anticipate that by the second quarter of 2013 , our legacy portfolio will represent less than 50 % of our total mortgage insurance portfolio . in light of this important compositional change in our mortgage insurance portfolio and assuming that improving macroeconomic trends continue , we believe we are positioned to return to operating profitability . for more information , see “ results of operations—mortgage insurance ” and “ results of operations—financial guaranty. ” 91 fannie mae and freddie mac ( referred to collectively as the “ government sponsored enterprises ” or “ gses ” ) and state insurance regulators impose various capital requirements on our insurance subsidiaries . these include risk-to-capital ratios , risk-based capital measures and surplus requirements that potentially limit the amount of insurance that each of our insurance subsidiaries may write . under state insurance regulations , radian guaranty is required to maintain minimum surplus levels and , in certain states , a minimum amount of statutory capital relative to the level of net risk in force ( “ rif ” ) , or “ risk-to-capital. ” sixteen states ( the “ rbc states ” ) currently impose a statutory or regulatory risk-based capital requirement ( the “ statutory rbc requirement ” ) . the most common statutory rbc requirement is that a mortgage insurer 's risk-to-capital ratio not exceed 25 to 1. in some of the rbc states , the statutory rbc requirement is that radian guaranty must maintain a minimum policyholder position , which is based on both risk and surplus levels ( the “ mpp requirement ” ) . unless an rbc state grants a waiver or other form of relief , if a mortgage insurer is not in compliance with the statutory rbc requirement of an rbc state , it may be prohibited from writing new mortgage insurance business in that state . during 2012 , the rbc states accounted for approximately 54.3 % of radian guaranty 's total primary new insurance written ( “ niw ” ) . story_separator_special_tag rescissions , which are discussed in further detail below , result in a full refund of the life-to-date premiums received , and therefore , premiums earned are affected by any changes in our accrual for estimated rescission refunds . additionally , premiums ceded to third party reinsurance counterparties decrease premiums earned . niw . niw is affected by the overall size of the mortgage origination market , the percentage penetration of private mortgage insurance into the overall mortgage origination market and our market share of the private mortgage insurance market . the overall mortgage origination market is influenced by macroeconomic factors such as interest rates and housing prices , as well as credit availability . the percentage of private mortgage insurance penetration mainly is influenced by the competition from fha insurance and the relative percentage of originations that are for purchased homes versus refinances . private mortgage insurance penetration is significantly higher on purchased homes than on refinances . radian guaranty 's share of the private mortgage insurance market is influenced by competition in the private mortgage insurance market and our ability to maintain existing levels of new mortgage originations from our current customers or to gain new customers . losses . incurred losses represent the estimated claim payments on newly defaulted insured loans as well as any change in the prior estimate for previously existing defaults . our mortgage insurance incurred losses are driven primarily by new mortgage insurance defaults and changes in the estimates we use to determine our losses , including estimates with respect to the likelihood , magnitude and timing of anticipated losses , and our estimate of the rate at which we expect defaults will ultimately result in paid claims . other factors influencing incurred losses include : ‑ the product mix of our rif ( loans with higher risk characteristics generally result in higher delinquencies and claims ) ; ‑ the average loan size ( higher average loan amounts tend to result in higher losses incurred ) ; - the percentage of coverage on insured loans ( higher percentages of insurance coverage result in higher incurred losses ) ; - changes in housing values ( declines in housing values negatively impact our ability to mitigate our losses and also may negatively affect a borrower 's willingness to continue to make mortgage payments when the home value is less than the mortgage balance ) ; - the distribution of claims over the life cycle of a portfolio ( historically , claims are relatively low during the first two years after a loan is originated and then increase substantially over a period of several years before declining ; however , several factors can impact and change this cycle , including the economic environment , the credit risk of the borrower , housing prices and unemployment rates ) ; 93 - our ability to mitigate potential claims through rescissions , denials and the curtailment of claims submitted to us . generally , we rescind insurance coverage when we conclude through our review of the underwriting of a loan that the loan was not originated in accordance with the underwriting guidelines specified at origination . generally , we deny claims when the documentation we receive is not sufficient to perfect the claim in accordance with our master insurance policy . in addition , we curtail claim payments when we identify servicer negligence , or we may make other adjustments to claims as permitted by our master insurance policy . these actions all result in a reduction in our incurred losses . conversely , if rescissions are successfully challenged or denied claims are re-submitted as perfected claims in each case at rates that are higher than expected , our incurred losses will increase . operating expenses . our operating expenses are affected by both the level of niw , as well as the level of rif . additionally , our operating expenses are impacted by outstanding stock-based compensation awards that have been granted to our employees and directors . because these awards are cash settled , the related expense is adjusted quarterly based on changes in our current stock price . investment income . investment income is affected by the average investment balances held ( increases as investment balance increases and decreases with decreases in investment balance ) , as well as the average yield on our overall portfolio . third-party reinsurance . we use third-party reinsurance in our mortgage insurance business to manage capital and risk . when we enter into a reinsurance agreement , the reinsurer receives a premium and , in exchange , agrees to insure some portion of any incurred losses . this arrangement has the impact of reducing our earned premiums but provides capital relief by also reducing our net rif , as well as reducing our incurred losses by any incurred losses ceded in accordance with the reinsurance agreement . we also have entered into reinsurance transactions designed to transfer all or a portion of the risk associated with certain higher risk mortgage insurance products . see “ part i. item 1. business—mortgage insurance—risk management— reinsurance—ceded ” for more information about our reinsurance arrangements . financial guaranty premiums . we earn premiums on our financial guaranty insurance policies and on other forms of credit protection we provide . in our financial guaranty business , premiums are earned in proportion to the level of amortization of insured principal over the contract period or over the period that coverage is provided . since we have discontinued writing new financial guaranty insurance , our premiums earned have been reduced commensurate with the decrease in our net par outstanding . premiums on our structured finance contracts are generally paid on a periodic basis ( monthly or quarterly installment premiums ) and are earned on a monthly basis . premiums on our public finance contracts were generally paid as single up-front premiums and are generally earned over the life of the contract .
| results for 2010 were positively impacted by net realized gains on investments in conjunction with the reallocation of our investment portfolio from tax advantaged securities to securities that provide taxable investment income . change in fair value of derivative instruments . in 2010 , we allocated to our mortgage insurance segment a portion of the change in fair value of derivatives ( committed preferred custodial trust securities ( “ cps ” ) ) held in trusts that had been consolidated by radian group , as described in “ off-balance sheet arrangements. ” there were no such market value gains or losses in 2011 or 2012 as the related cps derivatives were eliminated . net ( losses ) gains on other financial instruments . the net ( losses ) gains for 2012 , 2011 and 2010 reflect the impact of the movement of radian group 's cds spread on the fair value of our net interest margin securities ( “ nims ” ) . our rif related to nims has declined from $ 136.0 million at december 31 , 2010 , to $ 19.0 million at december 31 , 2011 and to $ 14.0 million at december 31 , 2012 . these declines are a result of payments made by us as nims bonds matured . see “ part i. item 1. business—mortgage insurance—business— non-traditional risk ” for further discussion on nims . in addition , in 2010 , we allocated a portion of the change in fair value related to cps vie to the mortgage insurance segment . provision for losses . our mortgage insurance provision for losses decreased in 2012 compared to 2011 and in 2011 compared to 2010 .
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biomedical advanced research and development authority ( “ barda ” ) for post-exposure prophylaxis against anthrax following exposure to aerosolized b. anthracis spores . after an individual has been exposed to the spores that cause anthrax , b. anthracis bacteria multiply and release toxins within the host . although antibiotic therapy is effective at eliminating the actively growing bacteria , vaccination is necessary to protect against the germination of dormant spores after the cessation of antibiotic therapy . because nasoshield is intended to protect against anthrax after a single intranasal dose , we believe it may be a convenient and simple alternative to the only approved vaccine , which must be given as a series of three injections over 1 month . we believe the simplified immunization route and schedule , together with the reliable stability at ambient temperature may allow nasoshield to be deployed in an anthrax event more easily and faster than the currently approved vaccine . we commenced a phase 1b trial of nasoshield in adults in 2020 which builds on the phase 1a trial completed in 2018 and evaluates the effect of modified methods of intranasal dosing on nasoshield safety and immunogenicity . results are expected in the first quarter of 2021. nasovax nasovax is a recombinant intranasal vaccine product candidate that is being developed for both seasonal and pandemic use . nasovax is believed to simultaneously activate the humoral , mucosal and cellular immune arms which may enable a more comprehensive immune response . the data from our phase 2a trial with a monovalent nasovax vaccine indicated that nasovax was generally well-tolerated and achieved 100 % seroprotection with serum antibody responses , which was comparable to published results of a licensed injected influenza vaccine . statistically significant increases in mucosal antibody were noted as well as a robust t cell response directed against influenza . approximately half of the subjects from the highest dose were evaluated between 12 and 14 months after initial dosing for additional immunogenicity assessment . the durability data show that the immune response elicited by nasovax was stable with no overall change in the antibody titer or level of seroprotection over an average of 13 months . the combination of serum antibody , mucosal antibody and t-cell response in combination with the durability data provides the potential for improved protection against influenza and suggests that nasovax could have a great impact on flu symptoms and shedding of the influenza virus . we are currently evaluating the development path of nasovax . alt-801 we completed an acquisition in july 2019 of all of the equity interests of spitfire pharma , inc. ( “ spitfire ” ) . spitfire was a privately held , preclinical pharmaceutical company with the primary asset being a novel peptide-based dual glp-1/glucagon receptor agonist for the treatment of nash . we refer to this product candidate as alt-801 , and it is designed to treat the obesity and metabolic dysfunction that causes nash . nash , the most severe form of non-alcoholic fatty liver disease ( “ nafld ” ) , involves multiple metabolic pathways leading to the abnormal accumulation of liver fat , toxic lipid metabolites , and inflammation , leading to fibrosis or eventually liver cancer . nafld is present in up to 90 % of obese patients , and approximately 20 % of nafld patients progress to nash . in addition , up to 40 % of nash patients develop nafld recurrence one year after liver transplant , which we believe indicates that the underlying metabolic disease is still present after transplant . we believe the treatment of obesity is the cornerstone of treating nash and the principal morbidities of nash . alt-801 's dual agonist mechanism of action is designed to combine the activity of glp-1 for the reduction of appetite and inflammation , with the direct activity of glucagon on the liver , including increased energy expenditure , adipose browning , lipolysis and mobilization of the liver fat . alt-801 incorporates the euport domain , which is designed to enhance pharmacokinetics for tolerability in the gastrointestinal tract and permit weekly dosing . as observed in a well-established preclinical model of the disease , alt-801 is capable of inducing significant weight loss with concomitant decreases in liver fat , inflammation and fibrosis , with superior results compared to elafibranor and semaglutide . in addition , alt-801 demonstrated improved metabolic function and exhibited pleiotropic effects in our preclinical testing across multiple metabolic pathways that are involved in nash . we also 75 observed in preclinical studies that alt-801 resulted in more profound suppression of genes associated with steatosis , inflammation and stellate cell fibrosis by rna sequencing compared to elafibranor and semaglutide . we commenced a phase 1 clinical trial in australia in overweight and obese adult volunteers in the fourth quarter of 2020. the trial is expected to have both single-ascending and multiple-ascending dose arms over a 6 week treatment duration , with data readouts planned for each arm in the second quarter of 2021. the endpoints of the phase 1a trial are expected to be safety , tolerability and pharmacokinetics , with a preliminary readout on weight loss , resting energy expenditure , liver fat by mri-pdff and glucose homeostasis . pending interim results of the single-ascending dose arms , we intend to extend the multiple-ascending dose arms by 6 weeks for a twelve-week , parallel-dosing phase 1b clinical trial . the endpoints of the phase 1b trial are expected to be safety , tolerability , pharmacokinetics , weight loss , decrease in liver fat ( as measured by the mri-pdff standard ) and lean body mass , as well as other metabolic biomarkers . if successful , we expect data from the phase 1b study q3 2021 . heptcell heptcell is an immunotherapeutic product candidate for patients chronically infected with the hepatitis b virus ( “ hbv ” ) . approximately 300 million people worldwide live with chronic hbv infection , including approximately 2.2 million in the united states . story_separator_special_tag under the contract , barda pays us a fixed fee and reimburses certain costs for the research and development of an ad5-vectored , protective antigen-based intranasal anthrax vaccine through cgmp manufacture and conduct of a phase 1 clinical trial dose ranging assessment of safety and immunogenicity . the contract consists of an initial base performance period providing approximately $ 27.8 million in funding for the period july 2016 through june 2021. barda has seven options to extend the contract to fund certain continued development and manufacturing activities for the anthrax vaccine , including phase 2 clinical trials . each option , if exercised by barda , would provide additional funding ranging from approximately $ 1.1 million to $ 34.4 million for a three-year period beginning january 2021. for the year ended december 31 , 2020 , we have recognized approximately $ 3.1 million of grant revenue under the current barda contract . financing public offering on july 16 , 2020 , we offered and sold ( i ) 3,369,564 shares of our common stock , at a price to the public of $ 23.00 per share , and ( ii ) pre-funded warrants to purchase 1,630,436 shares of our common stock at an exercise price equal to $ 0.0001 per share ( the “ pre-funded warrants ” ) , at a price to the public of $ 22.9999 per share of common stock underlying the pre-funded warrants ( equal to the public offering price per share of common stock , minus the exercise price of each pre-funded warrant ) . the pre-funded warrants are exercisable at any time , provided that each pre-funded warrant holder will be prohibited from exercising such pre-funded warrants into shares of our common stock if , as a result of such exercise , the holder , together with its affiliates , would own more than 4.99 % of the total number of shares of our common stock then issued and outstanding , which percentage may change at the holders ' election to any other number less than or equal to 19.99 % upon 61 days ' notice to us . the gross proceeds of this offering were approximately $ 132.2 million , which includes the exercise in full of the underwriters ' option to purchase an additional 750,000 shares of common stock , before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020. the net proceeds of this offering were approximately $ 124.0 million , after deducting underwriting discounts and commissions and offering expenses payable by us . at-the-market offering on march 27 , 2020 , we entered into an equity distribution agreement ( the “ agreement ” ) with jmp securities llc , serving as placement agent ( the “ placement agent ” ) with respect to an at-the-market offering program under which we may offer and sell , from time to time at our sole discretion , shares of our common stock , par value $ 0.0001 per share ( the “ common stock ” ) , having an aggregate offering price of up to $ 50.0 million ( the “ shares ” ) through the placement agent ( the “ offering ” ) . we offered shares having an aggregate offering price of $ 18.9 million pursuant to the prospectus supplement filed with the sec on march 27 , 2020. on june 1 , 2020 , we filed an amendment to the agreement which amended the prospectus supplement dated march 27 , 2020 to increase the aggregate offering price to $ 50.0 million . as of december 31 , 2020 , we sold 5,594,455 shares of common stock under the agreement resulting in $ 48.2 million in net proceeds which completed the at-the-market offering . registered direct offering on march 12 , 2019 , we issued a combined total of 4,361,370 common units and pre-funded units to certain institutional investors in a registered direct offering ( the “ registered direct offering ” ) . each common unit in the registered direct offering was sold at a price of $ 3.21 and consisted of one share of our common stock and 0.70 of a warrant to purchase one share of our common stock at an exercise price of $ 3.21. each warrant sold in the registered direct offering was exercisable immediately and expires five years from the date of issuance . each pre-funded unit in the registered direct offering was sold at a public offering price of $ 3.20 and consisted of a pre-funded warrant to purchase one share of our common stock at an exercise price of $ 0.01 per share and 0.70 of a warrant to purchase one share of our common stock at an exercise price of $ 3.21. the pre-funded warrants were immediately exercisable and were able to be exercised at any time . all of the pre-funded warrants were exercised prior to march 31 , 2019. the net proceeds of the registered direct offering were approximately $ 12.7 million , after deducting the underwriting discount and estimated offering expenses payable by us . the registered direct offering triggered an adjustment to the exercise price of the warrants issued in the 2018 unit offering from $ 4.1798 to $ 2.7568 . 77 current resources we have financed our operations to date principally through our equity offerings and proceeds from issuances of our preferred stock , common stock , and warrants . we secured net proceeds of $ 213.2 million through our public offering , at-the-market offering , and exercise of warrants during the year ended december 31 , 2020 and $ 12.7 million through equity sales during the year ended december 31 , 2019. accordingly , management believes that we have sufficient capital to fund our plan of operations for at least a twelve-month period from the issuance date of our december 31 , 2020 consolidated financial statements .
| financial condition and results of operations the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this annual report . some of the information contained in this discussion and analysis contains forward-looking statements that involve substantial risks and uncertainties . see “ forward-looking statements ” in part i of this annual report and the section entitled “ risk factors ” in part i , item 1a of this annual report for a discussion of certain factors that could cause actual results or events to differ materially from the forward-looking statements that we make . overview altimmune , inc. is a clinical stage biopharmaceutical company focused on developing intranasal vaccines , immune modulating therapies and treatments for liver disease . our diverse pipeline includes proprietary intranasal vaccines for covid-19 ( adcovid ) , anthrax ( nasoshield ) and influenza ( nasovax ) ; an intranasal immune modulating therapeutic for covid-19 ( t-covid ) ; and next generation peptide therapeutics for non-alcoholic steatohepatitis ( “ nash ” ) ( alt-801 ) and chronic hepatitis b ( heptcell ) . our business is the result of a merger between pharmathene , inc. ( “ pharmathene ” ) and the business previously known as altimmune , inc. ( “ private altimmune ” ) . on may 4 , 2017 , private altimmune merged with pharmathene in a series of mergers and reorganizations ( collectively , the “ mergers ” ) pursuant to an agreement and plan of merger and reorganization ( the “ pharmathene merger agreement ” ) dated january 18 , 2017 , among private altimmune , pharmathene , its wholly owned acquisition subsidiaries mustang merger sub corp i inc. and mustang merger sub ii llc . upon closing of the mergers , all equity instruments of private altimmune were exchanged for corresponding equity instruments of pharmathene . prior to the mergers , pharmathene was a publicly traded biodefense company engaged in phase 2 clinical trials .
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through our wholly-owned subsidiary bank , we operate 11 full service banking offices located in jefferson , shelby , madison , montgomery and houston counties in alabama , and in escambia county in florida . these offices operate in the birmingham-hoover , huntsville , montgomery and dothan , alabama msas , and in the pensacola-ferry pass-brent , florida msa . additionally , we opened a loan production office in mobile , alabama in july 2012. our principal business is to accept deposits from the public and to make loans and other investments . our principal source of funds for loans and investments are demand , time , savings , and other deposits and the amortization and prepayment of loans and borrowings . our principal sources of income are interest and fees collected on loans , interest and dividends collected on other investments and service charges . our principal expenses are interest paid on savings and other deposits , interest paid on our other borrowings , employee compensation , office expenses and other overhead expenses . critical accounting policies our consolidated financial statements are prepared based on the application of certain accounting policies , the most significant of which are described in the notes to the consolidated financial statements . certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or in future periods . the use of estimates , assumptions , and judgments are necessary when financial assets and liabilities are required to be recorded at , or adjusted to reflect , fair value . assets carried at fair value inherently result in more financial statement volatility . fair values and information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources , when available . when such information is not available , management estimates valuation adjustments . changes in underlying factors , assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations . allowance for loan losses the allowance for loan losses , sometimes referred to as the “ alll ” , is established through periodic charges to income . loan losses are charged against the alll when management believes that the future collection of principal is unlikely . subsequent recoveries , if any , are credited to the alll . if the alll is considered inadequate to absorb future loan losses on existing loans for any reason , including but not limited to , increases in the size of the loan portfolio , increases in charge-offs or changes in the risk characteristics of the loan portfolio , then the provision for loan losses is increased . 36 loans are considered impaired when , based on current information and events , it is probable that the bank will be unable to collect all amounts due according to the original terms of the loan agreement . the collection of all amounts due according to contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement . impaired loans are measured based on the present value of expected future cash flows discounted at the loan 's effective interest rate , or , as a practical expedient , at the loan 's observable market price , or the fair value of the underlying collateral . the fair value of collateral , reduced by costs to sell on a discounted basis , is used if a loan is collateral-dependent . investment securities impairment periodically , we may need to assess whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis . in any such instance , we would consider many factors , including the severity and duration of the impairment , our intent and ability to hold the security for a period of time sufficient for a recovery in value , recent events specific to the issuer or industry , and for debt securities , external credit ratings and recent downgrades . securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value , with the write-down recorded as a realized loss in securities gains ( losses ) . other real estate owned other real estate owned ( “ oreo ” ) , consisting of assets that have been acquired through foreclosure , is recorded at the lower of cost or estimated fair value less the estimated cost of disposition . fair value is based on independent appraisals and other relevant factors . other real estate owned is revalued on an annual basis or more often if market conditions necessitate . valuation adjustments required at foreclosure are charged to the allowance for loan losses . subsequent to foreclosure , losses on the periodic revaluation of the property are charged to net income as oreo expense . significant judgments and complex estimates are required in estimating the fair value of other real estate , and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility , as experienced in recent years . as a result , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales , and other estimates used to determine the fair value of other real estate . story_separator_special_tag ended december 31 , 2012 , 2011 and 2010 , the average balances of each principal category of our assets , liabilities and stockholders ' equity , and an analysis of net interest revenue , and the change in interest income and interest expense segregated into amounts attributable to changes in volume and changes in rates . this table is presented on a taxable equivalent basis , if applicable . story_separator_special_tag 41 our average interest-earning assets produced a taxable equivalent yield of 4.39 % for the year ended december 31 , 2012 , compared to 4.58 % for the year ended december 31 , 2011. the average rate paid on interest-bearing liabilities was 0.77 % for the year ended december 31 , 2012 , compared to 1.00 % for the year ended december 31 , 2011. our net interest spread and net interest margin were 3.58 % and 3.79 % , respectively , for the year ended december 31 , 2011 , compared to 3.75 % and 3.94 % , respectively , for the year ended december 31 , 2010. our average interest-earning assets for the year ended december 31 , 2011 increased $ 401.8 million , or 24.8 % , to $ 2.0 billion from $ 1.6 billion for the year ended december 31 , 2010. this increase in our average interest-earning assets was due to continued core growth in all of our markets , increased loan production and increases in investment securities , federal funds sold and interest-bearing balances with other banks . our average interest-bearing liabilities increased $ 251.4 million , or 18.5 % , to $ 1.6 billion for the year ended december 31 , 2011 from $ 1.4 billion for the year ended december 31 , 2010. this increase in our average interest-bearing liabilities was primarily due to an increase in interest-bearing deposits in all our markets . we paid off two advances from the federal home loan bank totaling $ 20 million during the first half of 2011. the average rate paid on these advances was 3.13 % . the ratio of our average interest-earning assets to average interest-bearing liabilities was 130.3 % and 126.0 % for the years ended december 31 , 2012 and 2011 , respectively . our average interest-earning assets produced a taxable equivalent yield of 4.58 % for the year ended december 31 , 2011 , compared to 4.88 % for the year ended december 31 , 2010. the average rate paid on interest-bearing liabilities was 1.00 % for the year ended december 31 , 2011 , compared to 1.13 % for the year ended december 31 , 2010. provision for loan losses the provision for loan losses represents the amount determined by management to be necessary to maintain the allowance for loan losses at a level capable of absorbing inherent losses in the loan portfolio . our management reviews the adequacy of the allowance for loan losses on a quarterly basis . the allowance for loan losses calculation is segregated into various segments that include classified loans , loans with specific allocations and pass rated loans . a pass rated loan is generally characterized by a very low to average risk of default and in which management perceives there is a minimal risk of loss . loans are rated using a nine-point risk grade scale with loan officers having the primary responsibility for assigning risk grades and for the timely reporting of changes in the risk grades . based on these processes , and the assigned risk grades , the criticized and classified loans in the portfolio are segregated into the following regulatory classifications : special mention , substandard , doubtful or loss , with some general allocation of reserve based on these grades . at december 31 , 2012 , total loans rated special mention , substandard , and doubtful were $ 100.7 million , or 4.3 % of total loans , compared to $ 88.9 million , or 5.2 % of total loans , at december 31 , 2011. impaired loans are reviewed specifically and separately under fasb asc 310-30-35 , subsequent measurement of impaired loans , to determine the appropriate reserve allocation . our management compares the investment in an impaired loan with the present value of expected future cash flow discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral , if the loan is collateral-dependent , to determine the specific reserve allowance . reserve percentages assigned to non-impaired loans are based on historical charge-off experience adjusted for other risk factors . to evaluate the overall adequacy of the allowance to absorb losses inherent in our loan portfolio , our management considers historical loss experience based on volume and types of loans , trends in classifications , volume and trends in delinquencies and nonaccruals , economic conditions and other pertinent information . based on future evaluations , additional provisions for loan losses may be necessary to maintain the allowance for loan losses at an appropriate level . the provision expense for loan losses was $ 9.1 million for the year ended december 31 , 2012 , an increase of $ 0.1 million from $ 9.0 million in 2011. also , nonperforming loans decreased to $ 10.4 million , or 0.44 % , of total loans at december 31 , 2012 from $ 13.8 million , or 0.75 % , of total loans at december 31 , 2011. during 2012 , we had net charged-off loans totaling $ 4.9 million , compared to net charged-off loans of $ 5.0 million for 2011. the ratio of net charged-off loans to average loans was 0.24 % for 2012 compared to 0.32 % for 2011. the allowance for loan losses totaled $ 26.3 million , or 1.11 % of loans , net of unearned income , at december 31 , 2012 , compared to $ 22.0 million , or 1.20 % of loans , net of unearned income , at december 31 , 2011. the provision expense for loan losses was $ 9.0 million for the year ended december 31 , 2011 , a decrease of $ 1.4 million from $ 10.4 million in 2010. also , nonperforming loans decreased to $ 13.8 million , or 0.75 % of total loans , at december 31 , 2011 , from $ 14.3 million , or 1.03 % of total loans , at december 31 , 2010. during 2011 , we had net charged-off loans totaling $ 5.0 million , compared to net charged-off loans of $
| results of operations net income net income for the year ended december 31 , 2012 was $ 34.4 million , compared to net income of $ 23.4 million for the year ended december 31 , 2011. this increase in net income is primarily attributable to an increase in net interest income , which increased $ 18.8 million , or 24.9 % , to $ 94.1 million in 2012 from $ 75.3 million in 2011. noninterest income increased $ 2.7 million , or 39.1 % , to $ 9.6 million in 2012 from $ 6.9 million in 2011. noninterest expense increased by $ 5.6 million , or 14.9 % , to $ 43.1 million in 2012 from $ 37.5 million in 2011. basic and diluted net income per common share were $ 5.68 and $ 4.99 , respectively , for the year ended december 31 , 2012 , compared to $ 4.03 and $ 3.53 , respectively , for the year ended december 31 , 2011. return on average assets was 1.30 % in 2012 , compared to 1.11 % in 2011 , and return on average stockholders ' equity was 15.81 % in 2012 , compared to 14.73 % in 2011. net income for the year ended december 31 , 2011 was $ 23.4 million , compared to net income of $ 17.4 million for the year ended december 31 , 2010. this increase in net income is primarily attributable to an increase in net interest income , which increased $ 12.4 million , or 19.8 % , to $ 75.3 million in 2011 from $ 62.9 million in 2010. noninterest income increased $ 1.7 million , or 32.7 % , to $ 6.9 million in 2011 from $ 5.2 million in 2010. noninterest expense increased by $ 6.5 million , or 21.0 % , to $ 37.5 million in 2011 from $ 31.0 million in 2010. basic and diluted net income per common share were $ 4.03 and $ 3.53 , respectively , for the year ended december 31 , 2011 , compared to $
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our growing digital media portfolio helps agencies and brands effectively and efficiently reach their target audiences at scale by utilizing our comscore , inc. rated top 15 video market share and the latest in conversational marketing , video , display , mobile , social intelligence and monetization , as well as reporting across all screens . our operating revenues are primarily derived from the sale of advertising time to local , national and political advertisers . less significant revenues are generated from our television station websites , retransmission consent fees , interactive revenues and other revenues . we recorded net income ( loss ) of $ 156.6 million , $ ( 7.6 ) million and $ 48.8 million for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . our operating highlights for 2013 include the following : net revenues increased $ 98.9 million , or 18 % , compared to 2012 primarily as a result of a $ 111.3 million , or 35 % , increase in local revenues , which include net local advertising sales , retransmission consent fees and television station website revenues , as well as an increase of $ 35 million , or 85 % , in interactive revenues , which include revenues from lin digital , nami media , hyfn , and dedicated media . also contributing to the increase in net revenues was an increase in net national revenues of $ 23.6 million , or 22 % . excluding the impact of the television stations acquired in 2012 and the 2013 acquisitions of majority interests in hyfn and dedicated media , net revenues decreased approximately $ 31.8 million , or 6 % , primarily the result of a decrease in political advertising revenues . on february 12 , 2013 , we entered into and closed the jv sale transaction whereby in exchange for lin television causing a $ 100 million capital contribution to be made to svh ( which was used to prepay a portion of the gecc note ) , lin texas sold its interest in svh , a joint venture with nbc , and lin tv was released from the gecc guarantee and any further obligations related to the shortfall funding agreements . the $ 100 million capital contribution was financed by a combination of cash on hand , borrowings under lin television 's revolving credit facility , and a new $ 60 million incremental term facility under lin television 's existing senior secured credit facility . the jv sale transaction resulted in a $ 100 million charge recognized in the fourth quarter of 2012 to accrue for our obligations related to the jv sale transaction , and the recognition of taxable gains from the jv sale transaction resulting in a $ 162.8 million short-term deferred federal and state tax liability . for further information , see item 1 . `` business—joint venture sale transaction , '' note 1— '' basis of presentation and summary of significant accounting policies , '' and note 13— '' commitments and contingencies '' to our consolidated financial statements . on july 30 , 2013 , we completed the merger of lin tv with and into lin llc , with lin llc continuing as the surviving entity . as a result of the merger , we realized a capital loss in the amount of approximately $ 343 million . the capital loss realized and existing net operating losses were used to offset a portion of the capital gain recognized in the jv sale transaction and we realized cash savings of $ 131.5 million , resulting in a remaining tax liability of $ 31.3 million associated with the jv sale transaction . we made state and federal tax payments to settle this tax liability during the fourth quarter of 2013. for further information , see item 1 . `` business—joint venture sale transaction , '' note 1— '' basis of presentation and summary of significant accounting policies , '' and note 13— '' commitments and contingencies '' to our consolidated financial statements . on april 4 , 2013 , we acquired a 50.1 % interest ( calculated on a fully diluted basis ) in hyfn , a full service digital advertising agency specializing in the planning , development , deployment and support for websites , mobile sites , interactive banners , games and various applications for multiple devices , for $ 7.2 million . on april 9 , 2013 , we acquired a 60 % interest ( calculated on a fully diluted basis ) in dedicated media , a multi-channel advertisement buying and optimization company , for $ 5.8 million . dedicated media employs new technologies to create , plan and execute digital marketing campaigns on behalf of its clients . critical accounting policies , estimates and recently issued accounting pronouncements certain of our accounting policies , as well as estimates we make , are critical to the presentation of our financial condition and results of operations since they are particularly sensitive to our judgment . some of these policies and estimates relate to matters that are inherently uncertain . the estimates and judgments we make affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent liabilities . on an on-going basis , we evaluate our estimates , including those used for allowance for doubtful accounts in receivables , valuation of goodwill and intangible assets , amortization and impairment of program rights and intangible assets , share-based compensation and other long-term incentive compensation arrangements , pension costs , barter transactions , income taxes , employee medical insurance claims , useful lives of property and equipment , contingencies , 37 litigation and net assets of businesses acquired . 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 . story_separator_special_tag if we were to decrease the operating cash flow margins by 5 % and 10 % from the projected operating cash flow margins , the enterprise value of our stations with goodwill would decrease by $ 178.3 million and $ 355.8 million , respectively . if we were to increase the discount rate used in the valuation calculation by 1 % and 2 % , the enterprise value of our stations with goodwill would decrease by $ 103.6 million and $ 196.7 million , respectively . network affiliations other broadcast companies may use different assumptions in valuing acquired broadcast licenses and their related network affiliations than those that we use . these different assumptions may result in the use of valuation methods that can result in significant variances in the amount of purchase price allocated to these assets by these broadcast companies . we believe that the value of a television station is derived primarily from the attributes of its broadcast license . these attributes have a significant impact on the audience for network programming in a local television market compared to the national viewing patterns of the same network programming . these attributes and their impact on audiences can include : the scarcity of broadcast licenses assigned by the fcc to a particular market determines how many television networks and other program sources are viewed in a particular market ; the length of time the broadcast license has been broadcasting . television stations that have been broadcasting since the late 1940s are viewed more often than newer television stations ; the quality of the broadcast signal and location of the broadcast station within a market ( i.e . being licensed in the smallest city within a tri-city market has less value than being licensed in the largest city ) ; the audience acceptance of the local news programming and community involvement of the local television station . 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 . 39 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 believe 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 . 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 consider future taxable income and feasible tax planning strategies in assessing the need for establishing or removing a valuation allowance . we record or subsequently remove a valuation allowance to reflect our deferred tax assets at an amount that is more likely than not to be realized . in the event that our determination changes regarding the realization of all or part of our deferred tax assets in the future , an adjustment to the deferred tax asset is recorded to our consolidated statement of operations in the period in which such a determination is made . as of december 31 , 2012 , we had a valuation allowance of $ 18.2 million offsetting certain state net operating loss carryforwards and other state deferred tax assets . during the third quarter of 2013 , after evaluating our ability to recover certain net operating loss carryforwards due to the change in tax structure as a result of the merger , we determined that we will more likely than not be able to realize these deferred tax assets . as a result , we reversed the valuation allowance and recognized a corresponding tax benefit of $ 18.2 million .
| summary of cash flows the following table presents summarized cash flow information ( in thousands ) : 48 replace_table_token_15_th net cash provided by operating activities decreased $ 97.7 million to $ 49 million for the year ended december 31 , 2013 compared to cash provided by operating activities of $ 146.7 million for the prior year . the decrease is primarily attributable to an $ 81.1 million decrease in operating income as well as an increase in cash outflows related to working capital of $ 9.2 million and an increase in cash interest expense of approximately $ 8.9 million . net cash provided by operating activities increased $ 84.0 million to $ 146.7 million for the year ended december 31 , 2012 , compared to cash provided by operating activities of $ 62.7 million for the prior year . the increase was primarily attributable to an $ 82 million increase in operating income as compared to the year ended december 31 , 2011. net cash used in investing activities increased $ 35.1 million to $ 139.4 million for year ended december 31 , 2013 , compared to cash used in investing activities of $ 104.3 million for the year ended december 31 , 2012. net cash used in investing activities during the year ended december 31 , 2013 was comprised primarily of the $ 100 million capital contribution made to the joint venture in february 2013 in connection with the jv sale transaction as well as capital expenditures of $ 29.4 million and payments made for the acquisitions of hyfn and dedicated media of $ 10.1 million ( net of cash acquired ) . cash used in investing activities for the year ended december 31 , 2012 decreased $ 184.9 million to $ 104.3 million .
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as a cooperative , we are owned by farmers , ranchers and their member cooperatives across the united states . we also have preferred stockholders that own shares of our 8 % cumulative redeemable preferred stock . 25 we provide a full range of production agricultural inputs such as refined fuels , propane , farm supplies , animal nutrition and agronomy products , as well as services , which include hedging , financing and insurance services . we own and operate petroleum refineries and pipelines and market and distribute refined fuels and other energy products under the cenex ® brand through a network of member cooperatives and independents . we purchase grains and oilseeds directly and indirectly from agricultural producers primarily in the midwestern and western united states . these grains and oilseeds are either sold to domestic and international customers or further processed into a variety of grain-based food products . the consolidated financial statements include the accounts of chs and all of our wholly-owned and majority-owned subsidiaries and limited liability companies , including national cooperative refinery association ( ncra ) in our energy segment . the effects of all significant intercompany transactions have been eliminated . we have aligned our segments based on an assessment of how our businesses operate and the products and services they sell . our energy segment produces and provides primarily for the wholesale distribution of petroleum products and transportation of those products . our ag segment purchases and further processes or resells grains and oilseeds originated by our country operations business , by our member cooperatives and by third parties , and also serves as wholesaler and retailer of crop inputs . corporate and other primarily represents our non-consolidated wheat milling and packaged food joint ventures , as well as our business solutions operations , which consist of commodities hedging , insurance and financial services related to crop production . corporate administrative expenses are allocated to each business segment , and corporate and other , based on direct usage for services that can be tracked , such as information technology and legal , and other factors or considerations relevant to the costs incurred . many of our business activities are highly seasonal and operating results vary throughout the year . our income is generally lowest during the second fiscal quarter and highest during the third fiscal quarter . for example , in our ag segment , our crop nutrients and country operations businesses generally experience higher volumes and income during the spring planting season and in the fall , which corresponds to harvest . our grain marketing operations are also subject to fluctuations in volume and earnings based on producer harvests , world grain prices and demand . our energy segment generally experiences higher volumes and profitability in certain operating areas , such as refined products , in the summer and early fall when gasoline and diesel fuel usage is highest and is subject to global supply and demand forces . other energy products , such as propane , may experience higher volumes and profitability during the winter heating and crop drying seasons . our revenues , assets and cash flows can be significantly affected by global market prices for commodities such as petroleum products , natural gas , grains , oilseeds , crop nutrients and flour . changes in market prices for commodities that we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings . commodity prices are affected by a wide range of factors beyond our control , including the weather , crop damage due to disease or insects , drought , the availability and adequacy of supply , government regulations and policies , world events , and general political and economic conditions . while our revenues and operating results are derived from businesses and operations which are wholly-owned and majority-owned , a portion of our business operations are conducted through companies in which we hold ownership interests of 50 % or less and do not control the operations . we account for these investments primarily using the equity method of accounting , wherein we record our proportionate share of income or loss reported by the entity as equity income from investments , without consolidating the revenues and expenses of the entity in our consolidated statements of operations . in our ag segment , this principally includes our 50 % ownership in temco . in corporate and other , these investments principally include our 50 % ownership in ventura foods and our 24 % ownership in horizon milling and horizon milling g.p . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > $ 8.6 million increase in volume , when compared to the previous year . the average selling price of propane decreased $ 0.02 per gallon ( 1 % ) , almost entirely offset by a 1 % increase in sales volumes , when compared to the prior year . renewable fuels marketing revenues increased $ 14.1 million ( 1 % ) , primarily from a 5 % increase in volumes , partially offset by a decrease in the average selling price of $ 0.10 per gallon ( 4 % ) , when compared with fiscal 2011 . our ag segment revenues , after elimination of intersegment revenues , of $ 28.2 billion increased $ 2.4 billion ( 9 % ) during the year ended august 31 , 2012 compared to fiscal 2011 . grain revenues in our ag segment totaled $ 20.6 billion and $ 19.6 billion during the years ended august 31 , 2012 and 2011 , respectively . of the grain revenues increase of $ 1.0 billion ( 5 % ) , $ 1.2 billion is due to increased average grain selling prices , partially offset by a $ 226.2 million decrease due to a 1 % net decrease in volumes , during the year ended august 31 , 2012 compared to the prior fiscal year . story_separator_special_tag our processing and food ingredients cost of goods sold in our ag segment of $ 1.5 billion increased $ 232.7 million ( 18 % ) during fiscal 2012 compared to fiscal 2011 , which was primarily due to additional sales resulting from our solbar and creston acquisitions , coupled with increases in the cost of soybeans purchased and higher volumes of oilseed refined products sold . wholesale crop nutrients cost of goods sold in our ag segment totaled $ 2.7 billion and $ 2.3 billion during the years 28 ended august 31 , 2012 and 2011 respectively . the net increase of $ 379.5 million ( 17 % ) is comprised of a net increase in tons sold of 2 % , in addition to an increase in the average cost per ton of fertilizer of $ 60 ( 14 % ) , when compared to the prior fiscal year . our ag segment other product cost of goods sold , primarily feed and farm supplies , increased $ 670.5 million ( 34 % ) during fiscal 2012 compared to fiscal 2011 , primarily the result of increased revenues in our country operations sales of retail crop nutrients , feed , crop protection and energy products , and includes additional volumes from acquisitions . marketing , general and administrative . marketing , general and administrative expenses of $ 498.2 million for the year ended august 31 , 2012 increased by $ 59.7 million ( 14 % ) compared to fiscal 2011 . this net increase is primarily due to the expansion of foreign operations and acquisitions in our ag segment . loss ( gain ) on investments . loss on investments of $ 5.5 million for the year ended august 31 , 2012 reflects a decrease of $ 132.2 million from a net gain on investments in fiscal 2011 . during the year ended august 31 , 2011 , we sold our 45 % ownership interest in multigrain to one of our joint venture partners , mitsui & co. , ltd. , for $ 225.0 million and recognized a pre-tax gain of $ 119.7 million included in our ag segment . we also recorded pre-tax gains of $ 9.0 million in fiscal 2011 related to cash distributions received from agriliance for proceeds received from the sale of many of the agriliance retail facilities , and the collection of receivables , which is included in corporate and other . interest , net . net interest of $ 193.3 million for the year ended august 31 , 2012 increased $ 118.4 million compared to fiscal 2011 . interest expense for the years ended august 31 , 2012 and 2011 was $ 207.3 million and $ 83.0 million , respectively . the increase in interest expense of $ 124.2 million is primarily due to interest accretion of $ 6.0 million related to the purchase of the ncra noncontrolling interests and $ 107.2 million of patronage earned by the noncontrolling interests of ncra . see note 17 , acquisitions for additional information . the increase in interest expense was also due to a private placement of $ 500.0 million in june 2011 for long-term debt , partially offset by decreased short-term borrowings from decreased working capital needs during the year ended august 31 , 2012 compared to the previous fiscal year . the average level of short-term borrowings decreased $ 625.2 million , primarily due to decreased working capital needs during the year ended august 31 , 2012 compared to the previous year , of which $ 113.5 million related to chs capital activity . for the years ended august 31 , 2012 and 2011 , we capitalized interest of $ 8.9 million and $ 5.5 million , respectively , primarily related to construction projects at both refineries in our energy segment . interest income was $ 5.1 million and $ 2.7 million for the years ended august 31 , 2012 and 2011 , respectively . equity income from investments . equity income from investments of $ 102.4 million for the year ended august 31 , 2012 decreased $ 29.0 million ( 22 % ) compared to fiscal 2011 . we record equity income or loss primarily from the investments in which we have an ownership interest of 50 % or less and have significant influence , but not control , for our proportionate share of income or loss reported by the entity , without consolidating the revenues and expenses of the entity in our consolidated statements of operations . the net decrease in equity income from investments was attributable to reduced earnings from investments in our ag segment and corporate and other of $ 17.7 million and $ 12.0 million , respectively , partially offset by improved earnings from investments in our energy segment of $ 0.7 million . our ag segment generated reduced equity investment earnings of $ 17.7 million . we had a net decrease of $ 19.1 million from our share of equity investment earnings in our grain marketing joint ventures during fiscal 2012 compared to the previous fiscal year , which is primarily related to the dissolution of united harvest and decreased earnings related to a reduction in u.s. exports , partially offset by our sale of multigrain . our country operations business reported an aggregate increase in equity investment earnings of $ 1.9 million from several small equity investments . corporate and other generated decreased equity investment earnings of $ 12.0 million , primarily from ventura foods , our vegetable oil-based products and packaged foods joint venture , which decreased $ 5.8 million compared to fiscal 2011 , as well as our wheat milling joint venture earnings , which also decreased by $ 5.8 million compared to fiscal 2011 . income taxes . income tax expense of $ 80.9 million for the year ended august 31 , 2012 , compared with $ 86.6 million for fiscal 2011 , resulting in effective tax rates of 5.7 % and 7.5 % , respectively .
| results of operations comparison of the years ended august 31 , 2012 and 2011 general . we recorded income before income taxes of $ 1.4 billion in fiscal 2012 compared to $ 1.1 billion in fiscal 2011 , an increase of $ 268.9 million ( 23 % ) . operating results reflected increased pretax earnings in our energy segment , partially offset by decreased pretax earnings in our ag segment and in corporate and other . our energy segment generated income before income taxes of $ 1.0 billion for the year ended august 31 , 2012 compared to $ 629.9 million in fiscal 2011 , representing an increase of $ 397.6 million ( 63 % ) . the increase in earnings is 26 primarily from improved margins on refined fuels at both our laurel , montana refinery and the ncra refinery in mcpherson , kansas . earnings in our propane and transportation businesses also improved , while our renewable fuels marketing and lubricants businesses experienced decreased earnings during the year ended august 31 , 2012 when compared to the previous year . the reversal of the crude oil pipeline in the cushing , ok area has not significantly impacted our refined fuels margins . the pipeline is not yet at full capacity and , as a result , it is possible that the reversal could still have a negative impact on our future refined fuels margins , the impact of which we are not able to estimate at this time . our ag segment generated income before income taxes of $ 327.4 million for the year ended august 31 , 2012 compared to $ 434.8 million in fiscal 2011 , a decrease in earnings of $ 107.3 million ( 25 % ) .
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this determination was made based on the company 's recent history of losses from operations and the uncertainty as to whether the company will generate sufficient taxable income to use the deferred tax assets prior to their expiration . accordingly , a valuation allowance was established to fully offset the value of the deferred tax assets . our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of the components of the deferred tax assets . if sufficient future taxable income is generated , we may be able to offset a portion of future tax expenses . the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . revenue recognition : we recognize sales upon shipment of products net of applicable provisions for any discounts or allowances . the shipping date from our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations which entitle us to receive the benefits represented by the revenues , and the shipping date provides a consistent point within our control to measure revenue . customers may not return , exchange or refuse acceptance of goods without our approval . however , the company has entered into an agreement with a customer to grant pre-approved rights of return of up to fifty percent of products sold on certain invoices to provide for and gain acceptance within certain markets . when a pre-approved right of return is granted , revenue recognition is deferred until the right of return expires . we have established allowances to cover anticipated doubtful accounts based upon historical experience . the company reflects the factored accounts receivable as amount due from factor with the corresponding advance from the factor reflected separately as line of credit – factor . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of cost or market . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose or off balance sheet entities for the purpose of raising capital , incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . - 11 - in august 2014 , the fasb issued asu no . 2014-15 , disclosure of uncertainties about an entities ability to continue as a going concern , which is included in accounting standards codification ( “ asc ” ) 205 , presentation of financial statements . this update provides an explicit requirement for management to assess an entity 's ability to continue as a going concern , and to provide related footnote disclosure in certain circumstances . the amendments are effective for annual periods ending after december 15 , 2016 , and interim periods within annual periods beginning after december 15 , 2016. early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued . the company has elected to early adopt asu 2014-15 which did not have a material impact on our consolidated financial statements . in june 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers : topic 606. asu 2014-09 affects any entity using u.s. gaap that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards ( e.g. , insurance contracts or lease contracts ) . this asu will supersede the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific guidance . this asu also supersedes some cost guidance included in subtopic 605-35 , revenue recognition—construction-type and production-type contracts . in addition , the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer ( e.g. , assets within the scope of topic 360 , property , plant , and equipment , and intangible assets within the scope of topic 350 , intangibles—goodwill and other ) are amended to be consistent with the guidance on recognition and measurement ( including the constraint on revenue ) in this asu . the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in story_separator_special_tag this determination was made based on the company 's recent history of losses from operations and the uncertainty as to whether the company will generate sufficient taxable income to use the deferred tax assets prior to their expiration . accordingly , a valuation allowance was established to fully offset the value of the deferred tax assets . our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of the components of the deferred tax assets . if sufficient future taxable income is generated , we may be able to offset a portion of future tax expenses . the company follows asc 740-10 which provides guidance for tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties , if any , related to income tax matters are recorded as income tax expenses . revenue recognition : we recognize sales upon shipment of products net of applicable provisions for any discounts or allowances . the shipping date from our warehouse is the appropriate point of revenue recognition since upon shipment we have substantially completed our obligations which entitle us to receive the benefits represented by the revenues , and the shipping date provides a consistent point within our control to measure revenue . customers may not return , exchange or refuse acceptance of goods without our approval . however , the company has entered into an agreement with a customer to grant pre-approved rights of return of up to fifty percent of products sold on certain invoices to provide for and gain acceptance within certain markets . when a pre-approved right of return is granted , revenue recognition is deferred until the right of return expires . we have established allowances to cover anticipated doubtful accounts based upon historical experience . the company reflects the factored accounts receivable as amount due from factor with the corresponding advance from the factor reflected separately as line of credit – factor . the company assigns trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of cost or market . cost is determined on the first in/first out method . we evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . off-balance sheet arrangements . we have not created , and are not party to , any special-purpose or off balance sheet entities for the purpose of raising capital , incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources . recently issued accounting pronouncements changes to accounting principles generally accepted in the united states of america ( u.s. gaap ) are established by the financial accounting standards board ( fasb ) in the form of accounting standards updates ( asu 's ) to the fasb 's accounting standards codification . the company considers the applicability and impact of all asu 's . - 11 - in august 2014 , the fasb issued asu no . 2014-15 , disclosure of uncertainties about an entities ability to continue as a going concern , which is included in accounting standards codification ( “ asc ” ) 205 , presentation of financial statements . this update provides an explicit requirement for management to assess an entity 's ability to continue as a going concern , and to provide related footnote disclosure in certain circumstances . the amendments are effective for annual periods ending after december 15 , 2016 , and interim periods within annual periods beginning after december 15 , 2016. early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued . the company has elected to early adopt asu 2014-15 which did not have a material impact on our consolidated financial statements . in june 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers : topic 606. asu 2014-09 affects any entity using u.s. gaap that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards ( e.g. , insurance contracts or lease contracts ) . this asu will supersede the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific guidance . this asu also supersedes some cost guidance included in subtopic 605-35 , revenue recognition—construction-type and production-type contracts . in addition , the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer ( e.g. , assets within the scope of topic 360 , property , plant , and equipment , and intangible assets within the scope of topic 350 , intangibles—goodwill and other ) are amended to be consistent with the guidance on recognition and measurement ( including the constraint on revenue ) in this asu . the core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
| general we are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50 % owned hong kong joint venture . our consolidated financial statements detail our sales and other operational results , and report the financial results of the hong kong joint venture that is accounted for using the equity method of accounting . accordingly , the following discussion and analysis of the fiscal years ended march 31 , 2016 and 2015 relate to the operational results of the company and its consolidated subsidiary only and includes the company 's equity share of earnings in the hong kong joint venture . a discussion and analysis of the hong kong joint venture 's operational results for these periods is presented below under the heading “ hong kong joint venture. ” while we believe that our overall sales are likely affected by the current global economic situation , we believe that we are specifically negatively impacted by the severe downturn in the u.s. housing market that occurred in 2008. although there has since been improvement in the industry , it has not returned to pre-2008 performance . as stated elsewhere in this report , our usi electric subsidiary markets our products to the electrical distribution trade ( primarily electrical and lighting distributors and manufactured housing companies ) ; every downturn in new home construction and new home sales negatively impacts sales by our usi electric subsidiary . our operating results for the current fiscal years ended march 31 , 2016 and 2015 continue to be significantly impacted by the economic conditions of the u.s. housing market . we anticipate that when and as the housing market continues to improve , sales by our usi electric subsidiary will improve , as well .
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in particular , statements relating to our liquidity and capital resources , portfolio performance and results of operations contain forward-looking statements . furthermore , all of the statements regarding future financial performance are forward-looking statements . we are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the securities act and exchange act for any such forward-looking statements . we caution investors that any forward-looking statements presented in this form 10-k are based on management 's belief and assumptions made by , and information currently available to , management . forward-looking statements can be identified by their use of forward-looking words , such as “ may , ” “ will , ” “ anticipate , ” “ expect , ” “ believe , ” “ intend , ” “ plan , ” “ should , ” “ seek ” or comparable terms , or the negative use of those words , but the absence of these words does not necessarily mean that a statement is not forward-looking . forward-looking statements include statements about our expectations , beliefs , intentions , plans , objectives , goals , strategies , future events , performance and underlying assumptions and other statements that are not historical facts . the forward-looking statements are based on our beliefs , assumptions and expectations of our future performance , taking into account all information currently available to us . forward-looking statements are not predictions of future events . these beliefs , assumptions and expectations can change as a result of many possible events or factors , not all of which are known to us . some of these factors are described below and under the headings “ business ” , “ risk factors ” and “ management 's discussion and analysis of financial condition and results of operations. ” these and other risks , uncertainties and factors could cause our actual results to differ materially from those included in any forward-looking statements we make . any forward-looking statement speaks only as of the date on which it is made . new risks and uncertainties arise over time , and it is not possible for us to predict those events or how they may affect us . except as required by law , we are not obligated to , and we do not intend to , update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . important factors that could cause actual results to differ materially from our expectations include , among others : ● the ability of our tenants to make payments under their respective leases ; ● our reliance on certain major tenants ; ● our ability to re-lease properties that are currently vacant or that become vacant ; ● our ability to obtain suitable tenants for our properties ; ● changes in real estate market conditions , economic conditions in the industrial sector , the markets in which our properties are located and general economic conditions ; ● the inherent risks associated with owning real estate , including local real estate market conditions , governing laws and regulations and illiquidity of real estate investments ; ● our ability to acquire , finance and sell properties on attractive terms ; ● our ability to repay debt financing obligations ; ● our ability to refinance amounts outstanding under our debt obligations at maturity on terms favorable to us , or at all ; ● the loss of any member of our management team ; ● our ability to comply with debt covenants ; ● our ability to integrate acquired properties and operations into existing operations ; 32 ● continued availability of proceeds from issuances of our debt or equity securities ; ● the availability of other debt and equity financing alternatives ; ● changes in interest rates under our current credit facility and under any additional variable rate debt arrangements that we may enter into in the future ; ● our ability to successfully implement our selective acquisition strategy ; ● our ability to maintain internal controls and procedures to ensure all transactions are accounted for properly , all relevant disclosures and filings are timely made in accordance with all rules and regulations , and any potential fraud or embezzlement is thwarted or detected ; ● changes in federal or state tax rules or regulations that could have adverse tax consequences ; ● declines in the market prices of our investment securities ; and ● our ability to qualify as a reit for federal income tax purposes . you should not place undue reliance on these forward-looking statements , as events described or implied in such statements may not occur . we undertake no obligation to update or revise any forward-looking statements as a result of new information , future events or otherwise . the following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein . overview monmouth real estate investment corporation , founded in 1968 , is one of the oldest public equity reits in the world . we are a self-administered and self-managed reit that seeks to invest in well-located , modern , single- tenant industrial buildings , leased primarily to investment-grade tenants or their subsidiaries on long-term net-leases . at september 30 , 2019 , we held investments in 114 properties totaling 22.3 million square feet . total real estate investments were $ 1.9 billion at september 30 , 2019. these properties are located in 30 states : alabama , arizona , colorado , connecticut , florida , georgia , illinois , indiana , iowa , kansas , kentucky , louisiana , maryland , michigan , minnesota , mississippi , missouri , nebraska , new jersey , new york , north carolina , ohio , oklahoma , pennsylvania , south carolina , tennessee , texas , virginia , washington and wisconsin . story_separator_special_tag 34 the components of our noi for the fiscal years ended september 30 , 2019 , 2018 and 2017 are as follows ( in thousands ) : replace_table_token_11_th noi increased $ 16.4 million , or 14 % , for the fiscal year ended september 30 , 2019 , as compared to the fiscal year ended september 30 , 2018 and increased $ 18.5 million , or 19 % , for the fiscal year ended september 30 , 2018 as compared to the fiscal year ended september 30 , 2017. the increase from fiscal year 2018 to 2019 was due to the additional income related to three industrial properties purchased during fiscal 2019 and the purchase of seven industrial properties during fiscal 2018. the increase from fiscal year 2017 to 2018 was due to the additional income related to seven industrial properties purchased during fiscal 2018 and the purchase of ten industrial properties during fiscal 2017. for the fiscal years ended september 30 , 2019 , 2018 and 2017 , gross revenue , which includes rental revenue , reimbursement revenue and dividend income totaled $ 173.7 million , $ 152.3 million and $ 123.3 million , respectively . subsequent to fiscal yearend 2019 , on october 10 , 2019 , we purchased a newly constructed 616,000 square foot industrial building , situated on 78.6 acres , located in the indianapolis , in msa . the building is 100 % net-leased to amazon.com services , inc. for 15 years through august 2034. the lease is guaranteed by amazon.com , inc. the purchase price was $ 81.5 million . we obtained an 18 year , fully-amortizing mortgage loan of $ 52.5 million at a fixed interest rate of 4.27 % . annual rental revenue over the remaining term of the lease averages $ 5.0 million . the industrial property purchased thus far during fiscal 2020 increased our current total leasable square feet to 22.9 million . in addition to the $ 81.5 million property purchased subsequent to our fiscal yearend , as described above , we have entered into agreements to purchase four , new build-to-suit , industrial buildings that are currently being developed in north carolina , ohio ( 2 ) and utah , totaling 997,000 square feet . these future acquisitions have net-leased terms ranging from 10 to 15 years with a weighted average lease term of 14.2 years . the total purchase price for these four properties is $ 150.5 million . three of these four properties , consisting of 844,000 square feet , or 85 % , are leased to fdx or its subsidiaries . all four properties are leased to companies , or subsidiaries of companies , that are considered investment grade by s & p global ratings ( www.standardandpoors.com ) and by moody 's ( www.moodys.com ) . the references in this report to the s & p global ratings ' website and the moody 's website are not intended to and do not include , or incorporate by reference into this report , the information of s & p global ratings or moody 's on such websites . subject to satisfactory due diligence and other customary closing conditions and requirements , we anticipate closing three of these transactions during fiscal 2020 and one during early fiscal 2021. in connection with one of these four properties , we have entered into a commitment to obtain a 10 year , fully-amortizing mortgage loan of $ 9.4 million with a fixed interest rate of 3.47 % . during the three fiscal years ended september 30 , 2019 , 2018 and 2017 , we completed a total of seven property expansions , consisting of three building expansions and four parking lot expansions . three of the four parking lot expansions included the purchase of additional land . the three building expansions resulted in 220,000 additional square feet . total costs for all seven property expansions were $ 21.0 million and resulted in total increased annual rent of $ 2.0 million . six of these completed expansions resulted in new ten-year lease extensions and the one remaining completed expansion resulted in a new fifteen-year lease extension . the weighted average lease extension for these seven property expansions is 12.1 years . 35 revenues also include dividend income and gain on sale of securities transactions . we hold a portfolio of marketable securities of other reits with a fair value of $ 185.3 million as of september 30 , 2019 , representing 8.7 % of our undepreciated assets ( which is our total assets excluding accumulated depreciation ) . we opportunistically invest in marketable securities of other reits . historically , we have aimed to limit the size of our reit securities portfolio to no more than approximately 10 % of our undepreciated assets . as we announced earlier this year , it is now our goal to gradually reduce the size of our reit securities portfolio to no more than 5 % of our undepreciated assets . the implementation of this accounting rule has resulted in increased volatility in our reported earnings and some of our key performance metrics . from time to time , we may purchase these securities on margin when there is an adequate yield spread . as of september 30 , 2019 , there were no amounts drawn down on our margin line and as of september 30 , 2018 , there was $ 26.6 million outstanding on the margin loan . as of september 30 , 2019 , our portfolio consisted primarily of 93 % reit common stocks and 7 % reit preferred stocks , all of which are listed on a national securities exchange . our weighted average yield on the securities portfolio for fiscal 2019 was 8.5 % . dividend income for fiscal 2019 was $ 15.1 million compared to $ 13.1 million for fiscal 2018. during fiscal 2019 , we did not sell or redeem any securities and thus we did not realize any gains on sale of securities transactions .
| results of operations occupancy and rent per occupied square foot our weighted-average lease expiration was 7.6 years and 8.1 years as of september 30 , 2019 and 2018 , respectively , and our average annualized rent per occupied square foot as of september 30 , 2019 and 2018 was $ 6.20 and $ 6.01 , respectively . at september 30 , 2019 and 2018 , our overall occupancy rate was 98.9 % and 99.6 % , respectively . as of september 30 , 2019 , all but three of our improved properties were 100 % occupied , resulting in a 98.9 % overall occupancy rate . subsequent to fiscal yearend 2019 , effective november 1 , 2019 , we leased one of these previously vacant properties consisting of 60,000 square feet for 12.5 years , increasing our current overall occupancy rate to 99.2 % . fiscal 2019 renewals in fiscal 2019 , approximately 7 % of our gross leasable area , representing 11 leases totaling 1.5 million square feet , was set to expire . seven of these 11 leases have been renewed , representing 1.1 million square feet , or 76 % of the expiring square footage and have a weighted average lease term of 7.2 years .
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in establishing the discount rate , we review published story_separator_special_tag overview this management 's discussion and analysis of financial condition and results of operations is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes to the consolidated financial statements presented in `` financial statements and supplementary data , '' as well as the information contained in `` risk factors . '' unless otherwise stated , the terms `` we , '' `` us , '' `` our '' and the `` company '' refer to campbell soup company and its consolidated subsidiaries . as of the beginning of 2016 , we manage our businesses in three divisions focused mainly on product categories . the new divisions , which represent our operating and reportable segments , are as follows : americas simple meals and beverages ; global biscuits and snacks ; and campbell fresh . see `` business - reportable segments '' for a description of the products included in each segment . in 2016 , we modified our method of allocating pension and postretirement benefit costs to segments . through 2015 , we included all components of benefit expense in measuring segment performance . in 2016 , only service cost is allocated to segments . all other components of expense , including interest cost , expected return on assets , and recognized actuarial gains and losses , are reflected in corporate and not included in segment operating results . in 2016 , we elected to change our method of accounting for the recognition of actuarial gains and losses for defined benefit pension and postretirement plans and the calculation of expected return on pension plan assets . historically , actuarial gains and losses associated with benefit obligations were recognized in accumulated other comprehensive loss in the consolidated balance sheets and were amortized into earnings over the remaining service life of participants to the extent that the amounts were in excess of a corridor . under the new policy , actuarial gains and losses will be recognized immediately in our consolidated statements of earnings as of the measurement date , which is our fiscal year end , or more frequently if an interim remeasurement is required . in addition , we no longer use a market-related value of plan assets , which is an average value , to determine the expected return on assets but rather will use the fair value of plan assets . we believe the new policies will provide greater transparency to ongoing operating results and better reflect the impact of current market conditions on the obligations and assets . relevant financial information has been retrospectively adjusted to reflect the changes in segment reporting and accounting policy . executive summary we are a manufacturer and marketer of high-quality , branded food and beverage products . we operate in a highly competitive industry and experience global competition for all of our principal products . the principal areas of competition are brand recognition , taste , quality , price , advertising , promotion , convenience and service . to grow and maintain our market positions , we focus on bringing new products and innovations to market that meet evolving consumer needs and preferences , while maintaining the quality and appeal of our existing products . we continue to optimize our manufacturing 14 and other operations and invest in our brands through ongoing research and development , advertising , marketing and consumer promotions . over the last several years , we have diversified our product offerings through several acquisitions and enhanced our focus through a divestiture . in 2013 , we acquired bolthouse farms and plum . in 2014 , we acquired kelsen and divested our european simple meals business . in 2015 , we completed the acquisition of the assets of garden fresh gourmet . see note 3 to the consolidated financial statements for additional information on our recent acquisitions , and note 4 to the consolidated financial statements for additional information on our divestiture of the european simple meals business . industry trends our businesses are being influenced by a variety of trends that we anticipate will continue in the future , including changing demographics , consumer tastes , opinions and behaviors . millennials and generation z are replacing baby boomers as the key influencers of societal and cultural norms in the u.s. in addition , there is a leveling or shrinking middle class in developed markets , while there is a growing middle class in developing markets . consumers increasingly seek products that they deem healthy , including fresh , organic and functional foods . while demanding products with these qualities , consumers have become more distrustful of large corporations and other large institutions . traditional retailers are responding by developing small format and `` neighborhood '' stores and expanding shelf space for purpose-driven brands . consumers also continue to gravitate toward value offerings , which is demonstrated by the increase in lower-priced retailers , such as dollar stores , and the growth of private-label offerings . digital technology is changing the way consumers purchase food . although e-commerce represents only a small percent of total food sales today , we anticipate it will accelerate rapidly through the growth of pure-play e-tailers , increased focus of brick and mortar retailers on e-commerce and the mainstreaming of meal delivery services . consumers are also increasingly using digital technology to customize their diets for their individual lifestyle , physiology and health goals . key strategies our long-term goal is to build shareholder value by driving sustainable , profitable net sales growth . guided by our purpose - real food that matters for life 's moments , we are pursuing a dual strategy of strengthening our core businesses while expanding into faster-growing spaces . new structure in 2016 , we implemented a new enterprise design that better aligns with our dual strategy . story_separator_special_tag net earnings ( loss ) attributable to noncontrolling interests we own a 60 % controlling interest in a joint venture formed with swire pacific limited to support the development of our soup and broth business in china . the joint venture began operations on january 31 , 2011. in 2014 , together with our joint venture partner , we agreed to restructure manufacturing and streamline operations for our soup and broth business in china . the after-tax restructuring charge attributable to the noncontrolling interest was $ 5 million . we own a 70 % controlling interest in a malaysian food products manufacturing company . in addition , beginning in 2016 , we own a 99.8 % interest in acre venture partners , l.p. , a limited partnership formed to make venture capital investments in innovative new companies in food and food-related industries . see note 15 to the consolidated financial statements for additional information . the noncontrolling interests ' share in the net earnings ( loss ) was included in net earnings ( loss ) attributable to noncontrolling interests in the consolidated statements of earnings . discussion and analysis sales an analysis of net sales by reportable segment follows : replace_table_token_6_th 18 an analysis of percent change of net sales by reportable segment follows : replace_table_token_7_th replace_table_token_8_th ( 1 ) represents revenue reductions from trade promotion and consumer coupon redemption programs . ( 2 ) sum of the individual amounts does not add due to rounding . in 2016 , americas simple meals and beverages sales decreased 2 % . sales decreased primarily due to declines in soup and v8 beverages , partially offset by gains in prego pasta sauces , plum products and pace mexican sauces . u.s. soup sales decreased 4 % primarily as a result of the impact of our net price realization actions and category declines , which were partly related to warmer weather . further details of u.s. soup include : sales of condensed soups were comparable to the prior year . sales of ready-to-serve soups declined 13 % . the sales decrease in ready-to-serve soups was also due to marketing execution issues on campbell 's chunky soups . broth sales increased 1 % . v8 beverages continued to be under pressure from competition from specialty and packaged fresh beverages . in 2015 , americas simple meals and beverages sales decreased 2 % . u.s. soup sales declined 3 % , with 1 % due to the impact of the 53 rd week . further details of u.s. soup include : sales of condensed soups decreased 3 % , with declines in both eating and cooking varieties . lower volumes were partially offset by higher selling prices and reduced promotional spending . sales of ready-to-serve soups decreased 5 % . broth sales increased 3 % due to gains in aseptically-packaged broth , partially offset by declines in canned broth . sales of u.s. beverages decreased 5 % , primarily due to declines in v8 v-fusion beverages and v8 vegetable juice , partially offset by gains in v8 splash beverages . our u.s. beverages continued to be under pressure from category weakness in shelf-stable juices , as well as from competition from specialty beverages and packaged fresh juices . sales of other u.s. simple meals increased 5 % , primarily due to growth in prego pasta sauces , plum products and campbell 's dinner sauces , partially offset by lower sales in other simple meal products . in canada , sales decreased due to the negative impact of currency translation . in 2016 , global biscuits and snacks sales decreased 3 % reflecting a 4 % negative impact from currency translation . excluding the negative impact of currency translation , segment sales increased primarily due to gains in pepperidge farm goldfish crackers and arnott 's biscuits in australia , partially offset by declines in kelsen . in 2015 , global biscuits and snacks sales decreased 3 % . in arnott 's , sales decreased primarily due to the impact of currency translation . excluding the negative impact of currency translation , sales of arnott 's products increased due to volume gains and higher selling prices in australia and indonesia . pepperidge farm sales declined primarily due to the impact of the 53 rd week . excluding the impact of the 53 rd week , pepperidge farm sales increased due to gains in fresh bakery , and crackers and cookies , 19 partially offset by declines in frozen products . sales of simple meals and beverages in the asia pacific region declined due to the negative impact of currency translation and the 53 rd week . in 2016 , campbell fresh sales increased 5 % primarily due to the acquisition of garden fresh gourmet , which was acquired on june 29 , 2015. excluding the acquisition , sales declined reflecting lower sales in carrots and carrot ingredients , partially offset by gains in refrigerated beverages and salad dressings . in 2016 , carrot sales performance primarily reflected the adverse impact of weather conditions on crop yields , and execution issues in response to those conditions , which led to customer dissatisfaction and a loss of business in the second half of the year . the increase in refrigerated beverages was primarily due to new product launches , partially offset by the impact of the voluntary recall of bolthouse farms protein plus drinks in june . in 2016 , promotional spending was increased to remain competitive and to support new product launches . in 2015 , campbell fresh sales increased 1 % . excluding the impact of the 53rd week , sales increased primarily due to gains in bolthouse premium refrigerated beverages and salad dressings ; and the acquisition of garden fresh gourmet , which was acquired on june 29 , 2015 ; partially offset by declines in bolthouse carrots and carrot ingredients . gross profit gross profit , defined as net sales less cost of products sold , decreased by $ 2 million in 2016 from 2015 and decreased by $ 189 million in 2015 from 2014 .
| summary of results this summary of results provides significant highlights from the discussion and analysis that follows . there were 52 weeks in 2016 and 2015. there were 53 weeks in 2014. net sales decreased 1 % in 2016 to $ 7.961 billion , primarily due to the impact of currency translation and lower volume , partially offset by the acquisition of garden fresh gourmet and higher selling prices . gross profit , as a percent of sales , increased to 34.9 % from 34.4 % a year ago . the increase was primarily due to productivity improvements and higher selling prices , partially offset by increased losses on pension and postretirement benefit mark-to-market adjustments , and cost inflation , supply chain costs and other factors . administrative expenses increased 7 % to $ 641 million from $ 601 million a year ago . the increase was primarily due to increased losses on pension and postretirement benefit mark-to-market adjustments , and higher costs related to the implementation of the new organizational structure and cost savings initiatives , partially offset by benefits from cost savings initiatives . excluding losses on pension and postretirement benefit mark-to-market adjustments and costs related to the implementation of new organizational structure and cost savings initiatives , administrative expenses decreased due to the benefits from cost savings initiatives , partially offset by inflation . other expenses / ( income ) increased to $ 131 million in 2016 from $ 24 million in 2015 , primarily due to a non-cash impairment charge on the intangible assets of the bolthouse farms carrot and carrot ingredients reporting unit , partially offset by a gain from the settlement of a claim related to the kelsen acquisition . earnings per share were $ 1.81 in 2016 , compared to $ 2.13 a year ago . the current and prior year included expenses of $ 1.13 and $ .53 per share , respectively , from items impacting comparability as discussed below .
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you should refer to the cautionary statement regarding forward-looking statements set forth in part i of this annual report . executive summary xpo logistics , inc. , a delaware corporation ( the company , we , our or us ) , is a third party logistics provider of freight transportation services through three non-asset based or asset-light business units : expedited transportation , freight forwarding and freight brokerage . these business units provide services complementary to each other , effectively giving us a platform for expansion in three distinct areas of the transportation industry . business unit subsidiary ( ies ) primary office location ( s ) date initiated or acquired expedited transportation express-1 buchanan , michigan august 2004 freight forwarding concert group logistics downers grove , illinois january 2008 freight brokerage bounce logistics and xpo logistics south bend , indiana and phoenix , arizona march 2008 expedited transportation express-1 , inc. ( express-1 ) was founded in 1989 and acquired in 2004. express-1 provides time-critical expedited transportation to its customers , most typically through carrier arrangements that assign one truck to a load , with a specified delivery time requirement . most of the services provided by express-1 are completed via a fleet of exclusive-use vehicles that are owned and operated by independent contract drivers . freight forwarding concert group logistics , inc. ( cgl ) was founded in 2001 and acquired in 2008. cgl provides freight forwarding services through a network of independently owned stations and company-owned branches located throughout the united states . these stations and branches are responsible for selling and operating freight forwarding transportation services within their geographic area under the authority of cgl . in october 2009 , certain assets and liabilities of lrg international inc. ( now known as cgl international ) were purchased to complement the operations of cgl through two florida branches that primarily provide international freight forwarding services . the financial reporting of this operation has been included within cgl . freight brokerage through our freight brokerage unit , we arrange freight transportation and provide related logistics and supply chain services to customers in north america , ranging from commitments on specific individual shipments to more comprehensive and integrated relationships . from january 2008 until the fourth quarter of 2011 , we provided these services solely through our bounce logistics , inc. subsidiary ( bounce logistics ) . during the fourth quarter of 2011 , we opened a sales office in phoenix , arizona , which provides freight brokerage services under the name xpo logistics . the phoenix office is the first of several cold-start sales offices we plan to open during the next two years . the company generally does not own its own trucks , ships or planes ; instead we use a network of relationships with ground , ocean and air carriers to find the best transportation solutions for our customers . this allows capital to be invested primarily in expanding our workforce of talented people who are adept in the critical areas of competitive selling , price negotiation , carrier relations and customer service . growth strategy following a significant equity investment by jacobs private equity , llc ( jpe ) in the company in september 2011 ( as described below under recent developments ) , we began to implement a growth strategy 27 that will leverage our strengthsincluding management expertise , substantial liquidity and potential access to additional capitalin pursuit of profitable growth . our strategy anticipates that this will be facilitated by a highly experienced executive team recently put in place , and by new technology that will integrate our operations on a shared platform for cross-company benchmarking and analysis . our growth strategy focuses on the following three key areas : targeted acquisitions we intend to make selective acquisitions of non-asset based logistics freight brokerage businesses that would benefit from our greater scale and potential access to capital , and we may make similar acquisitions of freight forwarding , expedited and intermodal service businesses , among others . we believe that we are in a position to make the first phase of acquisitions by using existing cash and expanding our credit facilities . organic growth we plan to establish new freight brokerage offices in locations across north america , and we are actively recruiting managers with a proven track record of building successful brokerage operations . we expect the new brokerage offices to generate revenue growth by developing customer and carrier relationships in new territories . optimized operations we intend to optimize our existing operations , acquired companies and greenfield locations by investing in an expanded sales and service workforce , implementing an advanced information technology infrastructure , incorporating industry best practices , and leveraging scale to share capacity more efficiently and increase buying power . recent developments equity investment in september 2011 , pursuant to the investment agreement , dated as of june 13 , 2011 ( the investment agreement ) , by and among jpe , the other investors party thereto ( collectively with jpe , the investors ) and the company , we issued to the investors , for $ 75.0 million in cash : ( i ) an aggregate of 75,000 shares of our series a convertible perpetual preferred stock ( the series a preferred stock ) , which are initially convertible into an aggregate of 10,714,286 shares of our common stock , and ( ii ) warrants initially exercisable for an aggregate of 10,714,286 shares of our common stock at an initial exercise price of $ 7.00 per common share ( the warrants ) . our stockholders approved the issuance of the series a preferred stock and the warrants at the special meeting of our stockholders on september 1 , 2011. we refer to this investment as the equity investment. see note 10 to our audited consolidated financial statements in item 8 of this annual report . story_separator_special_tag we discuss this freight separately because of freight forwarding 's more recent focus on international freight through its purchase of lrg international , inc. ( now known as cgl international ) , and because we believe that international freight could be a significant source of growth for us in the future . we often refer to the costs of our board of directors , our executive team and certain operating costs associated with operating as a public company as corporate charges . in addition to the aforementioned items , we also record items such as our income tax provision and other charges that are reported on a consolidated basis within the corporate line items of the following tables . the following tables are provided to allow readers to review results within our major operating segments . xpo logistics , inc. summary financial table for the twelve months ended december 31 , replace_table_token_5_th 30 consolidated results 2011 vs. 2010 in total , the company 's consolidated revenues for fiscal year 2011 were 12.1 % greater than fiscal year 2010. this growth was driven primarily by increased international revenues at express-1 and continued strong growth in our freight brokerage unit . direct expenses represent expenses attributable to freight transportation . our asset-light operating model arranges transportation capacity through variable cost transportation alternatives , and therefore enables us to control certain of our operating costs as our volumes fluctuate . our primary means of arranging transportation capacity are through our fleet of independent contractors in expedited transportation and our network of independent ground , ocean and air carriers in freight forwarding and freight brokerage . we believe this operating model gives us a strategic advantage as compared to transportation providers who directly own assets , particularly in uncertain economic conditions . our overall gross margin for fiscal year 2011 was 16.8 % , a decrease when compared to 17.3 % in fiscal year 2010. the decrease in gross margin can be attributed primarily to the following items : international shipments in expedited transportation tend to be higher revenue transactions than domestic shipments , but historically have generated a lower gross margin percentage . as international business becomes a larger component of our revenue , we expect to experience continuing decreases in gross margin percentage as our business mix shifts . freight brokerage continues to grow at a higher rate than expedited transportation and freight forwarding , which we expect to continue in the future . freight brokerage historically has a lower gross margin percentage compared with expedited transportation . as our business mix shifts toward freight brokerage in the future , we expect to experience continuing decreases in gross margin percentage . selling , general and administrative ( sg & a ) expenses as a percentage of revenue were 15.8 % for fiscal year 2011 , an increase from 12.0 % in 2010. overall , sg & a expenses increased by $ 9.1 million for full year 2011 compared to 2010 , resulting from an increase of $ 4.2 million in purchased services , of which approximately $ 1.0 million represented indirect expenses associated with the equity investment and $ 1.9 million represented recruiting and other costs related to new executive team appointments . salary and benefit costs increased by $ 3.1 million related primarily to our investment in additional salespeople at freight brokerage and freight forwarding and the new executive team appointments , of which $ 850,000 were one-time guarantees recorded during the fourth quarter of 2011. additionally , other sg & a costs were up $ 1.9 million mainly due to equity compensation expense of approximately $ 900,000 recorded in the fourth quarter of 2011 related to equity grants for the new executive team . as of december 31 , 2011 , we had approximately $ 4.0 million of unrecognized compensation cost related to non-vested stock option-based compensation that we expect to recognize over a weighted average period of approximately 4.3 years . also as of december 31 , 2011 , we had approximately $ 6.9 million of unrecognized compensation cost related to non-vested restricted stock-based compensation that we expect to recognize over a weighted average period of approximately 4.5 years . our effective income tax rate for the fiscal year ended december 31 , 2011 was 46 % as compared to 40 % for the fiscal year ended december 31 , 2010 associated with out of period tax charges incurred in 2011. the company finished fiscal year 2011 with $ 759,000 in net income , which is a 84.5 % decrease when compared to $ 4.9 million for fiscal year 2010. investment in the new executive team and corporate infrastructure , which includes payroll , equity compensation and professional fees , and indirect transaction costs related to the equity investment contributed to the reduction in net income . 31 2010 vs. 2009 the actions we took in 2009 to minimize the negative impact of the economic downturn significantly helped improve results of operations during 2010. we experienced solid financial improvements across our business units , including improvements in : gross revenues , gross margin percentage , sg & a-to-revenue ratios and net income . our gross margin percentage and sg & a-to-revenue ratios returned to more historic levels during 2010 as the economy improved . overall consolidated revenues of $ 158.0 million for fiscal year 2010 represented an increase of 57.8 % over fiscal year 2009. lrg international , acquired in october of 2009 , contributed $ 12.1 million of the revenue growth for 2010 , with remaining growth being achieved organically . in 2010 , the consolidated gross margin percentage improved to 17.3 % from 16.7 % in 2009 as the result of significant margin improvements at our expedited transportation unit and an overall improvement in our mix of business . sg & a expenses as a percentage of revenue declined steadily throughout the year as revenues increased more quickly than sg & a costs .
| summary financial table for the twelve months ended december 31 , replace_table_token_6_th 32 expedited transportation 2011 vs. 2010 our expedited transportation segment generated fiscal year 2011 revenue of $ 87.6 million , reflecting growth of 14.2 % compared to 2010. as the international component of our expedited transportation unit increased during 2011 , mexican and canadian cross-border freight represented 24.2 % of segment revenue for 2011 , compared to 20.1 % of segment revenue for 2010. for the year ended december 31 , 2011 , rising fuel prices positively impacted our revenue as fuel charge revenues represented 16.4 % of our revenue as compared to 12.3 % for 2010. expedited transportation 's gross margin percentage was 20.9 % for fiscal year 2011 , compared to 22.7 % for 2010. reasons for the decrease in gross margin percentage include : the increase in international transactions , which are typically higher revenue shipments at a lower gross margin percentage than our domestic transactions ; a higher percentage of shipments placed through brokered carriers , associated mainly with the growth in international business . all cross-border moves are handled by brokered carriers ; and expedited transportation results in the third quarter of 2010 were positively impacted by floods in mexico that generated significantly higher margins than normal . historically , the utilization of brokered carriers has enabled our expedited transportation unit to handle peak volume periods for its customers while building its fleet of independent contractor drivers . brokered carriers also are utilized to more efficiently handle freight that crosses into canada or mexico . this component of expedited transportation 's purchased transportation costs is critical to our ongoing success ; however , gross margin percentages relating to this business are typically lower than margins associated with our own fleet of independent contractor drivers .
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in particular , statements contained in this annual report on form 10-k that are not historical facts , including , but not limited to statements concerning new product sales , product development and offerings , roomba and braava products , our consumer robots , our competition , our strategy , our market position , market acceptance of our products , seasonal factors , revenue recognition , our profits , growth of our revenues , composition of our revenues , our cost of revenues , units shipped , average selling prices , operating expenses , selling and marketing expenses , general and administrative expenses , research and development expenses , and compensation costs , our projected income tax rate , our credit and letter of credit facilities , our valuations of investments , valuation and composition of our stock-based awards , and liquidity , constitute forward-looking statements and are made under these safe harbor provisions . some of the forward-looking statements can be identified by the use of forward-looking terms such as `` believes , '' `` expects , '' `` may , '' `` will , '' `` should , '' `` could , '' `` seek , '' `` intends , '' `` plans , '' `` estimates , '' `` anticipates , '' or other comparable terms . forward-looking statements involve inherent risks and uncertainties , which could cause actual results to differ materially from those in the forward-looking statements . we urge you to consider the risks and uncertainties discussed in greater detail under the heading `` risk factors '' in evaluating our forward-looking statements . we have no plans to update our forward-looking statements to reflect events or circumstances after the date of this report . we caution readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . overview irobot designs and builds robots that empower people to do more . the company 's consumer robots help people find smarter ways to clean and accomplish more in their daily lives . irobot 's portfolio of solutions features proprietary technologies for the connected home and advanced concepts in navigation , mobility , manipulation and artificial intelligence . for more than 25 years , we have been a pioneer in the robotics and consumer products industries . during 2016 , we continued our transformation to a global consumer robotics company with the divestiture of our defense and security business and the decision to exit the remote presence business . our consumer robots and accessories represented 99 % of our revenue in 2016. we sell our robots through a variety of distribution channels , including chain stores and other national retailers , through our on-line store , and through value-added distributors and resellers worldwide . over the past fifteen years , we have sold more than 18 million consumer robots worldwide . during 2016 , we took several steps to become more focused on our well established consumer robots business to capitalize on the substantial opportunities available to us within consumer markets . first , we completed the sale of our defense and security business unit on april 4 , 2016. the final purchase price , including adjustments for working capital and indebtedness , was $ 24.5 million . second , we reallocated all of the research and development resources from our remote presence business to opportunities in our consumer business during the first quarter of 2016 , and decided to fully exit the remote presence business during the second quarter of 2016. these actions were taken to solidify our position as the leader in diversified consumer robots and to focus on key technologies , with an emphasis on software , that allow our robots to understand the homes in which they operate . it is our intent to continue investing in these critical technologies and the economic opportunities they unlock . third , on november 21 , 2016 , we announced the signing of a definitive agreement to acquire the irobot-related distribution business of privately-held sales on demand corporation , or sodc , based in tokyo , japan . sodc has been irobot 's exclusive distribution partner in japan since 2004 and is well respected by top channel partners . irobot will acquire the business for a cash amount equal to the 22 book value of the acquired assets at close , primarily inventory , currently estimated to be between $ 18.0 million and $ 20.0 million , subject to exchange rates in effect on the date of acquisition . the acquisition is expected to close in april 2017. as of december 31 , 2016 , we had 607 full-time employees . we have developed expertise in the disciplines necessary to build durable , high-performance and cost-effective robots through the close integration of software , electronics and hardware . our core technologies serve as reusable building blocks that we adapt and expand to develop next generation and new products , reducing the time , cost and risk of product development . our significant expertise in robot design and engineering positions us to capitalize on the expected growth in the market for robot-based products . although we have successfully launched consumer products , our continued success depends upon our ability to respond to a number of future challenges . we believe the most significant of these challenges include increasing market competition , and our ability to successfully develop and introduce products and product enhancements into both new and existing markets . during 2016 , we launched roomba 960 , our second 900 series roomba , that extends mapping , visual navigation and cloud connectivity to a wider range of customers . we also launched the braava jet mopping robot , with precision jet spray and vibrating cleaning head , focused on expanding our wet floor care business . both the roomba 900 series and braava jet are significantly more complex products , delivering enhanced performance enabled by software . story_separator_special_tag cost of revenue cost of revenue includes the cost of raw materials and labor that go into the development and manufacture of our products as well as manufacturing overhead costs such as manufacturing engineering , quality assurance , logistics , warranty , third-party consulting , travel and associated direct material costs . additionally , we include overhead expenses such as indirect engineering labor , occupancy costs associated with the project resources , engineering tools and supplies and program management expenses . for the fiscal years ended december 31 , 2016 , january 2 , 2016 and december 27 , 2014 , total cost of revenue was 51.7 % , 53.2 % and 53.7 % of total revenue , respectively . raw material costs , which are our most significant cost items , can fluctuate materially on a periodic basis , although many components have been historically stable . additionally , unit costs can vary significantly depending on the mix of products sold . there can be no assurance that our costs of raw materials will not increase . labor costs also comprise a significant portion of our cost of revenue . we outsource the manufacture of our consumer robots to contract manufacturers in china . while labor costs in china traditionally have been favorable compared to labor costs elsewhere in the world , including the united states , they have recently been increasing . in addition , fluctuations in currency exchange rates could increase the cost of labor . consequently , the labor costs for our consumer robots could increase in the future . gross margin our gross margin as a percentage of revenue varies according to the mix of product and contract revenue , the mix of products sold , total sales volume , the level of defective product returns , and levels of other product costs such as warranty , scrap , re-work and manufacturing overhead . for the years ended december 31 , 2016 , january 2 , 2016 and december 27 , 2014 , gross margin was 48.3 % , 46.8 % and 46.3 % of total revenue , respectively . research and development expenses research and development expenses consist primarily of : salaries and related costs for our engineers ; costs for high technology components used in product and prototype development ; costs of test equipment used during product development ; and occupancy and other overhead costs . we have significantly expanded our research and development capabilities and expect to continue to expand these capabilities in the future . we are committed to consistently maintaining the level of innovative design and development of new products as we strive to enhance our ability to serve our existing consumer markets as well as new markets for robots . we anticipate that research and development expenses will increase in absolute dollars but remain relatively consistent as a percentage of revenue in the foreseeable future . for the fiscal years ended december 31 , 2016 , january 2 , 2016 and december 27 , 2014 , research and development expense was $ 79.8 million , $ 76.1 million and $ 69.4 million , or 12.1 % , 12.3 % and 12.5 % of total revenue , respectively . selling , marketing , general and administrative expenses our selling , marketing , general and administrative expenses consist primarily of : salaries and related costs for sales and marketing personnel ; salaries and related costs for executives and administrative personnel ; advertising , marketing and other brand-building costs ; customer service costs ; professional services costs ; 24 information systems and infrastructure costs ; travel and related costs ; and occupancy and other overhead costs . we anticipate that in 2017 , selling , marketing , general and administrative expenses will increase in absolute dollars and as a percentage of revenue and will , for the foreseeable future thereafter , continue to increase in absolute dollars but remain relatively consistent , or decrease slightly , as a percentage of revenue , as we continue to build the irobot brand . for the fiscal years ended december 31 , 2016 , january 2 , 2016 and december 27 , 2014 selling , marketing , general and administrative expense was $ 182.0 million , $ 152.2 million and $ 135.5 million , or 27.5 % , 24.7 % and 24.3 % of total revenue , respectively . fiscal periods we operate and report using a 52-53 week fiscal year ending on the saturday closest to december 31. accordingly , our fiscal quarters will end on the saturday that falls closest to the last day of the third month of each quarter . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , costs and expenses , and related disclosures . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we primarily derive our revenue from product sales . until the divestiture of the defense and security business unit on april 4 , 2016 ( see note 15 ) , we also generated minimal revenue from government and commercial research and development contracts . we sell products directly to customers and indirectly through resellers and distributors .
| overview of results of operations the following table sets forth our results of operations for the periods shown : replace_table_token_4_th _ ( 1 ) stock-based compensation recorded in fiscal 2016 , 2015 and 2014 breaks down by expense classification as follows . replace_table_token_5_th the following table sets forth our results of operations as a percentage of revenue for the periods shown : replace_table_token_6_th 28 comparison of years ended december 31 , 2016 and january 2 , 2016 revenue fiscal year ended december 31 , 2016 january 2 , 2016 dollar change percent change ( in thousands ) total revenue $ 660,604 $ 616,778 $ 43,826 7.1 % our revenue increased 7.1 % to $ 660.6 million in fiscal 2016 from $ 616.8 million in fiscal 2015. revenue increased approximately $ 96.2 million , or 17.2 % , in our consumer business while revenue decreased $ 51.9 million in our defense and security business as a result of the sale of our defense and security business unit on april 4 , 2016. the $ 96.2 million increase in revenue from our consumer business was driven by a 20.8 % increase in units shipped , partially offset by a 0.8 % decrease in net average selling price . in fiscal 2016 , domestic consumer revenue increased $ 84.2 million , or 35.8 % , and international consumer revenue increased $ 12.0 million , or 3.7 % , compared to fiscal 2015. total consumer robots shipped in fiscal 2016 were approximately 2,943,000 units compared to approximately 2,436,000 units in fiscal 2015. the increase in domestic consumer robots revenue was primarily attributable to increased sales as a result of significant investments in advertising media and national promotions as well as increased sales of the roomba 900 series robots .
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for the year ended december 31 , 2014 , we recorded other expense of $ 0.3 million co mpared to other expense of $ 1.4 million during the same period of 2013. the improvement was primarily due to the $ 1.8 million impairment of gold and silver bullion in 2013. provision for income taxes . for the year ended december 31 , 201 4 , income tax expense increased to $ 15.0 million as compared to an income tax expense of $ 8.9 million for the year ended december 31 , 2013. as of december 31 , 2014 , the increase is primarily due to the new mining royalty tax and deferral of exploration expense for tax purposes . see note 8 to the consolidated financial statements for additional information . net income . for the year ended december 31 , 2014 , net income was $ 16.2 million , or $ 0.30 per basic share , as compared to $ 0.1 million or $ 0.00 per basic share , for the comparable period of 2013. the increase in net income for the year was impacted by the matters described above . results of operations – year ended december 31 , 2013 compared to year ended december 31 , 2012 during the year ended december 31 , 2013 , sales of metals totaled $ 125.8 million , net of treatment charges , compared to sales of $ 131.8 million during the same period of 2012. gold equivalent ounces sold in 2013 , increased to 82,935 ounces compared to 72,399 ounces sold in 2012. gold prices realized for 2013 , were $ 1,388 per ounce , down from $ 1,676 per ounce in 2012. mine gross profit for the year ended december 31 , 2013 , was $ 58.3 million compared to $ 87.8 million in the comparable period of 2012 , a decrease of $ 29 .5 million or 33.6 % . for the year ended december 31 , 2013 , we reported net income of $ 0.1 million , or $ 0.00 per basic share , compared to net income of $ 33.7 million , or $ 0.64 per basic share , for the year ended december 31 , 2012. the $ 33.6 million decrease in net income in 2013 , was principally attributable to a decrease in metal prices , and higher production , general and administrative , exploration , and facilities and mine construction expenses . total costs and expenses for the year ended december 31 , 2013 , were $ 47.9 million compared to $ 38.1 million in the same period of 2012 , an increase of $ 9.8 million or 25.7 % . the increase in costs and expenses was primarily due to an increase in exploration , general administrative , and facilities and mine construction expenses . exploration expense for the year ended december 31 , 2013 , was $ 9.5 million compared to $ 8.0 million in the same period of 2012. the $ 1.5 million increase in exploration expenses principally resulted from an expanded drilling program and from an aerial geophysical survey over our oaxaca property trend . facilities and mine construction expenses for the year ended december 31 , 2013 , were $ 22.2 million compared to $ 16.6 million in the same period of 2012. the $ 5.6 million increase in facilities and mine construction expenses was principally due to our mill expansion project . general and administrative expenses for the year ended december 31 , 2013 , were $ 16.3 million , compared to $ 13.5 million in the same period of 2012. the $ 2.8 million increase in 2013 principally resulted from an increase in compensation , insurance , computer it support , investor relations and legal expenses . other expense for the year ended december 31 , 2013 , was $ 1.4 million , compared to $ 2.7 million in the same period of 2012. the $ 1.3 million decrease in 2013 principally resulted from a decrease in foreign currency losses of $ 2.5 million and increase in other income of $ 0.6 million , which was partially offset by an increase in impairment of gold and silver bullion of $ 1.8 million . provision for income tax for the year ended december 31 , 2013 , was $ 8.9 million , compared to $ 13.3 million in the same period of 2012. non-gaap measures reconciliation of non-gaap measures to total mine cost of sale in this report , we have provided information prepared or calculated according to u.s. gaap , as well as referenced some non-u.s. gaap performance measures . because the non-gaap performance measures do not have any standardized meaning prescribed by u.s. gaap , they may not be comparable to similar measures presented by other companies . accordingly , these measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with u.s. gaap . we have reconciled total cash cost , before by-product credits and total cash cost , after by-product credits to total mine cost of sales which is a reported u.s. gaap measure . total cash cost , before by-product credits , includes all direct and indirect operating cash costs related directly to our production of metals which includes mining , milling and other plant facility costs , smelter treatment and refining charges , royalties , and general and administrative costs . we use total cash cost , after by-product credits per precious metal gold equivalent ounce sold ( including royalties ) as one indicator for comparative monitoring of our mining operations from period-to-period and believe that investors also find this information helpful when evaluating our performance . by-product credits include revenues earned from all metals other than the primary precious metals sold . management also uses this measurement for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective . total story_separator_special_tag for the year ended december 31 , 2014 , we recorded other expense of $ 0.3 million co mpared to other expense of $ 1.4 million during the same period of 2013. the improvement was primarily due to the $ 1.8 million impairment of gold and silver bullion in 2013. provision for income taxes . for the year ended december 31 , 201 4 , income tax expense increased to $ 15.0 million as compared to an income tax expense of $ 8.9 million for the year ended december 31 , 2013. as of december 31 , 2014 , the increase is primarily due to the new mining royalty tax and deferral of exploration expense for tax purposes . see note 8 to the consolidated financial statements for additional information . net income . for the year ended december 31 , 2014 , net income was $ 16.2 million , or $ 0.30 per basic share , as compared to $ 0.1 million or $ 0.00 per basic share , for the comparable period of 2013. the increase in net income for the year was impacted by the matters described above . results of operations – year ended december 31 , 2013 compared to year ended december 31 , 2012 during the year ended december 31 , 2013 , sales of metals totaled $ 125.8 million , net of treatment charges , compared to sales of $ 131.8 million during the same period of 2012. gold equivalent ounces sold in 2013 , increased to 82,935 ounces compared to 72,399 ounces sold in 2012. gold prices realized for 2013 , were $ 1,388 per ounce , down from $ 1,676 per ounce in 2012. mine gross profit for the year ended december 31 , 2013 , was $ 58.3 million compared to $ 87.8 million in the comparable period of 2012 , a decrease of $ 29 .5 million or 33.6 % . for the year ended december 31 , 2013 , we reported net income of $ 0.1 million , or $ 0.00 per basic share , compared to net income of $ 33.7 million , or $ 0.64 per basic share , for the year ended december 31 , 2012. the $ 33.6 million decrease in net income in 2013 , was principally attributable to a decrease in metal prices , and higher production , general and administrative , exploration , and facilities and mine construction expenses . total costs and expenses for the year ended december 31 , 2013 , were $ 47.9 million compared to $ 38.1 million in the same period of 2012 , an increase of $ 9.8 million or 25.7 % . the increase in costs and expenses was primarily due to an increase in exploration , general administrative , and facilities and mine construction expenses . exploration expense for the year ended december 31 , 2013 , was $ 9.5 million compared to $ 8.0 million in the same period of 2012. the $ 1.5 million increase in exploration expenses principally resulted from an expanded drilling program and from an aerial geophysical survey over our oaxaca property trend . facilities and mine construction expenses for the year ended december 31 , 2013 , were $ 22.2 million compared to $ 16.6 million in the same period of 2012. the $ 5.6 million increase in facilities and mine construction expenses was principally due to our mill expansion project . general and administrative expenses for the year ended december 31 , 2013 , were $ 16.3 million , compared to $ 13.5 million in the same period of 2012. the $ 2.8 million increase in 2013 principally resulted from an increase in compensation , insurance , computer it support , investor relations and legal expenses . other expense for the year ended december 31 , 2013 , was $ 1.4 million , compared to $ 2.7 million in the same period of 2012. the $ 1.3 million decrease in 2013 principally resulted from a decrease in foreign currency losses of $ 2.5 million and increase in other income of $ 0.6 million , which was partially offset by an increase in impairment of gold and silver bullion of $ 1.8 million . provision for income tax for the year ended december 31 , 2013 , was $ 8.9 million , compared to $ 13.3 million in the same period of 2012. non-gaap measures reconciliation of non-gaap measures to total mine cost of sale in this report , we have provided information prepared or calculated according to u.s. gaap , as well as referenced some non-u.s. gaap performance measures . because the non-gaap performance measures do not have any standardized meaning prescribed by u.s. gaap , they may not be comparable to similar measures presented by other companies . accordingly , these measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with u.s. gaap . we have reconciled total cash cost , before by-product credits and total cash cost , after by-product credits to total mine cost of sales which is a reported u.s. gaap measure . total cash cost , before by-product credits , includes all direct and indirect operating cash costs related directly to our production of metals which includes mining , milling and other plant facility costs , smelter treatment and refining charges , royalties , and general and administrative costs . we use total cash cost , after by-product credits per precious metal gold equivalent ounce sold ( including royalties ) as one indicator for comparative monitoring of our mining operations from period-to-period and believe that investors also find this information helpful when evaluating our performance . by-product credits include revenues earned from all metals other than the primary precious metals sold . management also uses this measurement for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective . total
| review our revenues to ensure that our reporting of primary products and by-products is appropriate . because we consider copper , lead and zinc to be by-products of our precious metal gold equivalent production , the value of these metal s is applied as a reduction to total cash costs in our calculation of total cash cost , after by-product credits , per precious metal gold equivalent ounce sold , including royalties . ( see non -gaap measures disclosures ) . production for the year ended december 31 , 2014 , mill production totaled 35,552 ounces of gold , an increase of approximately 4.7 % over 2013 ; silver production increased to 3,297 , 204 ounces , an increase over prior year of approximately 8.7 % . on a precious metal gold equivalent basis , our mill production totaled 83,903ounces , compared to 84,835 precious metal gold equivalent ounces for 2013 , or a 1.1 % decrease . the decrease in the precious metal gold equivalent ounces was primarily due to a higher gold to silver average ratio as a result of a drop in our actual metal prices realized from sales of our gold and silver during 2014 . for the year ended december 31 , 2014 , we sold 25,872 ounces gold a nd 2,998,685 ounces silver from the la arista underground mine for a gross sales value of approximately $ 32.6 million and $ 55.4 million , respectively . this compares to 31,563 ounces of gold and 3,047,076 ounces of silver sold during 2013 from the la arista underground mine for a gross sales value of $ 43.8 million and $ 72.0 million , respectively . this decrease in sold ounces was in large part due to the increase in concentrate inventory . see production and sales statistics- la arista underground mine table below for additional information regarding our mineral production statistics .
| 3,875 |
excludes 5,952 shares underlying assumed legacy danimer options that are not presently exercisable and not exercisable within 60 days of the date hereof . mr. calhoun disclaims any beneficial ownership of the reported shares other than to the 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 in part ii , item 8 of this report . the following discussion contains forward-looking statements that involve risks , uncertainties , and assumptions . see the section entitled “ cautionary note regarding forward-looking statements. ” actual results and timing of selected events may differ materially from those anticipated in the forward-looking statements as a result of various factors , including those set forth under the section entitled “ risk factors ” or elsewhere in this report . unless the context otherwise requires , references in this “ management 's discussion and analysis of financial condition and results of operations ” to “ we ” , “ us ” , “ our ” , “ danimer ” , “ danimer scientific ” , and the “ company ” are intended to mean the business and operations of danimer and its consolidated subsidiaries . introductory note on december 29 , 2020 ( the “ closing date ” ) , live oak acquisition corp. ( “ live oak ” ) , consummated the merger pursuant to that certain agreement and plan of merger , dated as of october 3 , 2020 ( as amended by amendment no.1 thereto , dated as of october 8 , 2020 , and amendment no . 2 thereto , dated as of december 11 , 2020 , collectively the “ merger agreement ” ) , by and among live oak , green merger corporation , a georgia corporation ( “ merger sub ” ) , meredian holdings group , inc. , a georgia corporation ( “ meredian holdings group ” or “ mhg ” ) , live oak sponsor partners , llc , as representative for live oak for certain purposes described in the merger agreement , and john a. dowdy , jr. , as representative of the shareholders of legacy danimer for certain purposes described in the merger agreement . pursuant to the terms of the merger agreement , a business combination between the company and legacy danimer was effected through the merger of merger sub with and into legacy danimer , with legacy danimer surviving as the surviving company and as a wholly owned subsidiary of live oak ( the “ merger ” and , collectively with the other transactions described in the merger agreement , the “ business combination ” ) . on the closing date , and in connection with the closing of the business combination ( the “ closing ” ) , the registrant changed its name from live oak acquisition corp. to danimer scientific , inc. ( “ danimer ” ) . 26 the following discussion and analysis of our financial condition and results of operations describes the business historically operated by meredian holdings group and its subsidiaries ( “ legacy danimer ” ) under the “ danimer scientific ” name as an independent enterprise prior to the business combination . overview we are a performance polymer company specializing in bioplastic replacement for traditional petroleum-based plastics . through our principal operating subsidiaries , meredian , inc. , danimer scientific , l.l.c . and danimer scientific kentucky , inc. , we bring together innovative technologies to deliver renewable , environmentally friendly bioplastic materials to global consumer product companies . we believe that we are the only commercial company in the bioplastics market to combine the production of a base polymer along with the reactive extrusion capacity in order to give customers a “ drop-in ” replacement for a wide variety of petroleum-based plastics . pha-based resins we are a leading producer of polyhydroxyalkanoate ( “ pha ” ) , a new , 100 % biodegradable plastic feedstock alternative sold under the proprietary nodax ® brand name , for usage in a wide variety of plastic applications including water bottles , straws , food containers , among other things . we originally acquired the technology to produce pha from procter & gamble in 2007. pha is made through a fermentation process where bacteria consume vegetable oil and make pha within their cell membranes as energy reserves . we harvest the pha from the bacteria , purify and filter the bioplastic before extruding the pha into pellets , which we sell to converters . phas are a complete replacement for petroleum-based plastics where the convertors do not have to purchase new equipment to switch to the new biodegradable plastic . utilizing pha as a base resin significantly expands the number of potential applications for bioplastics in the industry and enables us to produce resin that is not just compostable , but also fully biodegradable . having successfully scaled up pha production from the laboratories to a contract manufacturer and later to our own commercial development plant , we recently have begun making pha on a commercial scale . in december 2018 , we acquired a fermentation facility in winchester , kentucky ( the “ kentucky facility ” ) and simultaneously entered into a long-term sale and leaseback transaction with a large , diversified commercial property reit with respect to the kentucky facility and certain facilities located in bainbridge , georgia . we embarked on a two-phase commissioning strategy for the kentucky facility . we commenced scale-up fermentation runs in december 2019 and had completed several components of the phase i improvements by the end of the third quarter of 2020. as of december 31 , 2020 , we had invested $ 54.7 million since the acquisition of the kentucky facility , excluding capitalized interest . of this total , $ 7.3 million in real-estate improvements for the kentucky facility were reimbursed by the reit in may 2020 in exchange for an increase in the monthly lease payment for the kentucky property . story_separator_special_tag gaap ” ) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods . the more critical accounting estimates include estimates related to revenue recognition , stock-based compensation , and leases . we also have other key accounting policies , which involve the use of estimates , judgments and assumptions that are significant to understanding our results , which are described in note 2 to our consolidated financial statements as of and for the years ended december 31 , 2020 and 2019 appearing elsewhere in this report . revenue recognition we recognize revenue from product sales and services in accordance with financial accounting standards board ( “ fasb ” ) asc topic 606 , revenue from contracts with customers ( “ asc 606 ” ) . this standard applies to all contracts with customers , except for contracts that are within the scope of other standards , such as leases , insurance , collaboration arrangements and financial instruments . under asc 606 , we recognize revenue when our customer obtains control of promised goods or services , in an amount that reflects the consideration that we expect to receive in exchange for those goods or services . to assess and determine when and how to recognize revenue , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once we determine that the contract is within the scope of asc 606 , we assess the goods or services promised within each contract and determine which are performance obligations and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . 30 we derive our revenues from : 1 ) product sales of developed compostable resins based on polyactic acid ( “ pla ” ) , polyhydroxyalkanoates ( “ pha ” ) , and other renewable materials ; and 2 ) research and development ( r & d ) services related to developing customized formulations of biodegradable resins based on pha as well as tolling revenues . we generally produce and sell finished products , for which we recognize revenue upon shipment , which is typically when control of the underlying product is transferred to the customer and all other revenue recognition criteria have been met . due to the highly specialized nature of our products , returns are infrequent , and therefore we do not estimate amounts for sales returns and allowances . we offer a standard quality assurance warranty related to the fitness of our finished goods . there are no forms of variable consideration such as discounts , rebates , or volume discounts that we estimate to reduce our transaction price . r & d service revenues generally involve milestone-based contracts under which we work with a customer to develop a pha-based specific solution designed to the customer 's specifications , which may involve a single or multiple performance obligations . when an r & d contract has multiple performance obligations , we allocate the transaction price to the performance obligations utilizing a cost-plus approach to estimate the stand-alone selling price , which contemplates the level of effort to satisfy the performance obligations , and then allocate the transaction price to each of the performance obligations based on the relative percentage of the stand-alone selling price . we recognize revenue for these r & d services over time with progress measured utilizing an input method based on personnel costs incurred to date as a percentage of total estimated personnel costs for each performance obligation identified within the contract . upon completion of the r & d services , the customers have an option to enter into long-term supply agreements with us for the product ( s ) that were developed within the respective contracts . we concluded these customer options were marketing offers , not separate performance obligations , since the options did not provide a material right to any of our customers . stock-based compensation awards to employees have been granted with either service-based conditions only or market-based and service-based conditions that affect vesting . service-based condition only awards have graded vesting features , usually over three-year periods . expense associated with service-based only condition awards with graded vesting features is recognized on a straight-line basis over the requisite service period . expense associated with market-based and service-based vesting conditions is recognized on a straight-line basis over the longest of the explicit , implicit or derived service period of the award . stock-based compensation awards have a contractual life that ranges from less than one year to ten years and are recognized in the consolidated financial statements based on their grant date fair value . the fair value of each stock option award is estimated using an appropriate valuation method . we use a black-scholes option pricing model to value service-based only option awards and a monte carlo simulation to value market-based and service-based option awards . the resulting value for the employee options is used for financial reporting purposes . we estimate forfeitures and record compensation expense based on this estimate over the vesting periods of our equity compensation awards .
| key factors affecting operating results we believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges , including those discussed below and in the section of this report titled “ risk factors . ” factors impacting our revenue we derive our revenue from product sales of pla- and pha-based resins as well as from services such as r & d and tolling . our product revenue is significantly impacted by our ability to successfully scale the kentucky facility for commercial production of pha . the completion of phase i and phase ii of the kentucky facility will significantly increase our capacity to produce and sell pha , which is in high demand by our customers . using our phas as base resin significantly expands the number of potential applications for bioplastics and also enables us to produce a resin that is not just compostable , but also fully biodegradable . since we just recently introduced our pha on a commercial scale , our product revenues are also impacted by the timing and success of customer trials as well as product degradation testing and certifications . our product revenue from pla-based resins is primarily impacted by the effective launch of new product offerings in new markets by our customers as well as the ability of our suppliers to continue to grow their production capacity of neat pla . finally , our product revenue is impacted by our ability to deliver biopolymer formulations that can be efficiently run on customer conversion equipment and meet customer application specifications and requirements . revenue from product sales is generally recognized when the finished products are shipped to customers , as this represents the transfer of control of the product .
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marketable securities classified as trading are comprised of the serp assets , as described in note 10 , and are recorded primarily at their net cash surrender values , which approximates fair value , as provided by the issuing insurance company . significant observable inputs , in addition to quoted market prices , were used to value the trading securities . as a result , the company measured the fair value of these investments using level 2 story_separator_special_tag overview the following discussion should be read in conjunction with “ selected financial data , ” and the consolidated financial statements included elsewhere in this document . see also “ forward-looking statements ” on page 2. rpc , inc. ( “ rpc ” ) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration , production and development of oil and gas properties throughout the united states , including the southwest , mid-continent , gulf of mexico , rocky mountain and appalachian regions , and in selected international markets . the company 's revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells . our key business and financial strategies are : - to focus our management resources on and invest our capital in equipment and geographic markets that we believe will earn high returns on capital . - to maintain a flexible cost structure that can respond quickly to volatile industry conditions and business activity levels . - to maintain an efficient , low-cost capital structure which includes an appropriate use of debt financing . - to maintain high asset utilization which leads to increased revenues and leverage of direct and overhead costs , while also ensuring that increased maintenance resulting from high utilization does not interfere with customer performance requirements or jeopardize safety . - to deliver equipment and services to our customers safely . - to secure adequate sources of supplies of certain high-demand raw materials used in our operations , both in order to conduct our operations and to enhance our competitive position . - to maintain and selectively increase market share . - to maximize stockholder return by optimizing the balance between cash invested in the company 's productive assets , the payment of dividends to stockholders , and the repurchase of our common stock on the open market . - to align the interests of our management and stockholders . in assessing the outcomes of these strategies and rpc 's financial condition and operating performance , management generally reviews periodic forecast data , monthly actual results , and other similar information . we also consider trends related to certain key financial data , including revenues , utilization of our equipment and personnel , maintenance and repair expenses , pricing for our services and equipment , profit margins , selling , general and administrative expenses , cash flows and the return on our invested capital . additionally , we compare our trends to those of our peers . we continuously monitor factors that impact the level of current and expected customer activity levels , such as the price of oil and natural gas , changes in pricing for our services and equipment and utilization of our equipment and personnel . our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world , overall economic conditions and weather in the united states , the prices of oil and natural gas , and our customers ' drilling and production activities . current industry conditions are characterized by oil prices which have declined rapidly from more than $ 100 per barrel in the third quarter of 2014 to approximately $ 50 per barrel early in the first quarter of 2015 , a level not observed since the second quarter of 2009. as a result , the u.s. domestic rig count is declining , and early in the first quarter of 2015 has declined by almost 30 percent since the third quarter of 2014. the catalysts for the recent steep decline in the price of oil include the perception that global oil supplies are higher than demand , the forecasted decline in oil demand growth , and the strength of the u.s. dollar on global currency markets . the decline in both the price of oil and our customers ' drilling and completion activities accelerated in the first quarter of 2015 following an announcement by opec that the oil cartel would not limit its production in response to falling prices and excess supply . we anticipate that the u.s. domestic rig count will continue to decline until world oil prices increase due to a combination of increased global demand , declining production , or an increase in political instability in the world 's oil-producing regions outside of the united states . rpc believes that the most predictable catalyst for an increase in world oil prices is declining production in the united states . we believe this because the united states grew to be the world 's largest producer of oil during the second quarter of 2014 , and the increase in oil production was due to the growth of oil-directed drilling in shale formations . these wells produce a large amount of oil immediately following their completion , but typically experience large production declines within two years . therefore , the declining production of these wells , and the rapid decline in drilling of new wells of this type in 2015 are the most likely initial catalyst for improving industry conditions . story_separator_special_tag the price of oil began to fall at the end of the second quarter of 2014 due to the perceived oversupply of oil , weak global demand , and the strength of the u.s. dollar on world currency markets . this decline accelerated during the fourth quarter of 2014 when opec stated that it would not curtail its production of oil in order to bring stability to oil prices . as of the first quarter of 2015 , most industry analysts believe that the rig count will continue to decline during the remainder of the first quarter and into second quarter of 2015 . 18 the current and projected prices of oil and natural gas are important catalysts for u.s. domestic drilling activity . as discussed above , the price of oil began to decline during the second quarter of 2014 , and early in the first quarter of 2015 had fallen to its lowest recorded level since the second quarter of 2009. the price of natural gas has also fallen during 2014 and early in 2015 , and early in the first quarter of 2015 had reached its lowest recorded level since the second quarter of 2012. the price of natural gas liquids has become an increasingly important determinant of our customers ' activities , since its sales comprise a component of our customers ' revenues , and it is produced in many of the shale resource plays that also produce oil . during 2014 , the average price of benchmark natural gas liquids increased by approximately five percent compared to the prior year , but early in the first quarter of 2015 decreased by approximately seven percent compared to the end of 2014. these trends have negative implications for our near-term activity levels . in particular , the low price of oil should continue to have a negative impact on our customers ' activity levels and our financial results , since the majority of the u.s. domestic drilling rig count is directed towards oil . rpc has operational locations and revenue-producing equipment in most of these locations , so it is likely that our near-term financial results will be negatively impacted by these declining prices . the majority of the u.s. domestic rig count remains directed towards oil , although this percentage will decline as oil-directed drilling continues to fall in 2015. early in the first quarter of 2015 , approximately 79 percent of the u.s. domestic rig count was directed towards oil , a slight decrease compared to approximately 82 percent at the end of 2014. we believe that oil-directed drilling will remain the majority of domestic drilling , and that natural gas-directed drilling will remain a low percentage of u.s. domestic drilling in the near term . we believe that this relationship will continue due to relatively low prices for natural gas , high production from existing natural gas wells , and industry projections of limited increases in domestic natural gas demand during the near term . we do not believe that the overall rig count will increase during 2015 unless the price of oil increases from its current price early in the first quarter of 2015. we continue to monitor the market for our services and the competitive environment in 2015. we are cautious about the market for our services because of the recent steep decline in the u.s. domestic rig count and the highly competitive nature of pricing for our services in the current environment . the current low prices of oil and natural gas discourage us from believing that the u.s. domestic rig count will recover during the near term . we believe that the price of natural gas may increase during the short term because of cold weather during the first quarter of 2015 , but we do not believe that any potential increase will be enough to encourage our customers to increase their natural gas-directed drilling activities . over the long term , we believe that the steep decline in oil-directed drilling in the u.s. domestic market will reduce u.s. domestic oil production and serve as a catalyst for oil prices to increase . this belief is due to the fact that oil-directed wells drilled in shale resource plays typically exhibit high initial production soon after being completed followed by a decline in production in later years . we are also encouraged by the fact that the drilling activities that are taking place during 2015 continue to be highly service-intensive and require a large amount of equipment and raw materials . as we monitor the competitive environment during 2015 , we also note that many of our competitors are relatively new entrants into the oilfield services market , and may have higher cost structures and less-developed logistical capabilities than rpc . also , many of these new entrants have financed their operations with a capital structure that includes a large amount of debt , so they may not have the ability to maintain their equipment in highly service intensive operating environments , and may not be able to operate for long periods of time in which they do not generate positive cash flow from operations . these characteristics of our competitors encourage us regarding the overall level of competition in our markets . in this environment rpc also monitors the financial capabilities of our customers , due to the fact that many of them have also financed their operations with a large amount of debt , and this type of financing is less available in 2015 than in previous years . at this time rpc believes that the majority of its customers have access to adequate capital to finance their ongoing operations . rpc initiated an expansion of its pressure pumping fleet in 2014 , and during the fourth quarter of 2014 began to take delivery of this equipment .
| results of operations replace_table_token_3_th year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues . revenues in 2014 increased $ 475.9 million or 25.6 percent compared to 2013. the technical services segment revenues for 2014 increased 26.1 percent compared to the prior year due primarily to increased service intensity in the service lines within this segment and a larger fleet of pressure pumping equipment . the support services segment revenues for 2014 increased 19.1 percent compared to 2013 due principally to an improved job mix and higher activity levels in the rental tool service line , which is the largest service line within this segment , as well as higher activity levels in the other service lines which comprise this segment . operating profit in both the technical and support services segments increased due to higher revenues and greater utilization of personnel and equipment . the average price of oil decreased 4.9 percent while the average price of natural gas increased 14.6 percent during 2014 compared to the prior year . the average domestic rig count during 2014 was 5.7 percent higher than 2013. we believe that our activity levels are affected primarily by the price of oil , since oil-directed activity has become the majority of total u.s. drilling activity . the prices of natural gas and natural gas liquids also impact our activity levels because of the service-intensive nature of this type of drilling and completion . we also believe that the total number of directional and horizontal wells more directly affect our activity levels , regardless of whether the wells are directed towards oil or natural gas . this belief is based on the fact that directional and horizontal wells require more of the services within our technical services segment .
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changes to any of these inputs can have a significant impact to the estimated fair value of the pipe warrants . the following table sets forth the fair value of the company 's financial assets and liabilities by level within the fair value hierarchy ( in thousands ) : replace_table_token_20_th replace_table_token_21_th f-12 the following table sets forth the assumptions used in the black-scholes option-pricing model to estimate the fair value of the pipe warrants as of december 31 , 2014 and 2013 : replace_table_token_22_th the following table sets forth a summary of the changes in the fair value of the company 's level iii financial liabilities for the years ended december 31 , 2014 and 2013 ( in thousands ) : year ended december 31 , 2014 fair value—beginning of period $ 13,445 change in fair value of pipe warrants ( 7,534 ) change in fair value of contingent put option associated with amended loan agreement with hercules ( 52 ) fair value—end of period $ 5,859 year ended december 31 , 2013 fair value—beginning of period $ 7,500 change in story_separator_special_tag the following discussion and analysis should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended . such forward-looking statements involve risks , uncertainties and other factors that may cause our actual results , levels of activity , performance or achievements to be materially different from the information expressed or implied by these forward-looking statements . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ item 1a . risk factors ” and elsewhere in this annual report on form 10-k. please refer to the section entitled “ forward-looking statements ” in this annual report on form 10-k. overview we are a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of acute pain . our lead product candidate is zalviso tm , formerly known as arx-01 . zalviso is intended for the management of moderate-to-severe acute pain in hospitalized adult patients . zalviso consists of sufentanil sublingual tablets delivered by the zalviso system , a needle-free , handheld , patient-administered , pain management system ( together , “ zalviso ” ) . on july 25 , 2014 , the u.s. food and drug administration , or fda , issued a complete response letter , or crl , for our new drug application , or nda , for zalviso . the crl contains requests for additional information on the zalviso system to ensure proper use of the device . the requests include submission of data demonstrating a reduction in the incidence of optical system errors , changes to address inadvertent dosing , among other items , and submission of additional data to support the shelf life of the product . in the third quarter of 2014 , we held a type a meeting with the fda to discuss the zalviso crl received in july . during the meeting we discussed the resubmission of the zalviso nda and the steps necessary for the resubmission . in advance of resubmitting our zalviso nda , we agreed with the fda to submit protocols for the bench testing and human factors , or hf , studies for their review and comment . in addition , the fda requested in the minutes of the meeting that we provide a risk assessment that analyzes the risks associated with inadvertent dosing and the rationale that bench testing and hf studies are sufficient to address the specific items included in the crl . we submitted the protocols and this rationale in the fourth quarter of 2014. in january 2015 , we received feedback from the fda on the protocol and the planned analysis of the results of the bench test . no modifications to the conduct of the bench test were necessary ; however , in response to the fda 's request , we refined the planned analysis of the bench test results . in february 2015 , we received feedback from the fda on the hf protocols . in this feedback , the fda confirmed that the hf studies as proposed were acceptable to evaluate the design changes related to inadvertent dispensing of tablets . in march 2015 , we received correspondence from the fda stating that in addition to the bench testing and two human factors studies we have performed in response to the issues identified in the crl , an additional clinical study is needed to assess the risk of inadvertent dispensing and overall risk of dispensing failures . we plan to meet with the fda to discuss and clarify the need for an additional clinical study , and the potential design and objectives of such a study . as a result of this most recent fda communication and the need for clarity with the fda , the resubmission of the zalviso nda is on hold . we will provide an update on the timing of the resubmission of the zalviso nda after we obtain more information from the fda . the fda has precleared certain aspects of our proposed risk evaluation and mitigation strategy , or rems , and indicated that they will continue discussion of our proposed rems after the zalviso nda has been resubmitted . zalviso zalviso is an investigational , pre-programmed , non-invasive , system to allow hospital patients with moderate-to-severe acute pain to self-dose with sufentanil sublingual tablets to manage their pain . zalviso is designed to help address certain problems associated with post-operative intravenous patient-controlled analgesia , by offering : a high therapeutic index opioid : zalviso uses sufentanil , an opioid that has a high therapeutic index . the therapeutic index is the ratio of the effective dose versus the lethal dose . story_separator_special_tag there can be no assurance that we will produce other collaborative agreement revenues or receive additional funding from usamrmc or other research-related grant awards in the future . we expect revenues to continue to fluctuate from period-to–period . there can be no assurance that our existing collaboration with grünenthal will continue beyond the initial term , or that we will be able to meet the milestones specified in this agreement or that we will obtain marketing approval for our product candidates and subsequently generate revenue from those product candidates in excess of our operating expenses . our net losses were $ 33.4 million and $ 23.4 million during the years ended december 31 , 2014 and 2013 , respectively . as of december 31 , 2014 , we had an accumulated deficit of $ 178.8 million . as of december 31 , 2014 , we had cash , cash equivalents and investments totaling $ 75.4 million compared to $ 103.7 million as of december 31 , 2013. in december 2013 , we entered into an amended loan and security agreement , or the amended loan agreement , with hercules technology ii , l.p. and hercules technology growth capital , inc. , collectively referred to as hercules , under which we may borrow up to $ 40.0 million in three tranches , represented by secured convertible promissory notes . the amended loan agreement amends and restates the loan and security agreement with hercules dated as of june 29 , 2011 , or the original loan agreement . we borrowed the first tranche of $ 15.0 million upon closing of the transaction on december 16 , 2013 and used approximately $ 8.6 million of the proceeds from the first tranche to repay our obligations under the original loan agreement with hercules . on june 16 , 2014 , we borrowed the second tranche of $ 10.0 million . on september 24 , 2014 , we entered into an amendment , or the amendment , to the amended loan agreement with hercules . the amendment extends the time period under which we can draw down the third tranche , of up to $ 15.0 million , from march 15 , 2015 to august 1 , 2015 , subject to our obtaining approval for zalviso from the fda . we do not believe we will receive fda approval of zalviso by august 1 , 2015 and as such , will not have access to the third tranche under the current agreement . the interest rate for each tranche will be calculated at a rate equal to the greater of either ( i ) 9.10 % plus the prime rate as reported from time to time in the wall street journal minus 5.25 % , and ( ii ) 9.10 % . payments under the amended loan agreement are interest only until april 1 , 2015 followed by equal monthly payments of principal and interest through the scheduled maturity date on october 1 , 2017 , or the loan maturity date . in addition , a final payment equal to $ 1.7 million will be due on the loan maturity date , or such earlier date specified in the amended loan agreement . our obligations under the amended loan agreement are secured by a security interest in substantially all of our assets , other than our intellectual property . 65 as of december 31 , 2014 , the outstanding principal owed to hercules was $ 25.0 million . in december 2013 , we announced a commercial collaboration with grünenthal , covering the territory of the european union , certain other european countries and australia for zalviso for use in the management of moderate-to-severe acute pain within a hospital , hospice , nursing home or other medically supervised setting . we retain all rights in remaining countries , including the united states , asia and latin america . under the terms of the agreement with grünenthal , we received an upfront cash payment of $ 30.0 million in december 2013 , and in the third quarter of 2014 , we received a milestone payment of $ 5.0 million related to the marketing authorization application , or maa submission to the european medicines agency , or ema . we are eligible to receive an additional $ 15.0 million milestone payment upon the approval of the maa . if approved , we are eligible to receive approximately $ 200.0 million in additional milestone payments , based upon successful regulatory and product development efforts ( $ 28.5 million ) and net sales target achievements ( $ 171.5 million ) . grünenthal will also make tiered royalty , supply and trademark fee payments in the mid-teens up to the mid-twenties percent range , on net sales of zalviso in the grünenthal territory . grünenthal will be responsible for all commercial activities for zalviso , including obtaining and maintaining pharmaceutical product regulatory approval in the grünenthal territory . we will be responsible for obtaining and maintaining device regulatory approval in the grünenthal territory and manufacturing and supply of zalviso to grünenthal for commercial sales . in july 2014 , grünenthal filed an maa with the ema under the centralized procedure in the european union , or eu , for zalviso for the management of moderate-to-severe acute pain in adult patients in a medically-supervised environment . in the fourth quarter of 2014 , grünenthal received 120-day questions from the ema per the ema 's standard regulatory review process . we have been working with grunenthal towards the submission of the response to the 120-day questions .
| results of operations our results of operations have fluctuated from period to period and may continue to fluctuate in the future , based upon the progress of our research and development efforts and variations in the level of expenses related to developmental efforts during any given period . results of operations for any period may be unrelated to results of operations for any other period . in addition , historical results should not be viewed as indicative of future operating results . we are subject to risks common to companies in our industry and at our stage of development , including risks inherent in our research and development efforts , reliance upon our collaborator , enforcement of our patent and proprietary rights , need for future capital , potential competition and uncertainty of clinical trial results or regulatory approvals or clearances . in order for a product candidate to be commercialized based on our research , we and our collaborators must conduct preclinical tests and clinical trials , demonstrate the efficacy and safety of our product candidates , obtain regulatory approvals or clearances and enter into manufacturing , distribution and marketing arrangements , as well as obtain market acceptance . 68 years ended december 31 , 2014 , 2013 and 2012 revenue to date , we have not generated any commercial product revenue . we do not expect to receive any commercial sales revenue from any product candidates that we develop until we , or our collaborators , obtain regulatory approval and commercialize our products . during the year ended december 31 , 2014 , we recognized $ 4.6 million in revenue under our collaboration agreement with grünenthal related to the maa submission .
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management 's discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future performance . however , future performance involves risks and uncertainties which may cause actual results to differ materially from those expressed in the forward-looking statements . see `` forward-looking statements '' . overview we specialize in the placement of information technology , engineering , and accounting professionals for direct hire and contract staffing for our clients , and provide temporary staffing services for our light industrial clients . as a result of our acquisition of scribe solutions in april 2015 , we now also offer data entry assistants ( medical scribes ) who specialize in electronic medical records ( emr ) services for emergency departments , specialty physician practices and clinics . there is currently a growing need for medical scribes due to the rise in emr being utilized for billing and documentation of health care services and the meaningful use requirements that are part of the affordable care act . the acquisition of agile expanded our geographical footprint within the placement and contract staffing of information technology . our staffing services are provided through a network of eighteen branch offices located in downtown or suburban areas of major u.s. cities in nine states . we have one office located in each of arizona , indiana , massachusetts , north carolina and texas , two offices in each of california , florida and illinois and seven offices in ohio . management has implemented a strategy which included cost reduction efforts as well as identifying strategic acquisitions , financed primarily through the issuance of equity and debt , to improve the overall profitability and cash flows of the company . we believe our current segments complement one another and position us for future growth . 12 story_separator_special_tag loss on extinguishment of debt loss on the extinguishment of debt for the year ended september 30 , 2015 , increased $ 234,000 , compared with the prior year as the debt was converted during the year . discontinued operations as a result of terminating our agricultural division in july of 2013 , we have classified the operations of that division to loss from discontinued operations , in the accompanying statement of operations . for the years ended september 30 , 2015 and 2014 , the company recognized a loss of $ 0 and $ 230,000 , respectively , for this division . taxes there were no credits for income taxes as a result of the pretax losses incurred during the periods because there was not sufficient assurance that future tax benefits would be realized . liquidity and capital resources the following table sets forth certain consolidated statements of cash flows data from continuing operations ( in thousands ) : replace_table_token_6_th as of september 30 , 2015 , the company had cash and cash equivalents of approximately $ 5,932,000 , which was an increase of approximately $ 5,764,000 from approximately $ 168,000 at september 30 , 2014. working capital at september 30 , 2015 was approximately $ 5,636,000 , as compared to negative working capital of approximately $ 909,000 for september 30 , 2014. the company 's current ratio was approximately 177 % , an increase of approximately 89 % from the prior year . shareholders ' equity as of september 30 , 2015 , was approximately $ 19,237,000 which represented approximately 72 % of total assets . the net loss for the year ended september 30 , 2015 , was approximately $ 4,662,000. net cash ( used in ) provided by operating activities for the years ended september 30 , 2015 and 2014 was approximately ( $ 650,000 ) and $ 286,000 , respectively . the fluctuation is due to the significant increase in account receivable , payments of accrued expenses and the acceleration of accounts payable payments to avoid additional late fee expenses , net losses and payments of certain compensation related accruals . net cash used in investing activities for the years ended september 30 , 2015 and 2014 was ( $ 2,762,000 ) and ( $ 371,000 ) respectively . these uses related primarily to acquisition payments of agile , final earn out payments to rffg and purchasing of fixed assets . net cash flow provided by financing activities for the year ended september 30 , 2015 was approximately $ 9,176,000 compared to ( $ 108,000 ) used in the year ended september 30 , 2014. fluctuations in financing activities are attributable to the level of borrowings and two significant capital raises . 15 all of the company 's office facilities are leased . as of september 30 , 2015 , future minimum lease payments under non-cancelable lease commitments having initial terms in excess of one year , including closed offices , totaled approximately $ 1,326,000. on april 22 , 2013 , the company finalized an amendment to the asset purchase agreement by and among dmcc staffing , llc , an ohio limited liability company , rffg of cleveland , llc an ohio limited liability company ( each a `` seller '' and together , `` sellers '' ) , the company , and triad personnel services , inc. , an illinois corporation and wholly owned subsidiary of the company ( `` buyer '' ) . the company agreed to pay sellers additional cash consideration of between $ 550,000 and $ 650,000 depending on the length of payments and 110,000 shares of common stock , in full satisfaction of all amounts owed to seller , related to the asset purchase agreement . the company issued 110,000 shares of common stock on july 2 , 2013 , which was valued at approximately $ 330,000. the company elected to pay the amount over two years . as of september 30 , 2015 the debt related to this asset purchase agreement has been fully paid . story_separator_special_tag concurrent with the execution of the spa , the company and aracle conducted an initial closing thereunder , in which aracle purchased 9.5 units for $ 475,000. on april 16 , 2014 , the company , aracle and a second institutional investor entered into certain securities purchase agreements ( `` spa '' ) pursuant to which the investors purchased 2.5 units for $ 125,000. the company incurred certain expenses related to the spa 's and the closings thereunder of approximately $ 130,000 , which were paid from the proceeds for net proceeds of approximately $ 470,000. on august 7 , 2014 , the company issued a convertible note ( the `` note '' ) with an original principal balance of $ 632,500 to brio capital master fund ltd ( `` brio '' ) , for a purchase price of $ 550,000. the note matures on february 6 , 2016 , and is payable in thirteen monthly installments of $ 48,654 , commencing in the sixth month post-closing . brio has the right , however not the obligation , six months after closing , to convert all or any part of the outstanding note into the company 's common stock at an initial conversion price of $ 2.00 per share . after six months from closing , the conversion price will have a one-time reset to the lower of $ 2.00 or 90 % of the average of the 3 lowest closing prices for the previous 10 trading days , subject to a floor of $ 1.40 per share . the company can force conversion if the company 's common stock trades at 250 % greater than the conversion price for 20 consecutive trading days . the company also issued a warrant to purchase up to 237,188 common shares of the company for a purchase price of $ 2.50 per common share . during the year ended , september 30 , 2015 , brio converted $ 632,500 of its outstanding loan into 316,250 shares of the company 's common stock . based on the closing stock prices of $ 8.50 , $ 10.30 and $ 7.80 per common share , the 316,250 common shares were valued at approximately $ 2,867,000 and the company has recognized a loss on the extinguishment of debt of approximately $ 235,000. included in the loss in extinguishment was the fair value of the derivative liability at the date of conversion . on january 8 , 2015 , the company completed a securities offering with 18 individuals who collectively have purchased a total of 200,000 shares of preferred stock ( `` series a preferred stock '' ) from the company for a total purchase price of $ 2,000,000. each share of series a preferred stock was initially convertible , at the election of the holder , into 5 shares of the company 's common stock . the company netted approximately $ 1,960,000 , with approximately $ 1,000,000 to be used as working capital and the remaining $ 960,000 for marketing , acquisitions , expansion and to further the operations of the company . all shares of series a preferred stock issued to the aforementioned individuals were converted into common stock prior to september 30 , 2015. on july 22 , 2015 , the company entered into an underwriting agreement ( the `` underwriting agreement '' ) with roth capital partners , llc ( the `` representative '' ) , as the representative of the several underwriters identified therein ( collectively , the `` underwriters '' ) , pursuant to which the company agreed to offer and sell up to 1,120,000 shares of the company 's common stock , no par value ( the `` common stock '' ) , at a price of $ 7.00 per share . under the terms of the underwriting agreement , the company granted the representative an option , exercisable for 30 days , to purchase up to an additional 168,000 shares of common stock to cover over-allotments , if any . 17 the company received net proceeds from this offering and the overallotment , after deducting underwriting discounts and commissions and offering expenses payable by the company of approximately $ 7.8 million and issued 1,246,000 common shares , this includes the underwriters exercise of the over-allotment option . the company also issued warrants ( the `` underwriter 's warrant '' ) to the underwriters to purchase up to a total of 124,600 shares of common stock , at a price of $ 8.30 per common share and are exercisable for five years . the underwriter 's warrant has a seven-year piggyback registration right with respect to shares of common stock underlying the underwriter 's warrant from the date of the underwriting agreement . on july 31 , 2015 the company entered into a stock purchase agreement ( the `` agile agreement '' ) with tricia dempsey ( `` seller '' ) . pursuant to the terms of the agile agreement on july 31 , 2015 the company acquired 100 % of the outstanding stock of agile resources , inc. , a georgia corporation ( `` agile '' ) . the company paid approximately $ 2,142,000 for net assets of approximately $ 92,000 and expects to pay an additional $ 500,000 during the year ended september 30 , 2016. under the purchase method of accounting , the transaction was valued for accounting purposes at an estimated $ 3,865,000 , which was the estimated fair value of the consideration paid by the company . the estimate was based on the consideration paid of 120,192 shares of common stock valued based on the closing price on july 31 , 2015 of $ 7.20 per share and estimated cash of approximately $ 3,000,000 paid based on terms of the agreement . the assets and liabilities of agile will be recorded at their respective fair values as of the closing date of the agile agreement , and the following table summarizes these values based on the estimated balance sheet at august 1 , 2015 , the closing date .
| results of operations net revenues consolidated net revenues are comprised of the following : replace_table_token_3_th consolidated net revenues increased approximately $ 3,576,000 or 9 % compared with the same period last year . the company acquired scribe as of april 1 , 2015 , and agile as of july 31 , 2015 , which increased the professional contract services by approximately $ 2,087,000 and $ 1,277,000 respectively . the acquisition of agile increased direct hire revenue by approximately $ 273,000. with the recent capital raise and addition of executive management , the company has stabilized its sales force and is investing in revenue growth . overall the professional services division continues to have less experienced recruiters working during the year ended september 30 , 2015 compared to the prior year . management continues to take action to increase the number of experienced recruiters and improve the profitability of both divisions . cost of contract services consolidated cost of contract services are comprised of the following : replace_table_token_4_th cost of services includes wages and related payroll taxes and employee benefits of the company 's employees while they work on contract assignments . cost of contract services for the year ended september 30 , 2015 , increased by approximately 15 % to approximately $ 30 million compared with the prior year of approximately $ 26 million . cost of contract services , as a percentage of contract revenue , for the year ended september 30 , 2015 , increased by approximately 3 % to 70 % compared to 67 % in the prior year . the change in the contract revenue gross margin is related to several factors , including ohio workers compensation rebate received in 2014 , higher professional service contract revenue and the overall decrease in our workers compensation rates for the state of ohio , as the rate was decreased by approximately 25 % as of july 1 , 2014 .
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critical audit matters the critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that : ( 1 ) relate to accounts or disclosures that are material to the consolidated financial statements and ( 2 ) involved our especially challenging , subjective , or complex judgments . the communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements , taken as a whole , and we are not , by communicating the critical audit matters below , providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate . f-2 accounting for income taxes as described in notes 2 and 6 to the consolidated financial statements , the company recorded a deferred tax asset of $ 233.0 million , which is presented net of a valuation allowance of $ 77.2 million , and a net deferred tax liability of $ 129.6 million as of december 31 , 2020. the valuation allowance is primarily related to net operating losses . as of december 31 , 2020 , a $ 72.5 million valuation allowance remains in u.s. jurisdictions , $ 2.6 million in hecla canada ltd. and $ 2.1 million in minera story_separator_special_tag under reconciliation of net income ( loss ) ( gaap ) to earnings before interest , taxes , depreciation , and amortization ( non-gaap ) . 67 item 7. management ' s discussion and analysis of financial condition and results of operations overview established in 1891 in northern idaho 's silver valley , we believe we are the oldest operating precious metals mining company in the united states and the largest silver producer in the united states . our corporate offices are in coeur d'alene , idaho and vancouver , british columbia . our production profile includes : concentrates containing silver , gold ( in the case of greens creek ) , lead and zinc , which is shipped to various smelters or sold to metal traders ; unrefined doré containing gold and silver , which is sold to refiners or further refined before sale of the metals to traders ; and carbon material containing gold and silver , which is sold to third-party processors . our operating properties comprise our five business segments for financial reporting purposes : the greens creek operating unit on admiralty island in alaska , the lucky friday operating unit in idaho , the casa berardi operating unit in quebec , canada , the san sebastian operating unit in durango , mexico , and the nevada operations unit in northern nevada . since our operating mines are located in the united states , canada , and mexico , we believe they have low or relatively moderate political risk , and less economic risk than mines located in other parts of the world . our exploration interests are also in the united states , canada , and mexico , and are primarily located in historical mining districts . our operating and strategic framework is based on expanding our production and locating and developing new resource potential . in 2020 , we : continued our trend of improved safety performance , as we reduced our all injury frequency rate by 24 % to 1.22 , the lowest level in our history and 46 % below the u.s. national average for msha 's `` metal and nonmetal '' category . mitigated the impacts of covid-19 through early response and implementation of operational plans and procedures to protect our workforce , operations and communities while maintaining liquidity . reported sales of products of $ 691.9 million , which was the highest in our history despite the lucky friday unit only reaching full production in the fourth quarter of 2020. generated $ 180.8 million in net cash flows from operating activities . see the financial liquidity and capital resources section below for further discussion . refinanced our previously outstanding 2021 senior notes with issuance of our senior notes for total principal of $ 475 million due in 2028 and notes issue to investissement québec for total principal of cad $ 48.2 million due in 2025. see note 7 of notes to consolidated financial statement for more information on our debt arrangements . produced the most silver at our greens creek unit since obtaining 100 % ownership of it in 2008 due to high grades and consistent ore throughput . returned to full production levels at lucky friday following a strike which ended in early january 2020. made capital expenditures ( including lease additions and other non-cash items ) of approximately $ 99.9 million , including $ 40.9 million at casa berardi , $ 28.8 million at greens creek , $ 25.7 million at lucky friday , $ 4.0 million at nevada operations and $ 0.5 million at san sebastian . performed exploration and pre-development activities at our land packages in alaska , idaho , nevada , british columbia , quebec and mexico . achieved the above while increasing our cash balance to $ 129.8 million , which was $ 67.4 million higher compared to december 31 , 2019 , with no amount drawn on our revolving credit facility , as of december 31 , 2020 . 68 our average realized silver and gold prices increased , while lead and zinc prices decreased , in 2020 compared to 2019. average realized prices for silver and gold were higher , with prices for lead and zinc lower , in 2019 compared to their annual averages in 2018. see the results of operations section below for information on our average realized metal prices for 2020 , 2019 and 2018. lead and zinc represent important by-products at our greens creek and lucky friday segments , and gold is also a significant by-product at greens creek and san sebastian . see the story_separator_special_tag roman ' ; font-size:10pt ; font-variant : normal ; margin:0pt ; '' > reserve estimation is a major risk inherent in mining . story_separator_special_tag in june 2020 , we gifted 650,000 shares of our common stock valued at $ 2.0 million at the time of the gift to the hecla charitable foundation ( the `` foundation '' ) , and recognized expense for that amount . the foundation is a 501 ( c ) ( 3 ) entity established in 2007 to provide grants and disburse funds for educational and charitable purposes to qualifying organizations in order to promote the social , environmental and economic sustainability and development of the communities where we have operations and activities . other operating expense of $ 8.9 million , $ 3.0 million and $ 1.6 million in 2020 , 2019 and 2018 , respectively , with the increase in 2020 primarily due to costs for a project to identify and implement potential operational improvements at casa berardi . interest expense of $ 49.6 million , $ 48.4 million and $ 40.9 million in 2020 , 2019 and 2018 , respectively . the interest in 2020 was primarily related to our senior notes , and the interest in 2019 and 2018 was primarily related to our previously outstanding 2021 notes ( see note 7 of notes to consolidated financial statements and guarantor subsidiaries below ) . the increase in 2020 was primarily due to ( i ) interest recognized on both the senior notes and 2021 notes for an overlapping period of almost one month , as the senior notes were issued on february 19 , 2020 and the 2021 notes were redeemed on march 19 , 2020 , ( ii ) $ 1.7 million in unamortized initial purchaser discount on the 2021 notes recognized as expense upon their redemption and ( iii ) higher interest related to amounts drawn on our revolving credit facility . ramp-up and suspension costs of $ 24.9 million in 2020 compared to $ 12.1 million in 2019 and $ 20.7 million in 2018 , which included non-cash depreciation expense of $ 7.1 million , $ 4.3 million and $ 5.0 million , respectively . the increase in 2020 was due to ( i ) placement of the midas and hollister mines and aurora mill in nevada on care-and-maintenance and ( ii ) the temporary suspension of operations at casa berardi and san sebastian in response to covid-19 , which lead to lower production at those operations , partially offset by ( iii ) lower ramp-up and suspension costs at lucky friday due to increased production there . the cost for 2018 included $ 1.1 million related to curtailment of production at the midas mine , with the other costs for 2018 and all costs for 2019 related to suspension at the lucky friday mine resulting from the strike that ended in early january 2020. see the lucky friday segment , the nevada operations segment , the casa berardi segment and the san sebastian segment sections below . net loss on metal derivative contracts of $ 22.1 million in 2020 compared to a net loss of $ 4.0 million in 2019 and gain of $ 40.3 million in 2018. during the third quarters of 2019 and 2018 , we settled , prior to their maturity date , base metal forward contracts in a gain position for cash proceeds to us of approximately $ 6.7 million and $ 32.8 million , respectively , with no such settlements in 2020. these gains and losses are related to financially-settled forward contracts on forecasted production of zinc and lead ( but not silver and gold ) as part of a risk management program , and resulted from changes in zinc and lead prices during each period . from june 2019 , we began utilizing put option contracts to provide a minimum price for our forecasted future gold and silver sales , resulting in net losses in 2020 and 2019of $ 9.3 million and $ 13.1 million . see note 11 of notes to consolidated financial statements for more information . income tax provision of $ 0.1 million in 2020 compared to a benefit of $ 24.1 million in 2019 and a benefit of $ 6.7 million in 2018. see corporate matters and note 6 of notes to consolidated financial statements for more information . 73 the greens creek segment replace_table_token_16_th ( 1 ) a reconciliation of these non-gaap measures to cost of sales and other direct production costs and depreciation , depletion and amortization , the most comparable gaap measure , can be found below in reconciliation of cost of sales and other direct production costs and depreciation , depletion and amortization ( gaap ) to cash cost , before by-product credits and cash cost , after by-product credits ( non-gaap ) and all-in sustaining cost , before by-product credits and all-in sustaining cost , after by-product credits ( non-gaap ) . at greens creek , gold , zinc and lead are considered to be by-products of our silver production , and the values of those metals therefore offset operating costs within our calculations of cash cost and aisc , after by-product credits , per silver ounce . 74 restrictions imposed by the state of alaska beginning in late march 2020 in response to the covid-19 pandemic , including the requirement for employees returning to alaska to self-quarantine for 14 days ( changed in june to 7 days ) , has caused us to revise the normal operating procedures and incur additional costs for staffing operations at greens creek . we incurred costs of approximately $ 2.3 million in 2020 related to quarantining employees at greens creek . these or other potential restrictions could have a material impact if they continue longer than anticipated or become broader . the $ 22.7 million and $ 35.1 million increases in gross profit for 2020 compared to 2019 and 2018 , respectively , were due to higher silver , zinc and lead sales volumes and higher average realized silver and gold prices , partially offset by lower gold volume and lower average realized zinc and lead prices .
| results of operations section below for a discussion of the factors impacting income applicable to common stockholders for the three years ended december 31 , 2020 , 2019 and 2018. key issues we intend to achieve our long-term objective of generating financial returns , improving operating performance , and expanding our proven and probable reserves by operating , developing and acquiring long-lived , low-cost mines with large land positions in politically stable jurisdictions . our strategic plan requires that we manage multiple challenges and risks inherent in conducting mining , development , exploration and metal sales at multiple locations . one such risk involves metals prices , over which we have no control except , on a limited basis , through the use of derivative contracts . as discussed in the critical accounting estimates section below , metals prices are influenced by a number of factors beyond our control . while we believe global economic and industrial trends could result in continued demand for the metals we produce , prices have been volatile and there can be no assurance that current prices will continue . volatility in global financial markets poses a significant challenge to our ability to access credit and equity markets , should we need to do so , and to predict sales prices for our products . we utilize forward contracts to manage exposure to declines in the prices of ( i ) silver , gold , zinc and lead contained in our concentrates that have been shipped but have not yet settled , and ( ii ) zinc and lead that we forecast for future concentrate shipments . we have also utilized put option contracts to manage exposure to declines in the prices of silver and gold in our forecasted future sales of those metals .
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in 2017 , the company settled $ 30 million in aggregate principal amount of its 6.75 % notes , of which $ 26 million was settled in cash and $ 5 million was settled in treasury stock . during 2018 , the company settled $ 101 million in aggregate principal amount of its 6.75 % notes for $ 14 million in cash and $ 87 million in treasury stock at a weighted-average cost of $ 9.04 per share . during 2019 , the company redeemed the remaining $ 66 million in aggregate principal amount of its 6.75 % notes with a combination of cash and treasury stock . 7.50 % senior notes due 2022 on august 15 , 2012 , the company issued $ 500 million of its 7.50 % senior notes due 2022 ( 7.50 % notes ) . the 7.50 % notes are general unsecured senior obligations of the company . interest is payable on february 15 and august 15 of each year beginning february 15 , 2013 until the maturity date of august 15 , 2022 . the 7.50 % notes are governed by the terms of an indenture ( the 7.50 % indenture ) dated august 15 , 2012 between the company and wells fargo bank , n.a . , as trustee . in 2014 , the company repurchased $ 25 million in aggregate principal amount of its 7.50 % notes in open market transactions for $ 24 million . in 2016 , the company repurchased $ 125 million in aggregate principal amount of its 7.50 % notes pursuant to a partial tender offer for $ 135 million . in 2017 , the company settled $ 3 million in aggregate principal amount of its 7.50 % notes in treasury stock . in 2018 , the company settled $ 10 million in aggregate principal amount of its 7.50 % notes in treasury stock at a weighted-average cost of $ 9.01 per share . during 2019 , the company repurchased $ 25 million in aggregate principal amount of its 7.50 % notes in cash . as of december 28 , 2019 , the outstanding aggregate principal amount of the 7.50 % notes was $ 312 million . prior to august 15 , 2022 , the company may redeem some or all of the 7.50 % notes at a price equal to 100 % of the principal amount plus accrued and unpaid interest and a “ make whole ” premium ( story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements as of december 28 , 2019 and december 29 , 2018 and for each of the three years in the period ended december 28 , 2019 and related notes , which are included in this annual report on form 10-k as well as with the other sections of this annual report on form 10-k , including “ part i , item 1 : business , ” “ part ii , item 6 : selected financial data ” and “ part ii , item 8 : financial statements and supplementary data. ” introduction in this section , we will describe the general financial condition and the results of operations of advanced micro devices , inc. and its wholly-owned subsidiaries ( collectively , “ us , ” “ our ” or “ amd ” ) , including a discussion of our results of operations for 2019 compared to 2018 , an analysis of changes in our financial condition and a discussion of our contractual obligations and off-balance sheet arrangements . discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 29 , 2018 . overview 2019 marked a milestone in our multi-year journey with the launch of our 7 nanometer ( nm ) product portfolio . we executed our product roadmap and introduced a number of high-performance products in 2019. for the pc market , we introduced the 3rd gen amd ryzen desktop processor family based on the new zen 2 core architecture with amd chiplet design approach . in addition to our mainstream pc product family , we introduced the next generation of the ryzen threadripper product line designed for the high-end desktop segment for creators and enthusiasts . we announced our second-generation amd ryzen 3000 series notebook processors , powering ultrathin , commercial and gaming notebooks . a number of high-performance graphics products were also launched in 2019. we introduced the amd radeon vii , a premium graphics card for gamers , creators and enthusiasts . we also announced the availability of the amd radeon rx 5700-series gaming graphics card family , the amd radeon rx 5500 series that will be available in desktop pcs from major pc manufacturers as well as the radeon 5500m gpu for notebook pcs . our amd radeon pro vega ii gpu is designed to power demanding professional applications . we also announced the amd radeon pro w5700 , a 7nm professional pc workstation graphics card that enables 3d professionals to visualize and interact with their designs in real time . for the server market , we introduced the 2nd gen amd epyc family of processors that feature up to 64 “ zen 2 ” cores in 7nm process technology for performance and are designed to reduce total cost of ownership ( toc ) by up to 50 % . net revenue for 2019 was $ 6.7 billion , an increase of 4 % compared to 2018 net revenue of $ 6.5 billion . story_separator_special_tag a quantitative impairment analysis , if necessary , considers the income approach , which requires estimates of the present value of expected future cash flows to determine a reporting unit 's fair value . significant estimates include revenue growth rates and operating margins used to calculate projected future cash flows , discount rates , and future economic and market conditions . a goodwill impairment charge is recognized for the amount by which the reporting unit 's fair value is less than its carrying value . any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit . income taxes . in determining taxable income for financial statement reporting purposes , we must make certain estimates and judgments . these estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the recoverability of deferred tax assets which arise from temporary differences between the recognition of assets and liabilities for tax and financial statement reporting purposes . 35 we must assess the likelihood that we will be able to recover our deferred tax assets . unless recovery is considered more-likely-than-not ( a probability level of more than 50 % ) , we will record a charge to income tax expense in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable or maintain the valuation allowance recorded in prior periods . in determining the need to establish or maintain a valuation allowance , we consider multiple factors including past performance , the reversal of deferred tax liabilities , tax planning strategies , and future expected taxable income . when considering all available evidence , if it is determined we can more-likely-than-not realize our deferred tax assets , we will reverse the existing valuation allowance , which would result in a credit to income tax expense and the establishment of an asset in the period of reversal . in addition , the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the internal revenue service or other taxing authorities . if our estimates of these taxes are greater or less than actual results , an additional tax benefit or charge will result . we recognize the interest and penalties related to unrecognized tax benefits as interest expense and income tax expense , respectively . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > the income tax provision in 2019 was primarily due to $ 22 million of withholding taxes related to cross-border transactions and $ 22 million of foreign income taxes in profitable locations partially offset by a $ 13 million benefit for a reduction of u.s. income taxes accrued in the prior year . the income tax benefit in 2018 was primarily due to a $ 36 million refund of withholding tax from a foreign jurisdiction related to a legal settlement from 2010 , offset by $ 13 million of u.s. income taxes resulting from the tax reform act , $ 7 million tax provision in foreign locations and $ 7 million of withholding taxes on cross-border transactions . as we continue to make progress in our business resulting in improved financial results , our future reassessment could possibly result in a determination that a valuation allowance is no longer required . the impact of the determination would result in the release of the valuation allowance and significant financial impact in a future reporting period with a material non-cash income tax benefit and the recording of additional deferred tax assets on our consolidated balance sheet . international sales international sales as a percentage of net revenue were 74 % in 2019 and 80 % in 2018 . we expect that international sales will continue to be a significant portion of total sales in the foreseeable future . substantially all of our sales transactions are denominated in u.s. dollars . financial condition liquidity and capital resources as of december 28 , 2019 , our cash , cash equivalents and marketable securities were $ 1.5 billion compared to $ 1.2 billion as of december 29 , 2018 . the percentage of cash and cash equivalents held domestically was 90 % as of december 28 , 2019 , and 88 % as of december 29 , 2018 . our operating , investing and financing activities for fiscal 2019 , 2018 and 2017 were as follows : replace_table_token_5_th our aggregate principal debt obligations were $ 0.6 billion and $ 1.5 billion as of december 28 , 2019 and december 29 , 2018 , respectively . we believe our cash , cash equivalents and marketable securities balance along with our secured revolving facility entered into in june 2019 ( refer to note 7 of “ notes to consolidated financial statements for additional information ) will be sufficient to fund operations , including capital expenditures , over the next 12 months . we believe we will be able to access the capital markets should we require additional funds . however , we can not assure that such funds will be available on favorable terms , or at all . operating activities net cash provided by operating activities was $ 493 million in 2019 compared to net cash provided by operating activities of $ 34 million in 2018 . the increase in net cash provided by operating activities was primarily due to changes in working capital , largely driven by higher cash collections , partially offset by timing of accounts payable payments and higher wafer purchases and payroll .
| results of operations we report our financial performance based on the following two reportable segments : the computing and graphics segment and the enterprise , embedded and semi-custom segment . additional information on our reportable segments is contained in note 15 : segment reporting of the notes to financial statements ( part ii , item 8 of this form 10-k ) . our operating results tend to vary seasonally . historically , our net revenue has been generally higher in the second half of the year than in the first half of the year , although market conditions and product transitions could impact these trends . the following table provides a summary of net revenue and operating income ( loss ) by segment for 2019 , 2018 and 2017 . replace_table_token_3_th computing and graphics computing and graphics net revenue of $ 4.7 billion in 2019 increased by 14 % , compared to $ 4.1 billion in 2018 , primarily as a result of a 22 % increase in average selling price and a 4 % increase in unit shipments . the increase in average selling price was primarily driven by a richer mix of client processors due to strong demand of our ryzen processors . the increase in unit shipments was primarily due to higher demand for our ryzen processors , partially offset by lower demand for our radeon graphics products . computing and graphics operating income was $ 577 million in 2019 compared to operating income of $ 470 million in 2018 . the increase in operating income was primarily driven by higher sales , partially offset by a $ 194 million increase in operating expenses . operating expenses increased for the reasons outlined under “ expenses ” below .
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changes in the valuation allowance for 2014 primarily relate to ( 1 ) increases in the valuation allowance related to certain mega brands losses and deferred tax assets , 2014 foreign losses without benefits , and for certain deferred tax assets and ( 2 ) decreases in the valuation allowance for expirations and projected utilization of tax loss and tax story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the related notes . see item 8 financial statements and supplementary data. overview mattel 's vision is creating the future of play. mattel 's objectives are to grow its share in the marketplace , continue to improve its operating margins , and create long-term stockholder value . to achieve these objectives , management has established the following strategies : the first strategy is to deliver consistent growth by investing in its core brands , optimizing entertainment partnerships , building new franchises , and working to expand and leverage its international footprint . the second strategy is to optimize operating margins through sustaining gross margins of about 50 % over the long-term , and delivering on cost savings initiatives . the third strategy is to generate significant cash flow and continue its disciplined , opportunistic , and value-enhancing deployment . 2014 overview mattel 's 2014 results were disappointing . revenue and profitability did not meet management 's expectations , as mattel 's performance fell short in three areas . mattel 's product innovation was inconsistent , resulting in brand propositions that were not compelling enough to consumers . the doll category environment was dynamic and challenging and , although mattel experienced success with the disney princess line , it did not drive significant overall growth in the doll category where mattel 's doll brands make up approximately 40 % of its revenue . additionally , global retail execution fell short of management 's expectations , especially in north america . mattel 's 2014 financial highlights include the following : net sales decreased 7 % from $ 6.48 billion in 2013 to $ 6.02 billion in 2014. gross profit as a percentage of net sales for 2014 was 49.8 % , a decrease of 380 basis points from 2013. operating income was $ 653.7 million in 2014 , or 10.9 % of net sales , compared to the prior year 's operating income of $ 1.17 billion in 2013 , or 18.0 % of net sales . mattel 's operational excellence 3.0 program resulted in gross cost savings before severance charges and investments of approximately $ 119 million , or approximately $ 74 million in net cost savings . mattel paid total annual dividends of $ 1.52 per share , an increase of 6 % from the prior year , and repurchased 4.9 million shares of its common stock . 2015 and beyond in 2015 and beyond , mattel intends to utilize its unmatched portfolio of brands , global scale of infrastructure , capable management team , and strong balance sheet to work towards revitalizing its business and to deepen its connection with children and parents around the world . in addition , mattel will launch funding our future , its next cost savings program , where it will look to simplify its global operations through structural and process improvements and supply chain optimization . 28 results of operations 2014 compared to 2013 story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000063276/000119312515062193/ # toc '' > north america segment the following table provides a summary of mattel 's gross sales by brand for the north america segment for 2014 and 2013 : replace_table_token_8_th gross sales for the north america segment were $ 3.01 billion in 2014 , down $ 169.6 million or 5 % , as compared to $ 3.18 billion in 2013 , with no impact from changes in currency exchange rates . the decrease in the north america segment gross sales was due to lower sales of fisher-price friends , entertainment , and core fisher-price products , partially offset by construction and arts & crafts products . of the 23 % decrease in fisher-price friends gross sales , 6 % was due to lower sales of nickelodeon products , 5 % was due to lower sales of thomas and friends products , 5 % was due to lower sales of disney jake and the never land pirates products , and 4 % was due to lower sales of mike the knight products . of the 17 % decrease in entertainment gross sales , 6 % was due to lower sales of superman products , 5 % was due to lower sales of cars products , 4 % was due to lower sales of radica products , and 3 % was due to lower sales of max steel products . of the 16 % decrease in core fisher-price gross sales , 6 % was due to lower sales of little people products and 4 % was due to lower sales of imaginext products . the increase in construction and arts & crafts gross sales was due to initial sales of mega brands products . cost of sales increased 3 % in 2014 , compared to a 7 % decrease in net sales , primarily due to higher product and other costs , partially offset by lower royalty expenses . gross margins decreased due to the impact of the mega brands acquisition , including the impact of the inventory fair value markup above historical cost , efforts to improve consumer takeaway , the impact of lower sales volume on mattel 's fixed cost manufacturing and distribution base , and unfavorable product mix , partially offset by price increases and operational excellence 3.0 savings offset by higher input costs . north america segment income decreased by 36 % to $ 459.8 million in 2014 , as compared to $ 723.8 million in 2013 , due to lower gross profit and higher other selling and administrative expenses . story_separator_special_tag within cost of sales , product and other costs decreased by $ 16.8 million , or 1 % , from $ 2.44 billion in 2012 to $ 2.42 billion in 2013 ; royalty expenses increased $ 6.7 million , or 3 % , from $ 240.2 million in 2012 to $ 246.9 million in 2013 ; and freight and logistics expenses increased by $ 4.4 million , or 1 % , from $ 332.9 million in 2012 to $ 337.3 million in 2013. gross profit gross profit as a percentage of net sales increased to 53.6 % in 2013 from 53.1 % in 2012. the increase in gross profit as a percentage of net sales was primarily due to operational excellence 3.0 savings , favorable product mix , and price increases offset by higher input costs , partially offset by unfavorable changes in foreign currency exchange rates . 35 advertising and promotion expenses advertising and promotion expenses primarily consist of : ( i ) media costs , which primarily include the media , planning , and buying fees for television , print , and online advertisements , ( ii ) non-media costs , which primarily include commercial and website production , merchandising , and promotional costs , ( iii ) retail advertising costs , which primarily include consumer direct catalogs , newspaper inserts , fliers , and mailers and ( iv ) generic advertising costs , which primarily include trade show costs . advertising and promotion expenses as a percentage of net sales increased to 11.6 % in 2013 from 11.2 % in 2012 , primarily as a result of lower than expected fourth quarter sales and higher non-media and generic advertising spending . other selling and administrative expenses other selling and administrative expenses were $ 1.56 billion in 2013 , or 24.1 % of net sales , as compared to $ 1.67 billion in 2012 , or 26.0 % of net sales . the decrease in other selling and administrative expenses was primarily due to the litigation charge of $ 137.8 million in 2012 and lower incentive compensation expense of approximately $ 43 million , partially offset by higher other employee-related expenses and investments in strategic initiatives of approximately $ 78 million and an asset impairment charge of approximately $ 14 million . non-operating items interest expense decreased by $ 10.3 million to $ 78.5 million in 2013 , as compared to $ 88.8 million in 2012 , primarily due to lower average interest rates related to long-term borrowings . provision for income taxes mattel 's effective tax rate on income before income taxes in 2013 was flat with 2012 at 17.8 % . the 2013 and 2012 income tax provisions include net tax benefits of $ 32.2 million and $ 16.0 million , respectively , primarily related to reassessments of prior years ' tax liabilities based on the status of audits and tax filings in various jurisdictions around the world , settlements , and enacted tax law changes . north america segment the following table provides a summary of mattel 's gross sales by brand for the north america segment for 2013 and 2012 : replace_table_token_14_th 36 gross sales for the north america segment were $ 3.18 billion in 2013 , down $ 149.0 million or 4 % , as compared to $ 3.33 billion in 2012 , with no impact from changes in currency exchange rates . the decrease in the north america segment gross sales was due to lower sales of barbie , core fisher-price , and wheels products , partially offset by higher sales of other girls products . the 12 % decrease in barbie gross sales reflected product innovation not being strong enough to drive growth , increased competition within the doll category , along with lower effectiveness of in-store , commercial , and promotional activities . the 11 % decrease in core fisher-price gross sales reflected product innovation not being strong enough to drive growth , along with lower effectiveness of in-store , commercial , and promotional activities . of the 11 % decrease in wheels gross sales , 8 % was due to lower sales of radio-controlled vehicles and matchbox products , and 3 % was due to lower sales of hot wheels products . of the 19 % increase in other girls gross sales , 11 % was due to higher sales of monster high products , and 7 % was due to the initial launch of the ever after high product line . cost of sales decreased 4 % in 2013 , consistent with the 4 % decrease in net sales , primarily due to lower product and other costs . gross margins decreased slightly as a result of higher input costs partially offset by price increases , which were partially offset by operational excellence 3.0 savings . north america segment income decreased by 11 % to $ 723.8 million in 2013 , as compared to $ 810.3 million in 2012 , due to lower gross profit and higher other selling and administrative expenses . international segment the following table provides a summary of percentage changes in gross sales within the international segment in 2013 versus 2012 : replace_table_token_15_th the following table provides a summary of mattel 's gross sales by brand for the international segment for 2013 and 2012 : replace_table_token_16_th 37 gross sales for the international segment were $ 3.28 billion in 2013 , up $ 151.8 million or 5 % , as compared to $ 3.13 billion in 2012 , with an unfavorable impact from changes in currency exchange rates of 1 percentage point . the increase in the international segment gross sales was due to higher sales of other girls products . of the 30 % increase in other girls gross sales , 29 % was due to higher sales of monster high products . cost of sales increased by 2 % in 2013 , as compared to a 5 % increase in net sales , primarily due to higher product and other costs and higher freight and logistics expenses .
| consolidated results net sales for 2014 were $ 6.02 billion , a 7 % decrease , as compared to $ 6.48 billion in 2013 , with an unfavorable impact from changes in currency exchange rates of 2 percentage points . net income for 2014 was $ 498.9 million , or $ 1.45 per diluted share , as compared to net income of $ 903.9 million , or $ 2.58 per diluted share , in 2013. net income for 2014 was negatively impacted by lower sales volume , lower gross margins , and higher other selling and administrative expenses , partially offset by lower income taxes . the following table provides a summary of mattel 's consolidated results for 2014 and 2013 ( in millions , except percentage and basis point information ) : replace_table_token_6_th sales net sales for 2014 were $ 6.02 billion , a 7 % decrease , as compared to $ 6.48 billion in 2013 , with an unfavorable impact from changes in currency exchange rates of 2 percentage points . 29 the following table provides a summary of mattel 's consolidated gross sales by brand for 2014 and 2013 : replace_table_token_7_th gross sales were $ 6.72 billion in 2014 , down $ 399.4 million or 6 % , as compared to $ 7.12 billion in 2013 , with an unfavorable impact from changes in currency exchange rates of 2 percentage points . the decrease in gross sales was due to lower sales of entertainment , fisher-price friends , barbie , and core fisher-price products , partially offset by construction and arts & crafts products . of the 20 % decrease in entertainment gross sales , 5 % was due to lower sales of max steel products , 4 % was due to lower sales of superman products , 4 % was due to lower sales of cars products , and 2 % was due to lower sales of kids ' games .
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you should read the information in this section in conjunction with the other business and financial information provided in this annual report . our financial performance between the 2020 and 2019 periods was generally impacted by our acquisition of abb financial group , inc. ( “ abb ” ) and its wholly owned banking subsidiary , affinity bank , in january 2020. our results of operations and average balances for the 2020 periods include partial period contributions from the acquisition , as compared to no contribution from the acquisition in the 2019 periods . overview total assets increased $ 531.3 million , or 166.4 % , to $ 850.6 million at december 31 , 2020 from $ 319.3 million at december 31 , 2019. the increase was primarily due to increases in loans and cash and cash equivalents , as a result of our acquisition of abb and affinity bank in january 2020 , the origination of ppp loans , and increases in cash equivalents resulting from the deposit of ppp loan proceeds into customers ' accounts at affinity bank . loans increased $ 344.3 million , or 138.9 % , to $ 592.3 million at december 31 , 2020 from $ 248.0 million at december 31 , 2019. cash and cash equivalents increased to $ 178.3 million at december 31 , 2020 , from $ 48.1 million at december 31 , 2019. securities available-for-sale increased to $ 24.0 million at december 31 , 2020 , from $ 3.8 million at december 31 , 2019 due to the acquisition of abb financial and affinity bank . net income increased $ 2.7 million , or 769.9 % , to $ 3.1 million for the year ended december 31 , 2020 , compared to $ 355,000 for the year ended december 31 , 2019. the increase was due primarily to an increase in interest income on loans , due to our acquisition of abb and affinity bank in january 2020 , partially offset by increases in interest expense on deposits and noninterest expenses . net interest income before provision for loan losses increased $ 12.5 million , primarily as a result of an increase in interest income on loans . the provision for loan losses increased to $ 2.0 million for the year ended december 31 , 2020 , in light of the covid-19 pandemic and its effects on economic conditions , compared to no provision for the year ended december 31 , 2019. noninterest income increased $ 511,000 , or 31.1 % , to $ 2.2 million for the year ended december 31 , 2020 from $ 1.6 million for the year ended december 31 , 2019 , primarily as a result of an increase in service charges on deposit accounts . noninterest expenses increased $ 7.4 million , or 52.9 % , to $ 21.4 million for the year ended december 31 , 2020 , from $ 14.0 million for the year ended december 31 , 2019 , primarily as a result of increases in salaries and employee benefits , occupancy , data processing , legal and accounting , and other noninterest expenses . income tax expense increased by $ 821,000 for the year ended december 31 , 2020 , as a result of increased income before income taxes . a rise in interest rates will present us with a slight challenge in managing our interest rate risk . as a general matter , our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets , which can result in interest expense increasing more rapidly than increases in interest income as interest rates rise . therefore , increases in interest rates may adversely affect our net interest income and net economic value , which in turn would likely have an adverse effect on our results of operations . as described in “ —management of market risk , ” our net interest income and our net economic value would decrease as a result of an instantaneous increase in interest rates . to help manage interest rate risk , we promote core deposit products , we continue to diversify our loan portfolio by adding more commercial-related loans , and we proactively manage the liability-side of the balance sheet by adjusting rates offered on our interest-bearing accounts and reviewing long-term funding options to help minimize the compression on our net interest margin . see “ —management of market risk. ” story_separator_special_tag quarterly basis in compliance with regulatory requirements . in addition , various regulatory agencies periodically review the allowance for loan losses . as a result of such reviews , we may have to adjust our allowance for loan losses . 38 however , regulatory agencies are not directly involved in the process of establishing the allowance for loan losses as the process is the responsibility of affinity bank and any increase or decrease in the allowance is the responsibility of management . income taxes . the assessment of income tax assets and liabilities involves the use of estimates , assumptions , interpretation , and judgment concerning certain accounting pronouncements and federal and state tax codes . there can be no assurance that future events , such as court decisions or positions of federal and state taxing authorities , will not differ from management 's current assessment , the impact of which could be significant to the results of operations and reported earnings . the company files a consolidated federal and a state income tax return . amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws . deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law rates applicable to the periods in which the differences are expected to affect taxable income . as changes in tax laws or rates are enacted , deferred tax assets and liabilities are adjusted through the provision for income tax expense . story_separator_special_tag cash and cash equivalents increased $ 130.1 million , or 270.5 % , to $ 178.3 million at december 31 , 2020 from $ 48.1 million at december 31 , 2019 , resulting from our acquisition of abb and affinity bank , borrowings obtained from the federal reserve bank 's ppp liquidity facility to fund ppp loans , and the deposit of ppp loan proceeds into customers ' accounts at affinity bank . as of december 31 , 2020 , much of the ppp loan proceeds remained in customers ' deposit accounts . loans increased $ 344.3 million , or 138.9 % , to $ 592.3 million at december 31 , 2020 from $ 248.0 million at december 31 , 2019. commercial real estate loans increased $ 124.1 million , or 227.7 % , to $ 178.6 million at december 31 , 2020 from $ 54.5 million at december 31 , 2019 , and commercial and industrial loans , excluding ppp loans , increased $ 126.9 million , or 443.6 % , to $ 155.6 million at december 31 , 2020 from $ 28.6 million at december 31 , 2019. construction loans increased $ 3.1 million , or 15.0 % , to $ 23.6 million at december 31 , 2020 from $ 20.5 million at december 31 , 2019. consumer loans increased $ 15.7 million , or 49.8 % , to $ 47.4 million at december 31 , 2020 from $ 31.6 million at december 31 , 2019. these increases were primarily attributable to our acquisition of abb financial and affinity bank in january 2020. in addition , commercial and industrial loans increased as $ 101.7 million in ppp loans were outstanding as of december 31 , 2020. these increases were partially offset by a decrease in one- to four-family residential real estate loans of $ 25.1 million , or 21.5 % , to $ 91.8 million at december 31 , 2020 from $ 116.8 million at december 31 , 2019 , as mortgage loans continue to be refinanced elsewhere at lower rates than we offer . the acquisition of abb financial and affinity bank shifted the composition of the loan portfolio towards increased commercial and industrial lending and commercial real estate lending , and away from one- to four-family mortgage lending . securities available-for-sale increased to $ 24.0 million at december 31 , 2020 , from $ 3.8 million at december 31 , 2019 , due to our acquisition of abb financial and affinity bank in january 2020. total deposits increased $ 402.0 million , or 168.8 % , to $ 640.2 million at december 31 , 2020 from $ 238.2 million at december 31 , 2019. the increase in total deposits included increases of $ 131.3 million , or 444.2 % , in noninterest-bearing checking accounts ; $ 87.9 million , or 263.4 % , in market rate checking accounts ; $ 82.5 million , or 174.3 % , in interest-bearing checking accounts ; $ 73.9 million , or 325.7 % , in savings accounts ; and $ 26.4 million , or 25.1 % , in certificates of deposit . these increases are primarily attributable to our acquisition of abb financial and affinity bank in january 2020. in addition , many of our customers receiving ppp loans deposited the loan proceeds in their accounts at affinity bank . we had $ 19.1 million of federal home loan bank advances , $ 100.8 million in federal reserve bank ppp liquidity facility funds , and $ 5.0 million of other borrowings at december 31 , 2020 , compared to no borrowings at december 31 , 2019. we acquired federal home loan bank advances in our acquisition of abb financial and affinity bank in january 2020. we also borrowed $ 20.0 million from the federal home loan bank in january 2020 to help fund the acquisition . we borrowed $ 5.0 million from first national bankers bank during the quarter ended june 30 , 2020. the loan has a ten-year term with a floating interest rate equal to the wall street journal prime rate . the initial interest payment was paid as of september 30 , 2020 and the initial principal payment is due june 29 , 2021. there is no prepayment penalty . stockholders ' equity increased $ 3.6 million or 4.7 % , to $ 80.8 million at december 31 , 2020 from $ 77.2 million at december 31 , 2019. the increase was due primarily to net income of $ 3.1 million recognized during the year ended december 31 , 2020 . 40 average balance sheets the following tables set forth average balance sheets , average yields and costs , and certain other information for the years indicated . no tax-equivalent yield adjustments have been made , as the effects would be immaterial . all average balances are monthly average balances . non-accrual loans were included in the computation of average balances . the yields set forth below include the effect of deferred fees , discounts , and premiums that are amortized or accreted to interest income or interest expense . replace_table_token_18_th ( 1 ) net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities . ( 2 ) net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities . ( 3 ) net interest margin represents net interest income divided by average total interest-earning assets . 41 rate/volume analysis the following table presents the effects of changing rates and volumes on our net interest income for the years indicated . the rate column shows the effects attributable to changes in rate ( changes in rate multiplied by prior volume ) . the volume column shows the effects attributable to changes in volume ( changes in volume multiplied by prior rate ) . the total column represents the sum of the prior columns .
| summary of significant accounting policies the discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements , which are prepared in conformity with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the reported amounts of income and expenses . we consider the accounting policies discussed below to be significant accounting policies . the estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations . the jobs act contains provisions that , among other things , reduce certain reporting requirements for qualifying public companies . as an “ emerging growth company ” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies . we determined to take advantage of the 37 benefits of this extended transition period . accordingly , our financial statements may not be comparable to companies that comply with such new or revised accounting standards . the following represent our significant accounting policies : business combinations and valuation of loans acquired in business combinations . we account for acquisitions under financial accounting standards board ( “ fasb ” ) asc topic 805 , business combinations , which requires the use of the acquisition method of accounting . assets acquired and liabilities assumed in a business combination are recorded at estimated fair value on their purchase date .
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our-branded websites globally received more than 50 million unique visitors in january 2012 , according to comscore , and we have built a marketable base of more than 20 million members and over 60 million reviews and opinions . beyond travel-related content , our websites also include links to the websites of our advertisers , including travel advertisers , allowing travelers to directly book their travel arrangements . in addition to the flagship tripadvisor brand , we manage and operate websites under 18 other travel media brands , connected by the common goal of providing comprehensive travel planning resources across the travel sector . story_separator_special_tag size= '' 1 '' > 36 click-based advertising revenue . in recent years , the majority of our revenue growth resulted from higher click-based advertising revenue due to increased traffic on our websites , an increase in the volume of clicks on advertisers ' placements , and , in 2011 , an increase in the average cpc price . although click-based advertising revenue growth has generally been driven by traffic volume , we remain focused on the various factors that could impact revenue growth , including , but not limited to , the growth in hotel shoppers , cpc pricing fluctuations , the overall economy , the ability of advertisers to monetize our traffic , the quality and mix of traffic to our websites , and the quality and mix of traffic from our advertising placements to advertisers , as well as advertisers ' evolving approach to transaction attribution models and return on investment targets . global economic conditions . in late 2008 and throughout 2009 , weak global economic conditions created uncertainty for travelers and suppliers , and put pressure on discretionary spending on travel and advertising . as a result , our revenue growth slowed in 2009 , with a corresponding pull back in sales and marketing and a reduction in general and administrative expenses . throughout 2010 and into 2011 , the travel industry has been gradually improving . with the improved economic conditions , we reaccelerated sales and marketing spending and increased other operating costs to support expansion and have experienced increased click volumes and revenue growth during these periods . global economic conditions remain uncertain and , as such , our near-term visibility remains limited . spin-off on april 7 , 2011 , expedia announced its plan to separate into two independent public companies in order to better achieve certain strategic objectives of its various businesses . we refer to this transaction as the spin-off in this annual report on form 10-k. non-recurring expenses incurred to affect the spin-off during the year ended december 31 , 2011 has been included within spin-off costs in the accompanying consolidated and combined statements of operations . in connection with the spin-off , we were incorporated as a delaware corporation in july 2011. on november 1 , 2011 , the securities and exchange commission , or the sec , declared effective the form s-4 with information pertaining to the spin-off , which included a preliminary proxy statement for expedia and prospectus for us and expedia . on december 6 , 2011 , at expedia 's annual meeting of stockholders , expedia 's stockholders approved the spin-off , and the related proposals . the spin-off was also approved by expedia 's board of directors on december 6 , 2011 and , also in december 2011 , expedia received a favorable private letter ruling from the internal revenue service , or the irs , on the tax-free nature of the spin-off . on december 20 , 2011 , following the close of trading on the nasdaq global select market , the spin-off was completed , and we began trading as an independent public company on december 21 , 2011. expedia effected the spin-off by means of a reclassification of its capital stock that resulted in the holders of expedia capital stock immediately prior to the time of effectiveness of the reclassification having the right to receive a proportionate amount of our capital stock . a one-for-two reverse stock split of outstanding expedia capital stock occurred immediately prior to the spin-off , with cash paid in lieu of fractional shares . upon completion of the spin-off , expedia ceased to have any ownership interest in us , and all of our shares of common stock were held by the stockholders of expedia immediately prior to spin-off . in connection with the spin-off , expedia contributed or transferred all of the subsidiaries and assets it held relating to the tripadvisor media group , which are comprised of the tripadvisor holdings , llc combined financial statements , to us and we or one of our subsidiaries assumed of all of the liabilities relating to expedia 's tripadvisor media group . we now trade on nasdaq , under the symbol trip. in connection with the spin-off , and as provided for in the separation agreement between us and expedia , or the separation agreement , we secured financing under a $ 400 million term loan at the time of our separation from expedia . immediately prior to the completion of the spin-off , we distributed approximately $ 406 million in cash to expedia in the form of a dividend , which was funded from the net proceeds of the financing and any cash on hand in excess of $ 165 million as of the spin-off . the separation agreement also provided for a subsequent 37 reconciliation process to ensure the appropriate amount was retained . the completion of this reconciliation resulted in us recording an additional receivable from expedia of $ 7 million at december 31 , 2011. in addition , as provided for in the separation agreement , we extinguished all domestic receivables due from expedia . refer to note 1 organization and basis of presentation and note 11 debt in the notes to the consolidated and combined financial statements and our debt discussion in the section entitled financial position , liquidity and capital resources below for further information on the divestiture accounting and secured financing . story_separator_special_tag consequently we have reclassified depreciation expense , which previously had resided in technology and content expense and general and administrative expense , and have presented it as a separate line item on the consolidated and combined statement of operations . this reclassification had no net effect on either total operating expenses or total operating income for any period . the table below provides a reconciliation of that reclassification for the periods presented . replace_table_token_6_th ( 1 ) reflects total depreciation expense as reported on our form s-4 , filed with the sec on november 1 , 2011 in our consolidated and combined statement of cash flows . revenue we derive substantially all of our revenue through the sale of advertising , primarily through click-based advertising and , to a lesser extent , display-based advertising . in addition , we earn revenue through a combination of subscription-based offerings , transaction revenue from our flash sale website , sniqueaway , and other revenue including content licensing . 41 the following discussion of revenue includes references to the number of unique internet protocol , or ip , addresses that visit tripadvisor-branded sites each month . this metric is one of the metrics used by us to analyze revenue and is measured using internally developed analytical tools . each unique ip address is only counted the first time it visits a tripadvisor site during each calendar month . our measurement of unique visitors does not include any visitors to our subsidiary sites that are not tripadvisor-branded , nor does it include any individuals who view tripadvisor content on other sites . while directionally indicative , unique ip address tracking has recently become less valuable as a revenue growth metric because of the continually increasing diversification of our site traffic and usage , particularly in light of our users ' engagement with non-hotel based site content , such as restaurants and attractions . as such , we believe that using hotel shoppers as a metric will be a more useful indicator of future revenue growth and we intend to track this metric on an ongoing basis . replace_table_token_7_th 2011 vs. 2010 revenue increased $ 152 million or 31 % during the year ended december 31 , 2011 when compared to the same period in 2010 , primarily due to an increase in click-based advertising revenue of $ 116 million or 30 % . a key driver of the increase in click-based advertising revenue was an increase of 29 % in monthly visits from unique ip addresses to the tripadvisor branded sites during the year ended december 31 , 2011 , compared to the same period for 2010 and , to a lesser extent , an increase in the average cost per click rates in 2011. subscription , transaction and other revenue increased by $ 22 million or 76 % in 2011 , primarily due to growth in business listings and having a full year of revenue from the 2010 acquisition of holiday lettings . 2010 vs. 2009 monthly visits from unique ip addresses to the tripadvisor-branded sites increased 47 % during 2010 , which was the primary contributing factor to the increase in click-based advertising and display-based advertising revenue . subscription , transaction and other revenue grew in 2010 due to the launch of business listings in january 2010 , the acquisition of holiday lettings in june 2010 and the launch of sniqueaway in september 2010. in addition to the above product revenue discussion , related-party revenue from expedia , which consists primarily of click-based advertising , is as follows : replace_table_token_8_th tripadvisor and expedia have entered into new commercial arrangements in connection with the spin-off , as discussed in note 9 related party transactions in the notes to our consolidated and combined financial statements . the new arrangements have terms of up to one year . in connection with the spin-off , expedia expects to lower its cpc pricing by 10-15 % . this change was rolled out throughout the fourth quarter of 2011 , and trended towards the upper end of the expected discount range . we expect the decrease in cpc pricing paid 42 by expedia to continue to negatively impact total revenue for the year ending december 31 , 2012 by approximately 5 % . some of this lost revenue may be replaced by advertising revenue from other customers ; however , we have not included this in our forward looking revenue assumptions . cost of revenue cost of revenue consists of expenses that are closely correlated or directly related to revenue generation , including advertisement fees , flight search fees , credit card fees and data center costs . replace_table_token_9_th 2011 vs. 2010 cost of revenue increased $ 4 million or 48 % during the year ended december 31 , 2011 when compared to the same period in 2010 , primarily due to increased data center costs in support of higher site traffic and increased credit card merchant fees . 2010 vs. 2009 in 2010 , the primary drivers of the increase in cost of revenue expense were higher costs related to an increase in flight search volume and data center costs in support of higher site traffic . selling and marketing sales and marketing expenses primarily consist of direct costs , including search engine marketing , or sem , other traffic acquisition costs , syndication costs and affiliate program commissions , brand advertising and public relations . in addition , our indirect sales and marketing expense consists of personnel and overhead expenses , including salaries , commissions , benefits , stock-based compensation expense and bonuses for sales , sales support , customer support and marketing employees . replace_table_token_10_th 2011 vs. 2010 direct selling and marketing costs increased $ 49 million or 57 % during the year ended december 31 , 2011when compared to the same period in 2010 , primarily due to increased sem costs and other traffic acquisition costs .
| executive summary our financial results are dependent on our ability to drive our click-based advertising revenue and continue to invest in areas of potential growth , including our social , mobile and global initiatives as well as our subscription-based businesses , which include vacation rentals and business listings . we have leveraged our position as the largest online travel company to become a critical partner for online advertisers including hotels , online travel agencies and other travel-related service providers by providing our customers with access to our large audience of highly-qualified , highly-engaged users . the key drivers of our click-based advertising revenue are described below , as well as a summary of our key growth areas and the current trends impacting our business . in december 2011 , expedia , inc. , or expedia , spun out the tripadvisor business into a stand-alone public company . this transaction is described in more detail in the section entitled spin-off below . key drivers of click-based advertising revenue in the year ended december 31 , 2011 , 79 % of our total revenue came from our core cost-per-click , or cpc , based lead generation product . the key drivers of our click-based advertising revenue include the growth in hotel shoppers , user conversion and lead pricing . total traffic growth , or growth in monthly visits from unique ip addresses ( as defined below ) , is reflective of our overall brand growth . we continue to refine our ability to track and analyze sub-segments of traffic and its correlation to revenue generation and we believe that hotel shoppers is a more useful indicator of revenue growth . we use the term hotel shoppers to refer to users who view a listing of hotels in a city or visitors who view a specific hotel page .
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introduction and overview discover financial services ( “ dfs ” ) is a direct banking and payment services company . we provide direct banking products and services and payment services through our subsidiaries . we offer our customers credit card loans , private student loans , personal loans , home equity loans and deposit products . we also operate the discover network , the pulse network ( “ pulse ” ) and diners club international ( “ diners club ” ) . the discover network processes transactions for discover-branded credit cards and provides payment transaction processing and settlement services . pulse operates an electronic funds transfer network , providing financial institutions issuing debit cards on the pulse network with access to atms domestically and internationally , as well as point-of-sale ( “ pos ” ) terminals at retail locations throughout the u.s. for debit card transactions . diners club is a global payments network of licensees , which are generally financial institutions , that issue diners club branded charge cards and or provide card acceptance services . our primary revenues consist of interest income earned on loan receivables and fees earned from customers , financial institutions , merchants and issuers . the primary expenses required to operate our business include funding costs ( interest expense ) , loan loss provisions , customer rewards and expenses incurred to grow , manage and service our loan receivables and networks . our business activities are funded primarily through consumer deposits , securitization of loan receivables and the issuance of unsecured debt . story_separator_special_tag style= '' font-family : futura lt medium , sans-serif ; font-size:10pt ; '' > the total charge-off rate in 2018 is expected to be modestly higher and we expect to continue to add to the loan loss reserve due to seasoning of continued loan growth and increasing consumer leverage . we expect net interest margin to increase slightly in 2018 as a result of the impact of recent and anticipated prime rate increases on our asset-sensitive balance sheet . these increases may be partially offset by higher deposit rates , promotional card balances and interest charge-offs . in our payments segment , we will continue to pursue new ways to drive volume growth in 2018. we continue to leverage our network to support our card-issuing business and we expect the payments industry to remain competitive . regulatory environment and developments over the past several years , regulators have proposed and implemented new regulations and supervisory guidance , including under the dodd-frank wall street reform and consumer protection act ( the `` dodd-frank act '' ) , and increased their examination and enforcement activities . on february 3 , 2017 , president trump signed an executive order which identified seven principles by which his administration would regulate the u.s. financial system . those principles include making regulation appropriately tailored and efficient . the executive order also directed the treasury secretary to issue reports to identify any laws , regulations , guidance and other government policies , among other things , that are inconsistent with those principles . in june and october 2017 , the treasury department issued reports that recommended significant changes to many of the rules and regulations implemented in response to the financial crisis of 2007. while congress , the president , and regulatory agency leadership have expressed support for regulatory reforms that could reduce regulatory burdens through executive action , rulemaking and legislation , the prospect and timing of regulatory reforms remain uncertain . many of the changes proposed in the treasury department 's report would require federal banking regulators to revise rules and guidance , however certain agency leadership is not yet appointed or has only recently been appointed and there are numerous vacancies within the agencies that have yet to be filled . in addition , congress is working on regulatory reform measures , however prospects for reform via legislation are still uncertain . on december 5 , 2017 , the senate banking committee approved bipartisan legislation that would among other things amend certain provisions of the dodd-frank act to ease certain regulatory requirements for banking organizations under $ 250 billion in assets , such as discover . this legislation must still be approved by the - 50 - senate and the house of representatives before it can be signed into law by the president . the prospects , timing and substance of any final legislation are uncertain at this time . despite a growing focus on regulatory reform , banking regulators and policymakers at the federal and state levels are increasingly focused on measures to enhance data security and incident response capabilities as a result of the growing cybersecurity threats and the number of incidents involving unauthorized access to consumer information , including the september 2017 disclosure of a large data breach at a national credit reporting agency . regulations at various levels of government have been proposed to address security breach notification and data security standards . for example , several states have recently issued cybersecurity regulations for certain firms operating within their jurisdiction . while it is too early to know their impact , these developments could ultimately result in the imposition of requirements on discover and other card issuers or networks that could increase costs or adversely affect the competitiveness of our credit card or debit card products . in addition , the size and scope of the 2017 national credit reporting agency breach may result in the financial services industry shifting to new means of identifying and authenticating consumers . the impact of the evolving regulatory environment on our business and operations depends upon a number of factors , including supervisory priorities and actions , our actions , actions of our competitors and other marketplace participants , and the behavior of consumers . for more information on how the regulatory environment , enforcement actions , findings and ratings could also have an impact on our strategies , the value of our assets , or otherwise adversely affect our business see “ risk factors — economic and regulatory environment ” . story_separator_special_tag for example , the tcja has the effect of increasing the negative financial impact in capital stress testing scenarios due to larger disallowed deferred tax assets as net operating losses can now only be carried forward . this could reduce the amount of capital available to return to shareholders in such scenarios . for additional information , see `` business — supervision and regulation — capital , dividends and share repurchases . '' discover financial services and discover bank are subject to regulatory capital requirements that became effective january 2015 under final rules issued by the federal reserve and the fdic to implement the provisions under the basel committee 's december 2010 framework ( referred to as “ basel iii ” ) . the final capital rules ( `` basel iii rules '' ) require minimum risk-based capital and leverage ratios and define what constitutes capital for purposes of calculating those ratios . in addition , the basel iii rules establish a capital conservation buffer above the regulatory minimum capital requirements , which must consist entirely of common equity tier 1 ( `` cet1 '' ) capital and result in higher required minimum ratios by up to 2.5 % . the new capital conservation buffer requirement became effective january 2016 ; however , the buffer threshold amounts are subject to a gradual phase-in period . in 2017 , the highest capital conservation buffer threshold was 1.25 % , which will rise to 1.875 % for the 2018 calendar year . the full 2.5 % buffer requirement will not be fully phased-in until january 2019. a banking organization is subject to limitations on paying dividends , engaging in share repurchases and paying discretionary bonuses if its capital level falls below any of the minimum capital requirements , taking into account the applicable capital conservation buffer thresholds . based on our current capital composition and levels and business plans , we are and expect to continue to be in compliance with the requirements for the foreseeable future . for additional information , see `` — liquidity and capital resources — capital . '' federal banking regulators jointly issued a proposed rule on september 27 , 2017 that would simplify the treatment of certain assets and deductions for institutions that are not subject to the advanced approaches capital rule . among other things , the proposed rule would increase or adjust the deduction thresholds for certain mortgage servicing assets , deferred tax assets , investments in the capital of unconsolidated financial institutions , and minority interests . as proposed , the new rules would apply to discover financial services and its subsidiary banks . while the banking agencies consider comments on the proposed rule , the agencies adopted a rule on november 21 , 2017 , that provides interim relief to non-advanced approaches banking organizations , such as discover , by extending the regulatory capital transition periods effective in 2017 for certain items , including regulatory capital deductions , risk weights , and certain minority interest limitations . - 52 - on december 7 , 2017 , the basel committee adopted various standards meant to finalize remaining elements of the basel iii reforms first introduced in 2010. among the new standards are revisions to the standardized approach for credit risk , which establishes standardized risk weightings used to measure credit risk for purposes of calculating regulatory capital requirements . the new revisions include a provision that would , for the first time , require banking organizations to include a percentage of “ unconditionally cancellable commitments ” in risk-weighted asset calculations . if this change were to be adopted in the united states by the domestic federal banking agencies and made applicable to all `` standardized approach '' banking organizations such as discover , it could require credit card issuers to substantially increase the amount of capital they hold against unused credit card lines . the federal banking agencies have publicly indicated support for the new basel standards but stated that the standards were “ designed for internationally active banks ” and that any changes to the regulatory capital rules in the united states “ will be made through the standard notice-and-comment rulemaking process. ” liquidity we are subject to the u.s. liquidity coverage ratio rule issued by federal banking regulators . this quantitative requirement is designed to promote the short-term resilience of the liquidity risk profile of large and internationally active banking organizations in the united states . the rule requires covered banks to maintain an amount of high-quality liquid assets sufficient to cover projected net cash outflows during a prospective 30-day calendar period under an acute , hypothetical liquidity stress scenario . given our current asset size , we are subject to a modified liquidity coverage ratio requirement which requires a lower level of high-quality liquid assets to meet the minimum ratio requirement due to adjustments to the net cash outflow amount . under the rule 's transition period , we were required to maintain a liquidity ratio of 100 % in 2017. as of december 31 , 2017 , our liquidity coverage ratio was in excess of the applicable regulatory requirement . pursuant to the final rule issued by the federal reserve , we will be required to publish quarterly public disclosures regarding our liquidity risk profile and components of our liquidity coverage ratio beginning the fourth quarter of 2018. funding on december 8 , 2017 , the federal reserve board announced final plans for the production of three new reference rates based on overnight repurchase agreement transactions secured by treasury securities that will be produced by the federal reserve bank of new york , in cooperation with the u.s. office of financial research . it is expected that these new reference rates may be used in future transactions as a replacement for libor , which will no longer be maintained after 2021 , in certain contracts .
| 2017 highlights net income was $ 2.1 billion , or $ 5.42 per diluted share , compared to $ 2.4 billion , or $ 5.77 per diluted share , in the prior year . net interest income increased 10.8 % compared to the prior year . total loans grew $ 7.0 billion , or 9.1 % , from the prior year to $ 84.2 billion . net charge-off rate for total loans increased 54 basis points from the prior year to 2.70 % and the total loans delinquency rate for loans over 30 days past due increased 23 basis points to 2.20 % . credit card loans grew $ 5.8 billion , or 9.4 % , to $ 67.3 billion and discover card sales volume increased 6.1 % from the prior year . net charge-off rate for credit card loans increased 57 basis points from the prior year to 2.91 % and the credit card delinquency rate for loans over 30 days past due increased 24 basis points to 2.28 % . payment services transaction dollar volume for the segment was $ 202.9 billion , up 12 % from the prior year . we repurchased approximately 32 million shares , or 8 % , of our outstanding common stock for $ 2.1 billion . the effective tax rate increased 6.2 % , primarily driven by a one-time adjustment of $ 179 million as a result of the tax cuts and jobs act . 2016 and 2015 highlights net income was $ 2.4 billion and $ 2.3 billion , or $ 5.77 and $ 5.13 , respectively , per diluted share in 2016 and 2015. return on equity was 21 % in both 2016 and 2015. during 2016 , our net interest income increased 8.0 % compared to 2015. total loans grew $ 4.9 billion in 2016 , or 6.7 % , from 2015 to $ 77.3 billion .
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we track three primary financial performance measures in order to assess the level of success in achieving these goals : ( 1 ) return on average assets ( roa ) , ( 2 ) return on average equity ( roe ) , and ( 3 ) growth in earnings . in addition to these financial performance measures , we track the performance of the corporation 's three principal business segments : retail banking , mortgage banking , and consumer finance . we also actively manage our capital through growth , dividends and share repurchases , while considering the need to maintain a strong capital position . financial performance highlights net income for the corporation was $ 18.9 million in 2019 , or $ 5.47 per share assuming dilution , compared to $ 18.0 million in 2018 , or $ 5.15 per share assuming dilution , and $ 6.6 million in 2017 , or $ 1.88 per share assuming dilution . the corporation 's roe and roa were 12.02 percent and 1.20 percent , respectively , for 2019 , compared to 12.40 percent and 1.19 percent , respectively , for 2018 and 4.58 percent and 0.45 percent , respectively , for 2017. excluding the effects of certain nonrecurring items discussed below , adjusted net income was $ 19.5 million in 2019 , or $ 5.66 per share assuming dilution , compared to $ 18.0 million in 2018 , or $ 5.15 per share assuming dilution , and $ 13.2 million in 2017 , or $ 3.79 per share assuming dilution . adjusted roe and roa , which exclude the effects of certain nonrecurring items discussed below , were 12.44 percent and 1.25 percent , respectively , for 2019 , compared to 12.40 percent and 1.19 percent , respectively , for 2018 and 9.20 percent and 0.90 percent , respectively , for 2017. net income for 2019 included merger related expenses of $ 709,000 ( $ 653,000 after income taxes ) incurred in connection with the corporation 's acquisition of peoples bankshares , incorporated ( peoples ) , which was completed on january 1 , 2020. net income for 2017 included the effect of the tax cuts and jobs act ( the tax act ) , which was signed into law on december 22 , 2017. as a result of the permanent reduction in the federal corporate income tax rate , the corporation recorded a one-time remeasurement adjustment to its net federal deferred tax asset of $ 6.6 million , which was recognized in income tax expense . merger related expenses and the effects of the tax acts are nonrecurring adjustments and do not reflect the ongoing performance of the corporation , and are excluded from adjusted net income , adjusted earnings per share , adjusted roe and adjusted roa . refer to “ use of certain non-gaap financial measures , ” below , for a reconciliation of adjusted net income , adjusted earnings per share , adjusted roe and adjusted roa , which are non-gaap financial measures , to the most directly comparable financial measures calculated in accordance with u.s. gaap . net income for 2019 increased 4.6 percent and adjusted net income increased 8.2 percent compared to 2018. the increase in net income was attributable in part to growth in average loans at the retail banking segment of 6.1 percent , growth in loan production volume at the mortgage banking segment of 35.2 percent , and a decrease in net charge-offs as a percentage of average loans outstanding at the consumer finance segment to 3.05 percent for 2019 , compared to 4.14 percent in 2018 . 31 2020 outlook management believes the corporation 's financial performance in 2020 will be affected by ( 1 ) lower accretion income related to the fair value accounting adjustments in the corporation 's acquisition of cvbk in 2013 , ( 2 ) expenses related to the acquisition of peoples and the integration of its systems and processes , ( 3 ) an uncertain interest rate environment , which may affect volume in the mortgage banking industry and contribute to net interest margin compression , ( 4 ) an increase in average loans outstanding at the retail banking segment , which will have a favorable effect on interest income , and ( 5 ) continued decline in the average yield of the non-prime automobile loan portfolio at the consumer finance segment as seasoned loans that have higher interest rates than the average yield of the portfolio are replaced with new purchases of lower-yielding , higher-quality loans . the following additional factors could influence the corporation 's financial performance in 2020 : · retail banking : growth in higher-yielding earning assets , specifically loans , will continue to be our primary focus at the bank during 2020. we expanded our lending capabilities in 2019 by adding new talent to our commercial lending team in the richmond , charlottesville , and hampton roads markets , and our acquisition of peoples adds to our earning assets as well as gives us access to new markets where we hope to pursue additional loan production . our growing lending team and continued economic strength in our markets , particularly in real estate development and construction , has led us to expect continued growth in our loan portfolio during 2020. however , it will be challenging to maintain the retail banking segment 's net interest margin at its current level , as interest income from purchased credit impaired ( pci ) loans in 2019 that resulted primarily from repayments of certain credits is unlikely to be realized at the same level in 2020. additionally , the cost of interest-bearing deposits may be slower to respond to decreases in interest rates than yields on loans , which may result in net interest margin compression . story_separator_special_tag c & f bank 's total nonperforming assets were $ 2.6 million at december 31 , 2019 , compared to $ 1.7 million at december 31 , 2018. nonperforming assets included $ 1.5 million in nonaccrual loans at december 31 , 2019 and 2018 , and included $ 1.1 million in other real estate owned at december 31 , 2019 , compared to $ 246,000 at december 31 , 2018. the increase in nonperforming assets since december 31 , 2018 was due primarily to the balance of land and buildings of c & f bank 's bellgrade branch in midlothian , virginia , which were reclassified into other real estate owned when the bellgrade branch was consolidated into a nearby branch during 2019. nonaccrual loans were comprised primarily of residential mortgages and equity lines at december 31 , 2019 and 2018. mortgage banking : the mortgage banking segment reported net income of $ 3.8 million for the year ended december 31 , 2019 , compared to net income of $ 1.9 million for the year ended december 31 , 2018. the increase in net income of the mortgage banking segment for the year ended december 31 , 2019 compared to the same period in 2018 was due primarily to higher gains on sales of loans , resulting from higher loan production , which was partially offset by higher compensation expense related to higher loan volume . mortgage loan originations for the mortgage banking segment were $ 944.1 million and $ 699.0 million for the years ended december 31 , 2019 and 2018 , respectively . loan production for the year ended december 31 , 2019 was the highest reported by the mortgage banking segment for any calendar year since 2009 , when home sales were supported by a federal income tax credit for first-time home buyers . lower interest rates on mortgage loans have contributed to an increase in volume in the broader mortgage industry in 2019 compared to 2018. mortgage loan originations during the the year ended december 31 , 2019 for refinancings and home purchases were $ 224.9 million and $ 719.2 million , respectively , compared to $ 76.9 million and $ 566.2 million , respectively , during the year ended december 31 , 2018 . 33 consumer finance : the consumer finance segment reported net income of $ 6.9 million for the year ended december 31 , 2019 , compared to net income of $ 6.7 million for the year ended december 31 , 2018. the increase in net income of the consumer finance segment for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was due primarily to a decline in the provision for loan losses of $ 2.8 million as a result of lower charge-offs and improving credit quality of the portfolio , partially offset by ( 1 ) lower loan yields , ( 2 ) higher interest expense on variable-rate borrowings resulting from higher loans outstanding ( which are financed by borrowings ) and higher short-term interest rates during 2019 compared to 2018 and ( 3 ) higher cost of providing employee health benefits . the average yield on loans was lower for 2019 compared to 2018 due to continued competition in the non-prime automobile loan business and the consumer finance segment pursuing growth in higher quality , lower yielding loans , which include prime marine and recreational vehicle ( rv ) loans . the net charge-off ratio for 2019 was 3.05 percent of average total loans , which represents a decrease from 4.14 percent for 2018 and is lower than any year since 2012. the decline reflects a lower number of charge-offs during 2019 as a result of c & f finance company 's purchasing automobile loan contracts with higher credit metrics beginning in 2016. at december 31 , 2019 , total delinquent loans as a percentage of total loans was 4.17 percent , compared to 4.76 percent at december 31 , 2018. the allowance for loan losses was $ 21.8 million , or 6.96 percent of total loans at december 31 , 2019 , compared to $ 23.0 million , or 7.77 percent of total loans at december 31 , 2018. the decrease in the level of the allowance for loan losses as a percentage of total loans was primarily due to lower net charge-offs on non-prime automobile loans . at december 31 , 2019 , compared to december 31 , 2018 , the higher composition within the consumer finance segment 's loan portfolio of prime marine and rv loans accounted for approximately 16 basis points of the 81 basis points decrease in the ratio of the allowance for loan losses to total loans . other : the remaining components included in the consolidated results of operations of the corporation are comprised primarily of net losses associated with holding company expenses of the corporation , partially offset by the net income of c & f wealth management . these components reported aggregate net losses of $ 1.7 million and $ 1.2 million for the years ended december 31 , 2019 and 2018 , respectively . the higher net loss during 2019 , compared to 2018 , was primarily due to merger related expenses . acquisition of peoples bankshares , incorporated : on january 1 , 2020 , the corporation completed the acquisition of peoples and its banking subsidiary , peoples community bank for an aggregate purchase price of $ 22.2 million of cash and stock .
| results of operations net interest income the following table shows the average balance sheets , the amounts of interest earned on earning assets , with related yields , and interest expense on interest-bearing liabilities , with related rates , for each of the years ended december 31 , 2019 , 2018 and 2017. loans include loans held for sale . loans placed on a nonaccrual status are included in the balances and are included in the computation of yields , but had no material effect . accretion and amortization of fair value purchase adjustments are included in the computation of yields on loans and investments and on the cost of borrowings acquired in connection with the purchase of cvb . the cvb accretion contributed approximately 29 basis points to the yield on loans and 23 basis points to both the yield on interest earning assets and net interest margin for the year ended december 31 , 2019 , compared to approximately 28 basis points to the yield on loans and 21 basis points to both the yield on interest earning assets and net interest margin for the year ended december 31 , 2018 , and approximately 14 basis points to the yield on loans and 11 basis points to both the yield on interest earning assets and the net interest margin for the year ended 36 december 31 , 2017. interest on tax-exempt loans and securities is presented on a taxable-equivalent basis ( which converts the income on loans and investments for which no income taxes are paid to the equivalent yield as if income taxes were paid ) using the federal corporate income tax rate of 21 percent for the years ended december 31 , 2019 and 2018 and 34 percent for the year ended december 31 , 2017. table 1 : average balances , income and expense , yields and rates replace_table_token_2_th interest income and expense are affected by fluctuations in interest rates
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subsequent to the separation , the company recognizes share-based compensation expense based on estimated fair values for all share-based awards made to employees and directors , including stock options , restricted stock units ( “ rsus ” ) , performance-based restricted stock and performance share units ( “ psus ” ) . the company recognizes story_separator_special_tag the following discussion of dfin 's financial condition and results of operations should be read together with the consolidated and combined financial statements and notes to those statements included in item 15 of part iv , exhibits , financial statement schedules , of this annual report on form 10-k. business for a description of the company 's business , segments and product and service offerings , see item 1 , business , of part i of this annual report on form 10-k. the company separately reports its net sales and related cost of sales for its products and services offerings . the company 's services offerings consist of all non-print offerings , including document composition , compliance related edgar filing services , transaction solutions , language solutions , and the company 's software-as-a-service ( “ saas ” ) solutions , including venue virtual data room ( “ venue ” ) , fundsuitearc , activedisclosure and data and analytics , among others . the company 's product offerings primarily consist of conventional and digital printed products and related shipping costs . spin-off transaction on october 1 , 2016 , dfin became an independent publicly traded company through the distribution by rrd of approximately 26.2 million shares , or 80.75 % , of dfin common stock to rrd shareholders ( the “ separation ” ) . holders of rrd common stock received one share of dfin common stock for every eight shares of rrd common stock held on september 23 , 2016. as part of the separation , rrd retained approximately 6.2 million shares of dfin common stock , or a 19.25 % interest in dfin , of which 6.1 million shares and 0.1 million shares were subsequently sold in june 2017 and august 2017 , respectively . dfin 's common stock began regular-way trading under the ticker symbol “ dfin ” on the new york stock exchange on october 3 , 2016. on october 1 , 2016 , rrd also completed the previously announced separation of lsc , its publishing and retail-centric print services and office products business . on march 28 , 2017 , rrd completed the sale of 6.2 million shares of lsc common stock ( rrd 's remaining ownership stake in lsc ) in an underwritten public offering . as a result , beginning in the quarter ended june 30 , 2017 , lsc no longer qualified as a related party of the company . beginning in the quarter ended september 30 , 2017 , rrd no longer qualified as a related party , therefore amounts disclosed related to rrd are presented through june 30 , 2017 only . executive overview 2018 overview net sales decreased by $ 41.9 million , or 4.2 % , in 2018 compared to 2017 , including a $ 2.7 million , or 0.3 % , increase due to changes in foreign exchange rates . net sales decreased primarily due to the sale of the language solutions business , lower volumes in capital markets compliance and mutual fund print and print related services , partially offset by higher saas volumes in fundsuitearc , virtual data room services and activedisclosure , along with higher capital markets transactions . on july 22 , 2018 , the company sold its language solutions business , which helped companies adapt their business content into different languages for specific countries , markets and regions , for net proceeds of $ 77.5 million in cash , all of which was received as of december 31 , 2018 , resulting in a net gain of $ 53.8 million , which was recognized in other operating income in the consolidated statement of operations for the year ended december 31 , 2018. the company used approximately $ 60.0 million of net proceeds from the sale to pay down debt under the term loan credit facility ( as defined in liquidity and capital resources ) in july 2018 in accordance with the provisions of the credit agreement . 24 on december 18 , 2018 , the comp any acquired ebrevia , a leading provider of artificial intelligence-based data extraction and contract analytics software s olutions . the company previously held a 12 . 8 % investment in ebrevia prior to the acquisition . the purchase price for the remaining equity of ebrevia , which includes the company 's estimate of contingent consideration , was $ 23 . 2 million , net of cash acquired o f $ 0 . 2 million . $ 4.1 million of the purchase price , excluding contingent consideration and amounts held in escrow , was payable as of december 31 , 2018 and is expected to be paid during 2019. the ebrevia technology provides leading enterprise contract review and analysis solutions , leveraging machine learning to produce faster and more accurate results . ebrevia 's software , which extracts and summarizes key legal provisions and other information , can be used in due diligence , contrac t management , lease abstraction and document drafting . outlook in 2019 , the company expects net sales to decrease slightly due to the sale of language solutions during 2018 , offset by growth in the company 's saas offerings and the acquisition of ebrevia during 2018. the company 's outlook assumes a challenging capital markets environment in the first quarter of the year , returning to more normalized levels for the remainder of the year , and does not expect foreign exchange rates to have a significant impact on results . in 2019 , the company will adopt accounting standards update no . 2016-02 “ leases ( topic 842 ) ” ( “ asu 2016-02 ” ) . story_separator_special_tag in addition , management considers how other key assumptions , including discount rates and expected long-term growth rates , used in the last annual impairment test , could be impacted by changes in market conditions and economic events . based on these interim assessments , management concluded that as of the interim periods , no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying amount . as of october 31 , 2018 , the capital markets , investment markets and international reporting units had goodwill . each of the reporting units were reviewed for impairment using a quantitative assessment . quantitative assessment for impairment for each of the reporting units , the estimated fair value of each reporting unit was compared to its carrying amount , including goodwill . if the carrying amount of a reporting unit exceeded the estimated fair value , an impairment loss is generally recognized in an amount equal to that excess , limited to the total amount of goodwill allocated to that reporting unit . the results of the quantitative assessment of goodwill impairment as of october 31 , 2018 , indicated that the estimated fair values for each of the reporting units exceeded their respective carrying amount . therefore , no impairment losses were recognized . the analysis performed included estimating the fair value of each reporting unit using both the income and market approaches . the income approach requires management to estimate a number of factors for each reporting unit , including projected future operating results , economic projections , anticipated future cash flows , discount rates and the allocation of shared or corporate items . the market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping . the company weighted both the income and market approach equally to estimate the concluded fair value of each reporting unit . 26 the determination of fair value in the quantitative assessment requires the company to make significant estimates and assumptions . these estimates and assumptions primarily include , but are not limited to : the selection of appropriate peer group companies ; control premiums appropriate for acquisitions in the industries in which the company competes ; the discount rate ; terminal growth rates ; and forecasts of revenue , operating income , depreciation and amortization , restructuring charges and capital expenditures . as a result of the 2018 annual goodwill impairment test , the company did not recognize any goodwill impairment losses as the estimated fair values of all reporting units exceeded their respective carrying amounts . goodwill impairment assumptions although the company believes its estimates of fair value are reasonable , actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates . changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units , the amount of the goodwill impairment charge , or both . future declines in the overall market value of the company 's equity and debt securities may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying amount . one measure of the sensitivity of the amount of goodwill impairment charges to key assumptions is the amount by which each reporting unit “ passed ” ( fair value exceeds carrying amount ) or “ failed ” ( the carrying amount exceeds fair value ) the quantitative assessment . each of the reporting units that were quantitatively assessed had fair values that exceeded the carrying amounts by between 29.3 % and 125.4 % of their respective estimated fair values . relatively small changes in the company 's key assumptions would not have resulted in any reporting units being impaired . generally , changes in estimates of expected future cash flows would have a similar effect on the estimated fair value of the reporting unit . that is , a 1.0 % decrease in estimated annual future cash flows would decrease the estimated fair value of the reporting unit by approximately 1.0 % . the estimated long-term net sales growth rate can have a significant impact on the estimated future cash flows , and therefore , the fair value of each reporting unit . a 1.0 % decrease in the long-term net sales growth rate would not have resulted in an impairment loss for any of the reporting units . of the other key assumptions that impact the estimated fair values , most reporting units have the greatest sensitivity to changes in the estimated discount rate . the estimated discount rate for the reporting units with operations located in the u.s. was 10.0 % as of october 31 , 2018. the estimated discount rate for the reporting unit with operations in foreign locations was 11.5 % as of october 31 , 2018. a 1.0 % increase in estimated discount rates would not have resulted in an impairment loss for any of the reporting units . the company believes that its estimates of future cash flows and discount rates are reasonable , but future changes in the underlying assumptions could differ due to the inherent uncertainty in making such estimates . additionally , further price deterioration or lower volume could have a significant impact on the fair values of the reporting units . other long-lived assets the company evaluates the recoverability of other long-lived assets , including property , plant and equipment , and certain identifiable intangible assets , whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable . the company performs impairment tests of indefinite-lived intangible assets on an annual basis or more frequently in certain circumstances .
| financial review in the financial review that follows , the company discusses its consolidated and combined results of operations , cash flows and certain other information . in periods prior to the separation , the combined financial statements were prepared on a stand-alone basis and were derived from rrd 's consolidated financial statements and accounting records . there are limitations inherent in the preparation of all carve out financial statements due to the fact that the company 's business was previously part of a larger organization . this discussion should be read in conjunction with the company 's consolidated and combined financial statements and the related notes . 30 results of operations for the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 the following table shows the results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_9_th * beginning in the quarter ended june 30 , 2017 , lsc no longer qualified as a related party , therefore the 2017 amounts disclosed related to lsc are presented through march 31 , 2017 only . beginning in the quarter ended september 30 , 2017 , rrd no longer qualified as a related party , therefore the amounts disclosed related to rrd are presented through june 30 , 2017 only . consolidated and combined net sales of services for the year ended december 31 , 2018 decreased $ 14.1 million , or 2.2 % , to $ 618.0 million , versus the year ended december 31 , 2017 including a $ 2.2 million , or 0.3 % , increase due to changes in foreign exchange rates .
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the amendments in this asu replace the incurred loss impairment methodology in current gaap with a methodology that reflects expected credit losses and requires consideration story_separator_special_tag in addition to historical information , the following management 's discussion and analysis of financial condition and results of operations contains forward-looking statements . these forward-looking statements involve risks , uncertainties and assumptions . the actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those discussed in part i , item 1a - “ risk factors ” in this annual report on form 10-k. readers are cautioned not to place undue reliance on these forward-looking statements , which reflect management 's opinions only as of the date hereof . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements , except as required by law . readers should carefully review the risk factors and the risk factors set forth in other documents we file from time to time with the sec . overview j2 global , inc. , together with its subsidiaries ( “ j2 global ” , “ the company ” , “ our ” , “ us ” or “ we ” ) , is a leading provider of internet services . through our cloud services business , we provide cloud services to consumers and businesses and license our intellectual property ( “ ip ” ) to third parties . in addition , the cloud services business includes fax , voice , backup , security and email marketing products . our digital media business specializes in the technology , gaming , broadband , business to business , healthcare , and international markets offering content , tools and services to consumers and businesses . j2 global was incorporated in 2014 as a delaware corporation through the creation of a new holding company structure , and our cloud services business , operated by our wholly owned subsidiary , j2 cloud services , llc ( formerly j2 cloud services , inc. ) , and its subsidiaries , was founded in 1995. we manage our operations through two businesses : cloud services and digital media . our cloud services business generates revenues primarily from customer subscription and usage fees and from ip licensing fees . our digital media business generates revenues from advertising and sponsorships , subscription and usage fees , performance marketing and licensing fees . in addition to growing our business organically , on a regular basis we acquire businesses to grow our customer bases , expand and diversify our service offerings , enhance our technologies , acquire skilled personnel and enter into new markets . our consolidated revenues are currently generated from three basic business models , each with different financial profiles and variability . our cloud services business is driven primarily by subscription revenues that are relatively higher margin , stable and predictable from quarter to quarter with some seasonal weakness in the fourth quarter . the cloud services business 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 business 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 . - 40 - cloud services performance metrics the following table sets forth certain key operating metrics for our cloud services business for the years ended december 31 , 2018 , 2017 and 2016 ( in thousands , except for percentages ) : replace_table_token_7_th ( 1 ) quarterly arpu is calculated using our standard convention of applying the average of the quarter 's beginning and ending base to the total revenue for the quarter . we believe arpu provides investors an understanding of the average monthly revenues we recognize associated with each cloud services customer . as arpu varies based on fixed subscription fee and variable usage components , we believe it can serve as a measure by which investors can evaluate trends in the types of services , levels of services and the usage levels of those services across our cloud services customer base . ( 2 ) cloud services customers are defined as paying direct inward dialing numbers for fax and voice services , and direct and resellers ' accounts for other services . ( 3 ) cancel rate is defined as cancels of small and medium businesses and individual cloud services customers with greater than four months of continuous service ( continuous service includes cloud services customers administratively canceled and reactivated within the same calendar month ) , and enterprise cloud services customers beginning with their first day of service . calculated monthly and expressed as an average over the three months of the quarter . digital media performance metrics the following table sets forth certain key operating metrics for our digital media business for the years ended december 31 , 2018 , 2017 and 2016 ( in millions ) : replace_table_token_8_th sources : google analytics and partner platforms - 41 - critical accounting policies and estimates we prepare our consolidated financial statements and related disclosures in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) and our discussion and analysis of our financial condition and operating results require us to make judgments , assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes . see note 2 , “ basis of presentation and summary of significant accounting policies ” of the notes to consolidated financial statements in part ii , item 8 of this form 10-k which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements . story_separator_special_tag once the respective performance obligations have been identified and quantified , revenue will be recognized when the obligations are met , either over time or at a point in time depending on the nature of the obligation . revenues from software license performance obligations are generally recognized upfront at the point in time that the software is made available to the customer to download and use . revenues for related software support and maintenance performance obligations are related to technical support provided to customers as needed and unspecified software product upgrades , maintenance releases and patches during the term of the support period when they are available . the company is obligated to make the support services available continuously throughout the contract period . therefore , revenues for support contracts are generally recognized ratably over the contractual period the support services are provided . hardware product and related software performance obligations , such as an operating system or firmware , are highly interdependent and interrelated and are accounted for as a bundled performance obligation . the revenues for this bundled performance obligation are generally recognized at the point in time that the hardware and software products are delivered and ownership is transferred to the customer . other service revenues are generally recognized over time as the services are performed . the company records revenue on a gross basis with respect to revenue generated ( i ) by the company serving online display and video advertising across its owned and operated web properties , on third-party sites or on unaffiliated advertising networks ; ( ii ) through the company 's lead-generation business ; and ( iii ) through the company 's subscriptions . the company records revenue on a net basis with respect to revenue paid to the company by certain third-party advertising networks who serve online display and video advertising across the company 's owned-and-operated web properties and certain third-party sites . valuation and impairment of investments we account for our investments in debt securities in accordance with financial accounting standards board ( “ fasb ” ) asc topic no . 320 , investments - debt securities ( “ asc 320 ” ) . our debt investments are typically comprised of corporate debt securities . we determine the appropriate classification of our investments at the time of acquisition and evaluate such determination at each balance sheet date . trading securities are those investments that we intend to sell within a few hours or days and are carried at fair value , with unrealized gains and losses included in investment income . available-for-sale debt securities are those investments we do not intend to hold to maturity and can be sold . available-for-sale debt securities are carried at fair value with unrealized gains and losses included in other comprehensive income . held-to-maturity securities are those investments which we have the ability and intent to hold until maturity and are recorded at amortized cost . all debt securities are accounted for on a specific identification basis . we account for our investments in equity securities in accordance with asc topic no . 321 , investments - equity securities ( “ asc 321 ” ) which requires the accounting for equity investments ( other than those accounted for using the equity method of accounting ) generally be measured at fair value for equity securities with readily determinable fair values . for equity securities without a readily determinable fair value that are not accounted for by the equity method , we measure the equity security using cost , less impairment , if any , and plus or minus observable price changes arising from orderly transactions in the same or similar investment from the same issuer . any unrealized gains or losses will be reported in current earnings ( see note 5 - investments of - 43 - the notes to consolidated financial statements included elsewhere in this annual report on form 10-k , which is incorporated herein by reference ) . 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 5 - investments of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k , which is incorporated herein by reference ) . variable interest entities ( “ vie ” ) a vie requires consolidation by the entity 's primary beneficiary . we evaluate our investments in entities in which we are involved to determine if the entity is a vie and if so , whether we hold a variable interest and are the primary beneficiary . we have determined that we hold a variable interest in our investment as a limited partner in the ocv fund i , lp ( “ ocv fund ” , “ ocv ” or the “ fund ” ) . in determining whether we are the primary beneficiary of the vie , both of the following characteristics must be present : a ) the company has the power to direct the activities of the vie that most significantly impacts the vies economic performance ( the power criterion ) ; and b ) the company has the obligation to absorb losses of the vie , or the right to receive benefits of the vie , that could potentially be significant to the vie ( the economic criterion ) . we have concluded that , as a limited partner , although the obligations to absorb losses or benefit from the gains is not insignificant , we do not have “ power ” over ocv because we do not have the ability to direct the significant decisions which impact the economics of ocv . we believe that the ocv general partner , as a single decision maker , holds the ability to make the decisions about the activities that most significantly impact the ocv fund 's economic performance .
| results of operations years ended december 31 , 2018 , 2017 and 2016 cloud services assuming a stable or improving economic environment , and , subject to our risk factors , we expect the revenue and profits as included in the results of operations below in our cloud services business to be stable for the foreseeable future ( excluding the impact of acquisitions ) . the main focus of our cloud services offerings is to reduce or eliminate costs , increase sales and enhance productivity , mobility , business continuity and security of our customers as the technologies and devices they use evolve over time . as a result , we expect to continue to take steps to enhance our existing offerings and offer new services to continue to satisfy the evolving needs of our customers . through our ip licensing operations , which are included in the cloud services business , we seek to make our ip available for license to third parties , and we expect to continue to attempt to obtain additional ip through a combination of acquisitions and internal development in an effort to increase available licensing opportunities and related revenues . we expect acquisitions to remain an important component of our strategy and use of capital in this business ; however , we can not predict whether our current pace of acquisitions will remain the same within this business . in a given period , we may - 47 - close greater or fewer acquisitions than in prior periods or acquisitions of greater or lesser significance than in prior periods . moreover , future acquisitions of businesses within this space but with different business models may impact cloud services ' overall profit margins . also , as ip licensing often involves litigation , the timing of licensing transactions is unpredictable and can and does vary significantly from period to period .
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the pricing information on these investment instruments are readily available and can be independently validated as of the measurement date . this approach results in the classification of these securities as level 1 of the fair value hierarchy . 105 adamas pharmaceuticals , inc. notes to consolidated financial statements story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the section of this report entitled `` selected financial data '' and our financial statements and related notes included elsewhere in this report . this discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties , such as statements of our plans , objectives , expectations and intentions . 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 section of this report entitled `` risk factors . '' overview we are a specialty pharmaceutical company driven to improve the lives of those affected by chronic disorders of the central nervous system , or cns . we achieve this by enhancing the pharmacokinetic profiles of approved drugs to create novel therapeutics for use alone and in fixed-dose combination products . our business strategy is twofold . we intend to develop and commercialize our wholly owned products directly . in addition , we may form partnerships with companies that have an already established cns market presence . we are developing our lead wholly owned product candidate , ads-5102 , for a complication associated with the treatment of parkinson 's disease known as levodopa induced dyskinesia , or lid , and potentially as a treatment for one or more additional cns indications . we have successfully completed a phase 2 / 3 clinical trial , in which patients receiving ads-5102 had a statistically significant 43 % reduction in lid compared to their baseline lid experienced prior to taking ads-5102 . in 2014 , we initiated the remaining phase 3 registration trials of ads-5102 for lid . we plan to commercialize ads-5102 and potentially other wholly-owned product candidates , if approved , by developing a specialty cns commercial organization including a sales force to reach high volume prescribing neurologists and movement disorder specialists in the united states and in other markets through distribution agreements and collaborations with cns-focused pharmaceutical companies . our late stage therapeutics portfolio includes memantine-based products focused on alzheimer 's disease , which have been exclusively licensed to forest laboratories , inc. , or forest , a subsidiary of actavis plc , in the united states . the first product , namenda xr® , which forest developed and is marketing in the united states under a license from us , is a controlled-release product , and the second product , namzaric ( formerly known as mdx-8704 ) , which we co-developed with forest , is a fixed-dose combination product , recently approved by the u.s. food and drug administration , or fda , that forest is expected to market and launch in the first half of 2015. financial operations overview summary our revenue to date has been generated primarily from license , milestone , and development revenue pursuant to our license agreement with forest . we have not generated any commercial product revenue . as of december 31 , 2014 , we had an accumulated deficit of $ 10.3 million . although we reported net income in each of the years ending december 31 , 2014 , 2013 , and 2012 , this was primarily due to the recognition of revenue pursuant to our license agreement with forest . there are no further milestone payments to be earned under our license agreement with forest . we can not assure you that we will receive additional collaboration revenue in the future . we incurred significant losses prior to 2012 and expect to incur significant and increasing losses in the foreseeable future as we advance our product candidates into later stages of development and , if approved , commercialization . under our agreement with forest we received a non-refundable upfront license fee of $ 65.0 million in 2012 , which we recognized on a straight-line basis from november 2012 to february 2013 , $ 40.0 million in development milestone fees recognized in 2013 , a $ 25.0 million milestone 70 payment related to fda acceptance of forest 's new drug application , or nda , submission for namzaric recognized in may 2014 , and a final $ 30.0 million milestone payment upon fda approval of the nda recognized in december 2014. forest has stated that it expects to launch namzaric in the first half of 2015. beginning in 2018 , we will be entitled to receive royalties in the low to mid-single digits from forest for sales of namenda xr in the united states and beginning five years after commercial launch , royalties in the low double digits to the mid-teens for sales of namzaric in the united states . we expect our research and development expenses to increase as we continue to advance our product candidates through clinical development . in addition , we plan to commercialize ads-5102 for lid , if approved , and potentially other wholly-owned product candidates by developing a specialty cns commercial organization including a sales force to reach high volume prescribing neurologists and movement disorder specialists in the united states . because of the numerous risks and uncertainties associated with drug development , we are unable to predict the timing or amount of expenses incurred or when , or if , we will be able to achieve sustained profitability . prior to our initial public offering of our common stock , or ipo , in april 2014 , we had raised an aggregate of approximately $ 87.2 million through the sale of convertible preferred stock and $ 1.0 million through the exercise of preferred stock warrants . story_separator_special_tag in situations in which third parties have control over the clinical development of a product candidate , the estimated completion dates are largely under the control of such third parties and not under our control . we can not forecast with any degree of certainty which of our product candidates , if any , will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of personnel and related benefit costs , and facilities , professional services , insurance , and public company related expenses . we anticipate our general and administrative expenses will increase as we continue to support our clinical and potentially commercial-stage programs . if ads-5102 for lid or other products are approved by the fda , we plan to market and sell through our own sales force to reach high volume prescribing neurologists and movement disorder specialists in the united states , which will further increase general and administrative expenses . interest and other income ( expense ) , net interest and other income ( expense ) , net consists primarily of interest received on our cash , cash equivalents , and short and long-term investments , as well as gains and losses resulting from the remeasurement of our convertible preferred stock warrant liability . we recorded adjustments to the estimated fair value of the convertible preferred stock warrants until they were exercised or expired . subsequent to the ipo , we reclassified the convertible preferred stock warrant liability as additional paid-in capital and we no longer recorded any related periodic fair value adjustments . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial conditions and results of operations is based on our 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 us to make estimates and assumptions that affect the reported amounts of assets and liabilities 73 and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenue generated and expenses incurred during the reporting periods . our estimates are based on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . we have discussed the development , selection and disclosure of these estimates with the audit committee of our board of directors . actual results may differ from these estimates under different assumptions and conditions . while our significant accounting policies are described in more detail in note 2 of our financial statements included in this annual report on form 10-k , we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition we recognize revenue when all four of the following criteria have been met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the fee is fixed or determinable and ( iv ) collectability is reasonably assured . revenue under license and collaboration arrangements is recognized based on the performance requirements of the contract . determinations of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered are based on management 's judgments regarding the fixed nature of the fees charged for deliverables and the collectability of those fees . should changes in conditions cause management to determine that these criteria are not met for any new or modified transactions , revenue recognized could be adversely affected . we generate revenue from collaboration and license agreements for the development and commercialization of products . collaboration and license agreements may include non-refundable upfront license fees , partial or complete reimbursement of research and development costs , contingent consideration payments based on the achievement of defined collaboration objectives and royalties on sales of commercialized products . the company 's performance obligations under the collaborations may include the license or transfer of intellectual property rights , obligations to provide research and development services and related materials and obligations to participate on certain development and or commercialization committees with the collaborators . on january 1 , 2011 , we adopted an accounting standards update that amends the guidance on accounting for new arrangements , or those materially modified , with multiple deliverables . this guidance eliminates the requirement for objective and reliable evidence of fair value of the undelivered items in order to consider a deliverable a separate unit of accounting . it also changes the allocation method such that the relative-selling-price method must be used to allocate arrangement consideration to the units of accounting in an arrangement . this guidance establishes the following estimation hierarchy that must be used in estimating selling price under the relative-selling-price method : ( i ) vendor-specific objective evidence of fair value of the deliverable , if it exists , ( ii ) third-party evidence of selling price , if vendor-specific objective evidence is not available or ( iii ) vendor 's best estimate of selling price , if neither vendor-specific nor third-party evidence is available . on january 1 , 2011 , we adopted an accounting standards update that provides guidance on revenue recognition using the milestone method . payments that are contingent upon achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved .
| results of operations comparison of the years ended december 31 , 2014 and 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 ( in thousands , except percentages ) : replace_table_token_9_th 75 revenue revenue decreased by $ 15.3 million , or 21 % , to $ 55.8 million for the year ended december 31 , 2014 from $ 71.1 million for the year ended december 31 , 2013. revenue from license fees and milestones decreased by $ 14.6 million , or 21 % , to $ 55.0 million for the year ended december 31 , 2014 from $ 69.6 million for the year ended december 31 , 2013 largely due to the timing , magnitude , and nature of specified amounts recognized under our license agreement with forest . reimbursement of development expenses relating to our license agreement with forest decreased by $ 0.5 million to $ 0.6 million for the year ended december 31 , 2014 from $ 1.1 million for the year ended december 31 , 2013. research and development expenses research and development expenses increased by $ 14.5 million , or 195 % , to $ 21.9 million from $ 7.4 million for the years ended december 31 , 2014 and 2013 , respectively . the increase in research and development expenses related primarily to manufacturing of clinical supplies , commencement , and continued enrollment of our phase 3 registration trials in support of ads-5102 for lid , which increased $ 15.9 million , or 359 % , to $ 20.6 million from $ 4.5 million for years ended december 31 , 2014 and 2013 , respectively . there were also increased expenses not allocated to specific programs of $ 0.6 million in 2014 over the prior year period , which were mostly comprised of consultant expenses .
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the amendments in this update are effective for fiscal years beginning after december 15 , 2017 , and interim periods within those fiscal years . the company will evaluate the guidance in this update but does not expect it to have a significant impact on its financial position or result of operations . the fasb has issued asu 2016-13 , financial instruments—credit losses ( topic 326 ) . the main objective of this update is to provide financial story_separator_special_tag this section is intended to help current and potential investors understand our financial performance through a discussion of the factors affecting our consolidated financial condition at december 31 , 2017 and 2016 and our consolidated results of operations for the years ended december 31 , 2017 , 2016 and 2015. this section should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear elsewhere in this report . overview howard bancorp , inc. is the holding company for howard bank . howard bank was formed in 2004. howard bank 's business has consisted primarily of originating both commercial and real estate loans secured by property in our market area . typically , commercial real estate and business loans involve a higher degree of risk and carry a higher yield than one-to four-family residential loans . although we plan to continue to focus on commercial customers , we intend to continue our origination of one- to four-family residential mortgage loans , maintaining our portfolio of mortgage lending and also selling select loans into the secondary markets . we are headquartered in ellicott city , maryland and we consider our primary market area to be the greater baltimore metropolitan area . we engage in a general commercial banking business , making various types of loans and accepting deposits . we market our financial services primarily to small to medium sized businesses and their owners , professionals and executives , and high-net-worth individuals . our loans are primarily funded by core deposits of customers in our market . our results of operations depend mainly on our net interest income , which is the difference between the interest income we earn on our loan and investment portfolios and the interest expense we pay on deposits and borrowings . results of operations are also affected by provisions for credit losses , noninterest income and noninterest expense . our noninterest expense consists primarily of compensation and employee benefits , as well as office occupancy , deposit insurance and general administrative and data processing expenses . our operations are significantly affected by general economic and competitive conditions , particularly with respect to changes in interest rates , government policies and actions of regulatory authorities . future changes in applicable laws , regulations or government policies may materially affect our financial condition and results of operations . in august 2015 , we acquired patapsco bancorp , the parent company of the patapsco bank , through the merger of patapsco bancorp with and into howard bancorp , immediately followed by the merger of patapsco bank with and into the bank . in may 2016 , we redeemed all of the 12,562 shares of the series aa preferred stock that we had previously issued to treasury under its sblf program for approximately $ 12.7 million , including dividends accrued but unpaid through the redemption date . the redemption of the series aa preferred stock was funded with variable rate debt with raymond james bank , n.a . on february 1 , 2017 , we sold 2,760,000 shares of our common stock resulting in aggregate net proceeds of approximately $ 38.4 million . we used the proceeds of the offering to pay off the loan to raymond james bank , n.a . and retained the remainder . this had a positive impact on our liquidity and capital position in 2017 and provided funds that will continue to allow us to grow our loans and investments . on march 1 , 2018 , we acquired first mariner through the merger of first mariner with and into howard bank . the aggregate merger consideration of $ 173.8 million included $ 9.2 million of cash and 9,143,230 shares of our common stock , which was valued at approximately $ 164.6 million . financial highlights for the year ended december 31 , 2017 are as follows : · primarily as a result of the capital offering , our total stockholders ' equity increased $ 46.5 million or 54.2 % . as anticipated , all of our regulatory capital ratios increased dramatically as a result of the offering . · total assets increased $ 123.0 million or 12.0 % , to $ 1.1 billion . · loans and leases held in our portfolio grew $ 115.1 million or 14.0 % , to $ 936.6 million . · deposits increased $ 55.2 million or 6.8 % to $ 863.9 million , including noninterest-bearing deposit growth of $ 35.3 million or 19.3 % . · net income available to common stockholders increased $ 2.1 million or 40.1 % compared the year ended december 31 , 2016 . · book value per share increased to $ 13.47 at december 31 , 2017 compared to $ 12.27 at december 31 , 2016. tax cuts and jobs act . the tax cuts and jobs act was enacted on december 22 , 2017. among other things , the new law ( i ) establishes a reduced , flat corporate federal statutory income tax rate of 21 % , ( ii ) eliminates the corporate alternative minimum tax and allows the use of any tax net operating loss carryforwards to offset regular tax liability for any taxable year , ( iii ) limits the deduction for net interest expense incurred by u.s. corporations , ( iv ) allows businesses to immediately expense , for tax purposes , the cost of new investments in certain qualified depreciable assets , ( v ) eliminates or reduces certain deductions related to meals and entertainment expenses , ( vi ) modifies the limitation on excessive employee remuneration to eliminate the story_separator_special_tag we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . we recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period indicated by the enactment date . we establish a valuation allowance for deferred tax assets when , in the judgment of management , it is more likely than not that such deferred tax assets will not become realizable . the judgment about the level of future taxable income is dependent to a great extent on matters that may , at least in part , be beyond our control . it is at least reasonably possible that management 's judgment about the need for a valuation allowance for deferred tax assets could change in the near term . share based compensation we follow the provisions of asc topic 718 “ compensation – stock compensation , ” which requires the expense recognition over the respective service period for the fair value of share based compensation awards , such as stock options , restricted stock , and performance based shares . this standard allows management to establish modeling assumptions as to expected stock price volatility , option terms , forfeiture rates and dividend rates which directly impact estimated fair value . the accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined . our practice is to utilize reasonable and supportable assumptions that are reviewed with the appropriate board committee . balance sheet analysis and comparison of financial condition a comparison between december 31 , 2017 and december 31 , 2016 balance sheets is presented below . general total assets increased $ 123.0 million , or 12.0 % , to $ 1.1 billion at december 31 , 2017 compared to assets of $ 1.0 billion at december 31 , 2016. this asset growth consisted primarily of increases in our portfolio loans of $ 115.1 million and investment securities of $ 38.5 million , partially offset by declines of $ 19.5 million in interest bearing deposits in banks , $ 10.4 million in cash and cash equivalents , and $ 8.9 million in loans held for sale . the primary source of funding for the asset growth was an increase in deposit levels . customer deposits increased from $ 808.7 million at december 31 , 2016 to $ 863.9 million at december 31 , 2017 , an increase of $ 55.2 million or 6.8 % . supplementing this deposit growth , our borrowings increased $ 21.3 million during 2017. primarily as a result of the proceeds from our 2017 capital offering , total stockholders ' equity increased $ 46.5 million or 54.2 % during 2017. as anticipated , all of our regulatory capital ratios increased dramatically as a result of the capital raised in the offering . investment securities available for sale available for sale securities are reported at fair value . we currently hold u.s. agency and treasury securities , mortgage backed securities , and mutual fund investments in our securities portfolio , which are categorized as available for sale . the investment in mutual funds is a supplement to our community reinvestment program activities . we use our securities portfolio to provide the required collateral for funding via commercial customer overnight securities sold under agreement to repurchase ( “ repurchase agreements ” ) as well as to provide sufficient liquidity to fund our loans and provide funds for withdrawals of deposits . held to maturity held to maturity securities are reported at amortized cost . the only investments that we have classified as held to maturity are corporate debentures . these investments are intended to be held until maturity . in addition to our available for sale and held to maturity securities , at december 31 , 2017 and december 31 , 2016 we held an investment in stock of the federal home loan bank of $ 6.5 million and $ 5.1 million , respectively . this investment is required for continued federal home loan bank membership and is based partially upon the amount of borrowings outstanding from the fhlb . this federal home loan bank stock is carried at cost . 34 the following table sets forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_5_th we had available for sale securities of $ 74.3 million and $ 38.7 million at december 31 , 2017 and december 31 , 2016 , respectively , which were recorded at fair value . this represents an increase of $ 35.5 million , or 91.7 % , for the year ended december 31 , 2017 from the prior year end . the increase in the size of the portfolio was intended to provide additional collateral for certain funding sources , and to provide additional liquidity for the bank . nearly $ 35.0 million of our securities portfolio matures in one year or less , giving us the capacity to fund future loan growth while maintaining an appropriate amount of securities to provide the required collateral under our repurchase agreements . we did not record any gains or losses on sales or calls of securities in 2017. in 2016 we sold an equity security with a carrying value of $ 100 thousand issued by a local small financial institution that resulted in a gain upon sale of $ 96 thousand . we had securities held to maturity of $ 9.3 million and $ 6.3 million at december 31 , 2017 and december 31 , 2016 , respectively , which were recorded at amortized cost . this represents an increase of $ 3.0 million during 2017 , consisting of additional investments in corporate debentures . with respect to our portfolio of securities available for sale , the portfolio contained 38 securities with unrealized losses of $ 451 thousand and 12 securities with unrealized losses of $ 240 thousand at december 31 , 2017 and 2016 , respectively .
| comparison of results of operations a comparison of the results of operations for the years ended december 31 , 2017 and december 31 , 2016 is presented below . general net income available to common stockholders increased $ 2.1 million , or 40 % , to $ 7.2 million for the year ended december 31 , 2017 compared to $ 5.1 million for the year ended december 31 , 2016. the increase in net income available to common stockholders was driven by increases of $ 3.7 million in net interest income and $ 4.7 million in noninterest income , partially offset by increases of $ 6.5 million in noninterest expense , of which nearly $ 600 thousand were merger-related expenses . much of this revenue growth and the increased expenses are attributable to the balance sheet growth resulting from our continued strategic and organic growth initiatives . earnings per basic common share ( “ eps ” ) for 2017 was $ 0.75 compared to $ 0.74 for 2016. even though as noted above , net earnings for 2017 were 40.0 % higher than for 2016 , eps only slightly increased primarily due to the larger number of average shares outstanding in 2017 compared to 2016 resulting from our february 2017 stock offering . average shares outstanding increased by over 2.6 million or 37 % when comparing 2017 to 2016. also impacting earnings per share for 2017 was approximately $ 567 thousand in merger-related expenses associated with the pending merger with first mariner . we estimate that these merger costs , net of taxes , reduced earnings per share by approximately $ 0.04 for 2017 .
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grants received from the doe are offset against the related research and development expenses . there were no such grants for the years ended december 31 , 2018 , 2017 , and 2016. stock-based compensation the company accounts for stock-based compensation using the fair value method whereby compensation story_separator_special_tag results of operations you should read the following discussion and analysis of our results of operations , financial condition and liquidity in conjunction with our consolidated financial statements and the related notes . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report including information with respect to our plans and strategies for our business , statements regarding the industry outlook , our expectations regarding the future performance of our business , and the other non-historical statements contained herein are forward-looking statements . see “ cautionary note regarding forward-looking statements. ” you should also review item 1a — “ risk factors ” for a discussion of important factors that could cause actual results to differ materially from the results described herein or implied by such forward-looking statements . general overview of fiscal year 2018 revenues for the year ended december 31 , 2018 , our total revenues increased by 3.8 % ( from $ 692.8 million to $ 719.3 million ) over the previous year . for the year ended december 31 , 2018 , electricity segment revenues were $ 509.9 million , compared to $ 465.6 million for the year ended december 31 , 2017 , an increase of 9.5 % . product segment revenues for the year ended december 31 , 2018 were $ 201.7 million , compared to $ 224.5 million for the year ended december 31 , 2017 , a decrease of 10.1 % . other segment revenues for the year ended december 31 , 2018 were $ 7.6 million , compared to $ 2.7 million for the year ended december 31 , 2017. during the years ended december 31 , 2018 and 2017 , our consolidated power plants generated 5,857,963 mwh and 5,489,234 mwh , respectively , an increase of 6.7 % for the year ended december 31 , 2018 , our electricity segment generated 70.9 % of our total revenues ( 67.2 % in 2017 ) , while our product segment generated 28.0 % of our total revenues ( 32.4 % in 2017 ) , and our other segment generated 1.1 % of our total revenues ( 0.4 % in 2017 ) for the year ended december 31 , 2018 , approximately 94.8 % of our electricity segment revenues were from ppas with fixed energy rates which are not affected by fluctuations in energy commodity prices . we have variable price ppas in california and hawaii , which provide for payments based on the local utilities ' avoided cost , which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others , as follows : ● the energy rates under the ppas in california for each of heber 2 power plant in the heber complex and the g2 power plant in the mammoth complex , a total of between 30 to 40 mw , change primarily based on fluctuations in natural gas prices ; and ● the prices paid for the electricity pursuant to the 25 mw ppa for the puna complex in hawaii change primarily as a result of variations in the price of oil as well as other commodities . to comply with obligations under their respective ppas , certain of our project subsidiaries are structured as special purpose , bankruptcy remote entities and their assets and liabilities are ring-fenced . such assets are not generally available to pay our debt , other than debt at the respective project subsidiary level . however , these project subsidiaries are allowed to pay dividends and make distributions of cash flows generated by their assets to us , subject in some cases to restrictions in debt instruments , as described below . electricity segment revenues are also subject to seasonal variations and can be affected by higher-than-average ambient temperatures , as described below under “ seasonality ” . revenues attributable to our product segment are based on the sale of equipment , epc contracts and the provision of various services to our customers . product segment revenues may vary from period to period because of the timing of our receipt of purchase orders and the progress of our equipment manufacturing and execution of the relevant project . 99 revenues attributable to our others segment are mainly derived from bsaas systems , demand response and energy management services and may fluctuate between period to period . pricing of such services and products are dependent on market supply and demand trends , market volatility , the need and price for ancillary services and other factors that may change over time . our management assesses the performance of our operating segments differently . in the case of our electricity segment , when making decisions about potential acquisitions or the development of new projects , management typically focuses on the internal rate of return of the relevant investment , technical and geological matters and other business considerations . management evaluates our operating power plants based on revenues , expenses , and ebitda , and our projects that are under development based on costs attributable to each such project . management evaluates the performance of our product segment based on the timely delivery of our products , performance quality of our products , revenues and costs actually incurred to complete customer orders compared to the costs originally budgeted for such orders . we evaluate other segment performance similar to the electricity segment with respect to projects that we own and operate and similar to the product segment when we provide services to third parties . trends and uncertainties different trends , factors and uncertainties may impact our operations and financial condition , including many that we do not or can not foresee . story_separator_special_tag based on total electricity segment , we earned , on average , $ 87.0 and $ 84.8 per mwh in 2018 and 2017 , respectively . oil and natural gas prices , together with other factors that affect our electricity segment revenues , could cause changes in our average price per mwh in the future . ● the viability of a geothermal resource depends on various factors such as the resource temperature , the permeability of the resource ( i.e. , the ability to get geothermal fluids to the surface ) and operational factors relating to the extraction and injection of the geothermal fluids . such factors , together with the possibility that we may fail to find commercially viable geothermal resources in the future , represent significant uncertainties that we face in connection with our growth expectations . ● as our power plants ( including their respective well fields ) age , they may require increased maintenance with a resulting decrease in their availability , potentially leading to the imposition of penalties if we are not able to meet the requirements under our ppas as a result of any decrease in availability . ● turkey 's geothermal market is one of the fastest growing markets in the geothermal industry worldwide , mainly due to governmental and regulatory support . turkey is ranked fourth globally with an installed geothermal capacity of over 1,300 mw . since 2006 , we have supplied and in the progress of supplying our state of the art binary equipment to approximately 40 projects in turkey , which account for over 47 % of the total installed geothermal capacity in turkey as of december 2018. as a major equipment supplier in the turkish geothermal market we are involved in a number of projects that are currently under construction and plan to continue our marketing efforts to secure new contracts . our revenue exposure to the turkish market increased in 2018 and expects to remain significant in 2019 , as we signed a number of new contracts in turkey . the continued deterioration in the turkish economy , devaluation in the turkish lira and increase in local interest rates or a decline in government support for the development of geothermal power in the country could affect local demand for the geothermal equipment and services we provide , collection from our customers or the prices we may charge for such equipment and services . we are monitoring any change in the political and business environments that may affect our future business and operations in the country . 101 ● ormat established a facility in turkey in order to locally produce several power plant components that entitle our customer for increased incentives under the renewable energy laws . the use of local equipment in renewable energy based generating facilities in turkey entitles such facilities to significant benefits under turkish law , provided such facilities have obtained an rer certificate from emra , which requires the issuance of a local certificate . if we do not obtain the local certificate , then some of our customers under the relevant supply agreements in turkey may not be issued a rer certificate based on the equipment we supply to them , and we will be required to make a payment to such customers equal to the amount of the expected lost benefit . ● while the recently enacted tax act reduces the corporate tax rate , it is also expected to increase the cost of capital for renewable energy projects . such projects often rely on `` tax equity '' as a core financing tool . tax equity is a form of financing that is repaid partly or wholly in tax benefits and sometimes partly in cash . there are two types of federal income tax benefits on renewable energy projects : a tax credit and depreciation , or the ability to deduct the cost of the project . the reduction in the corporate tax rate from 35 percent to 21 percent reduces the value of the depreciation . therefore , less tax equity can be raised on projects . the gap in the capital structure must be filled with debt and or more expensive sponsor equity . the tax act allowed the full cost of equipment acquired after september 27 , 2017 to be deducted immediately . however , the tax equity market is not expected to be interested in this tax benefit and , in fact , because of the way tax equity works , the company has had in some tax equity deals to take depreciation on a straight-line basis over 12 years rather than on a front-loaded basis over five years , which leads to some further erosion in the present value of the depreciation . other effects of the tax act were discussed earlier under note 18 – income taxes to our consolidated financial statements . revenues we generate our revenues from the sale of electricity from our geothermal and recovered energy-based power plants ; the design , manufacture and sale of equipment for electricity generation ; and the construction , installation and engineering of power plant equipment and the sale of bsaas systems and demand response and energy management services . revenues attributable to our electricity segment are derived from the sale of electricity from our power plants pursuant to long-term ppas . while approximately 94.8 % of our electricity revenues for the year ended december 31 , 2018 were derived from ppas with fixed price components , we have variable price ppas in california and hawaii . accordingly , our revenues from those power plants may fluctuate . our electricity segment revenues are also subject to seasonal variations , as more fully described in “ seasonality ” below . our ppas generally provide for energy payments alone , or energy and capacity payments . generally , capacity payments are payments calculated based on the amount of time that our power plants are available to generate electricity .
| results of operations our historical operating results in dollars and as a percentage of total revenues are presented below . a comparison of the different years described below may be of limited utility due to ( i ) our recent construction or disposition of power plants and enhancement of acquired power plants and ( ii ) fluctuation in revenues from our product segment , and ( iii ) the impact of the lava eruption on our puna plant in hawaii . replace_table_token_10_th 109 results as a percentage of revenues replace_table_token_11_th comparison of the year ended december 31 , 2018 and the year ended december 31 , 2017 total revenues total revenues for the year ended december 31 , 2018 were $ 719.3 million , compared to $ 692.8 million for the year ended december 31 , 2017 , representing a 3.8 % increase from the prior period . this increase was attributable to our electricity segment , in which revenues increased by $ 44.3 million or 9.5 % compared to the corresponding period in 2017 , and our other segment in which revenues increased by $ 4.9 million or 179.4 % , as a result of revenues generated by our viridity business from the provision of energy storage , demand response and energy management services . this increase was partially offset by a decrease of $ 22.8 million , or 10.1 % in our product segment revenues compared to the corresponding period in 2017 . 110 electricity segment revenues attributable to our electricity segment for the year ended december 31 , 2018 were $ 509.9 million , compared to $ 465.6 million for the year ended december 31 , 2017 , representing a 9.5 % increase from the prior period .
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the forward-looking statements contained in this annual report on form 10-k are made as of the date of this annual report on form 10-k and we do not assume any obligation to update any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by applicable law . overview we are a clinical-stage biopharmaceutical company using our expertise in epigenetics to discover and develop novel therapeutics that address serious unmet medical needs in patients with cancers associated with abnormal gene expression or drug resistance . our integrated epigenetics platform enables us to validate targets and generate small molecules impacting these targets to selectively modulate gene expression in tumor and immune cells to drive anti-tumor activity . we have used our epigenetics platform to discover and design our wholly owned product candidates , pelabresib ( cpi-0610 ) , which inhibits bromodomain and extra terminal domain , or bet , proteins , and cpi-0209 , which inhibits the enhancer of zeste homolog 2 , or ezh2 , protein . we continue to leverage this platform and our clinical experience to develop these product candidates and to discover and develop additional product candidates , as well as generating development candidates acting against distinct classes of epigenetic regulators . our vision is to become a fully integrated hematology and oncology pharmaceutical company , with a broad pipeline of development and discovery programs . pelabresib ( cpi-0610 ) – bet inhibitor our lead product candidate , pelabresib , is a small molecule designed to promote anti-tumor activity by specifically inhibiting the bromodomain function of bet proteins , which normally enhance target gene expression . we are currently conducting two clinical trials of pelabresib . we recently initiated manifest-2 , a global , double-blinded , randomized , pivotal phase 3 clinical trial of pelabresib in combination with ruxolitinib ( marketed as jakafi®/jakavi® ) as compared to placebo with ruxolitinib in janus-kinase-1/2 ( “ jak ” ) -inhibitor-naïve patients with primary myelofibrosis ( “ mf ” ) . in this study , we plan to enroll approximately 310 jak-inhibitor-naïve patients . additionally , we are continuing to enroll patients in the second line arms of manifest , our ongoing open-label phase 2 clinical trial of pelabresib both as a monotherapy and in combination with ruxolitinib in patients with mf . in this trial , we are treating patients who are jak inhibitor-naïve , a first-line ( “ 1l ” ) setting , as well as patients who are refractory to or intolerant of , or have had a sub-optimal response to , ruxolitinib , a second-line ( “ 2l ” ) setting . patient enrollment in the 1l setting has completed at approximately 80 patients . in december 2020 , we presented preliminary clinical and translational data for pelabresib as a monotherapy and in combination with ruxolitinib at the annual meeting of the american society of hematology , based on a september 29 , 2020 data cutoff , that reflected an analysis of 63 1l patients and 94 2l or later patients . we believe that these preliminary data from manifest suggest that pelabresib has the potential to offer meaningful benefits beyond the current standard of care in mf and may have disease-modifying effects . ezh2 inhibitor cpi-0209 cpi-0209 is a small molecule designed to promote anti-tumor activity by specifically inhibiting ezh2 , an enzyme that suppresses target gene expression . we designed cpi-0209 , which is a second-generation ezh2 inhibitor , to achieve comprehensive coverage of ezh2 to potentially enable deeper , more rapid , and more durable tumor regression , as well as to demonstrate improved metabolic properties compared with first-generation ezh2 inhibitors . we believe that cpi-0209 has the potential to be a best-in-class ezh2 inhibitor for use in a broad range of cancer types and to expand the addressable patient populations beyond those that have been targeted by first-generation ezh2 inhibitors . we are currently conducting the phase 1 dose escalation portion of a phase 1/2 clinical trial of cpi-0209 in solid tumors . after determining the recommended phase 2 dose as monotherapy , we intend to pursue monotherapy expansion arms in selected solid tumor and hematologic indications with a biomarker enrichment strategy . 78 cpi-1205 cpi-1205 is our first-generation ezh2 inhibitor . in june 2020 , we announced that we plan to discontinue development of cpi-1205 after completion of prostar and to prioritize further clinical development of cpi-0209 . prostar is a phase 1b/2 clinical study evaluating cpi-1205 combined with enzalutamide or abiraterone in patients with metastatic castration-resistant prostate cancer ( mcrpc ) . the decision was based on a recent review of prostar data , which did not demonstrate the definitive signal of activity necessary to advance the program into pivotal studies in mcrpc . we intend to present a full data set from prostar at a future medical meeting . covid-19 pandemic the ongoing covid-19 pandemic has affected and will continue to affect our business and operations . the section below provides an update of the impact of the covid-19 pandemic on our business and operations . clinical trial execution . patient safety remains paramount in the execution of our clinical trials . patient enrollment in manifest began to slow toward the end of first quarter of 2020 , and several sites informed us that they temporarily halted enrollment due to the pandemic . we have utilized recent regulatory guidance and provisions of the clinical trial protocol that provide potential flexibility in the time and place of data collection . we have had incidences of incomplete data collection in the manifest clinical trial . to date , we have not seen a substantial impact due to covid-19 pandemic on manifest-2 or our phase 1 clinical trial for cpi-0209 . we will continue to monitor the effects of the covid-19 pandemic on all of our ongoing clinical trials . manufacturing and supply . we have experienced some disruption in our supply chain from our suppliers due to covid-19 . story_separator_special_tag we may never succeed in obtaining regulatory approval for any of our product candidates . operating expenses research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , and the development of our product candidates , which include : employee-related expenses , including salaries , related benefits and stock-based compensation expense for employees engaged in research and development functions ; expenses incurred in connection with the preclinical and clinical development of our product candidates and research programs , including under agreements with third parties , such as consultants and contractors and contract research organizations , or cros ; the cost of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and clinical trials , including under agreements with third parties , such as consultants and contractors and contract manufacturing organizations , or cmos ; 80 laboratory supplies and research materials ; facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities and insurance ; and payments made under third-party licensing agreements . in july 2012 , we entered into a research , development and commercialization agreement , or the lls agreement , with the leukemia & lymphoma society , or lls , pursuant to which lls committed to provide funding to us for research and development services , conditional on ( i ) the achievement of milestones in accordance with the lls agreement and ( ii ) equal funding being provided by us . we recognize the nonrefundable payments received under the lls agreement as a reduction to the research and development expenses incurred , based on a proportional methodology comparing the total expenses incurred in the period under the project to the total expenses expected to be incurred under the project . through december 31 , 2018 , we had received funding totaling $ 7.3 million from lls upon the achievement of specified milestones , which were recorded as a reduction of our research and development expenses . there was no additional funding received in the year ended december 31 , 2019 and 2020 , respectively . we expense research and development costs as incurred . advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses . the prepaid amounts are expensed as the related goods are delivered or the services are performed . our direct external research and development expenses are tracked on a program-by-program basis and consist of costs that include fees , reimbursed materials and other costs paid to consultants , contractors , cmos and cros in connection with our preclinical , clinical development and manufacturing activities . we do not allocate employee costs , costs associated with our discovery efforts , laboratory supplies and facilities expenses , including depreciation or other indirect costs , to specific product development programs because these costs are deployed across multiple programs and our platform technology and , as such , are not separately classified . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will increase substantially in connection with our planned clinical and preclinical development activities in the near term and in the future as our current development programs progress and new programs are added . at this time , we can not accurately estimate or know the nature , timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates . the successful development and commercialization of our product candidates is highly uncertain . this is due to the numerous risks and uncertainties associated with product development and commercialization , including the following : the timing and progress of preclinical and clinical development activities ; the number and scope of preclinical and clinical programs we decide to pursue ; our ability to raise additional funds necessary to complete clinical development of and commercialize our product candidates ; the progress of the development efforts of parties with whom we may enter into collaboration arrangements ; our ability to maintain our current research and development programs and to establish new ones ; our ability to establish new licensing or collaboration arrangements ; the successful initiation and completion of clinical trials with safety , tolerability and efficacy profiles that are satisfactory to the u.s. food and drug administration , or fda , or any comparable foreign regulatory authority ; the receipt and related terms of regulatory approvals from applicable regulatory authorities ; the availability of raw materials for use in production of our product candidates ; our ability to consistently manufacture our product candidates for use in clinical trials ; our ability to establish and operate a manufacturing facility , or secure manufacturing supply through relationships with third parties ; our ability to obtain and maintain intellectual property protection and regulatory exclusivity , both in the united states and internationally ; 81 our ability to maintain , enforce , defend and protect our rights in our intellectual property portfolio ; the commercialization of our product candidates , if and when approved ; our ability to obtain and maintain third-party coverage and adequate reimbursement ; the acceptance of our product candidates , if approved , by patients , the medical community and third-party payors ; competition with other products ; and a continued acceptable safety profile of our therapies following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate . we may never succeed in obtaining regulatory approval for any of our product candidates .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_3_th research and development expenses replace_table_token_4_th research and development expenses were $ 95.5 million for the year ended december 31 , 2020 compared to $ 66.5 million for the year ended december 31 , 2019. the overall increase was primarily due to increased expenses in our pelabresib program . the increase in costs related to our pelabresib program was primarily due to increased costs in process chemistry expenses , increased enrollment in our manifest trial and startup expenses for our manifest-2 trial in the third quarter of 2020. the increase in costs related to our cpi-0209 program was primarily due to the increase in patient enrollment in our phase 1 trial and increased process chemistry expenses . the decrease in costs related to our cpi-1205 program was primarily due to lower expenses in our prostar due to the maturity of the trial , decreased costs related to process chemistry expenses and the end of our orione trial in 2019. the increase in personnel related costs was primarily due to overall increase in headcount in our research and development function in 2020. personnel related costs for year ended december 31 , 2020 and 2019 included stock-based compensation expense of $ 8.9 million and $ 2.7 million , respectively .
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actual results could differ from those estimates . significant items subject to such estimates and assumptions include the useful lives of property and equipment , intangibles , allowances for doubtful accounts , the valuation of share based liabilities , deferred tax assets , inventory , stock-based compensation , revenues , restructuring liabilities , income tax uncertainties , the acquired value of the safeop assets and liability acquired , contingent consideration related to the safeop acquisition and other contingencies . concentrations of credit risk and significant customers financial instruments , which potentially subject the company to concentrations of credit risk , consist primarily of cash and accounts receivable . the company limits its exposure to credit loss by depositing its cash with established financial institutions . as of december 31 , 2018 , story_separator_special_tag f financial condition and results of operations the following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this report include the identification of certain trends and other statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated . see “ item 1a risk factors ” included elsewhere in this annual report on form 10-k. overview we are a medical technology company focused on the design , development , and advancement of technology for better surgical treatment of spinal disorders . we are dedicated to revolutionizing the approach to spine surgery . we have a broad product portfolio designed to address the majority of u.s. market for fusion-based spinal disorder solutions . we intend to drive growth by exploiting our collective spine experience and investing in the research and development to continually differentiate our solutions and improve spine surgery . we believe our future success will be fueled by introducing market-shifting innovation to the spine market , and we believe that we are well-positioned to capitalize on current spine market dynamics . we market and sell our products in the u.s. through a network of independent distributors and direct sales representatives . an objective of our leadership team is to deliver increasingly consistent , predictable growth . to accomplish this , we have partnered more closely with new and existing distributors to create a more dedicated and loyal sales channel for the future . we have added , and intend to continue to add , new high-quality dedicated distributors to expand future growth . we believe this will allow us to reach an untapped market of surgeons , hospitals , and national accounts across the u.s. , as well as better penetrate existing accounts and territories . we have made significant progress in the transition of our sales channel since early 2017 , driving the percent of sales contributed by our strategic distribution channel from approximately 59 % for the year ended december 31 , 2017 to 80 % for the year ended december 31 , 2018. going forward , we intend to continue to relentlessly drive toward a fully exclusive network of independent and direct sales agents . recent consolidation in the industry is facilitating the process , as large , seasoned agents are seeking opportunities to re-enter the spine market by partnering with spine-focused companies that have broad , growing product portfolios . sale of international business on september 1 , 2016 , we completed the sale of our international distribution operations and agreements , including our wholly-owned subsidiaries in japan , brazil , australia , china and singapore and substantially all of the assets of our other sales operations in the united kingdom and italy ( “ international business ” ) , to an affiliate of globus ( “ globus transaction ” ) . following the closing of the globus transaction , we now operate in the u.s. market only and are restricted from marketing and selling our products in foreign markets pursuant to the terms and conditions , and for the time periods , set forth in the definitive documents related to the globus transaction . revenue and expense components the following is a description of the primary components of our revenues and expenses : revenues . we derive our revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders . spinal implant products include pedicle screws and complementary implants , interbody devices , plates , and tissue-based materials . our revenues are generated by our direct sales force and independent distributors . our products are requested directly by surgeons and shipped and billed to hospitals and surgical centers . currently , most of our business is conducted with customers within markets in which we have experience and with payment terms that are customary to our business . we may defer revenues until the time of collection if circumstances related to payment terms , regional market risk or customer history indicate that collectability is not reasonably assured . cost of revenues . cost of revenues consists of direct product costs , royalties , milestones and the amortization of purchased intangibles . our product costs consist primarily of direct labor , overhead , and raw materials and components . the product costs of certain of our biologics products include the cost of procuring and processing human tissue . we incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process . amortization of purchased intangibles consists of amortization of developed product technology . 37 research and development . research and development expense consists of costs associated with the design , development , testing , and enhancement of our products . story_separator_special_tag accordingly , the warrants were re-classified to equity on december 29 , 2017. income tax benefit . the income tax provision in continuing operations was a benefit of $ 1.4 million for the year ended december 31 , 2018 , compared to less than $ 0.1 million for the year ended december 31 , 2017. the 2018 income tax benefit from continuing operations primarily consists of the release of the valuation allowance regarding the safeop acquisition , partially offset by state taxes . the 2017 income tax benefit from continuing operations primarily consists of the reversal of an uncertain tax position and the recognition of refundable federal minimum tax credits , partially offset by state taxes . asc 740-20 requires total income tax expense or benefit to be allocated among continuing operations , discontinued operations , extraordinary items , other comprehensive income and items charged directly to shareholders ' equity . this allocation is referred to as intra-period tax allocation . accordingly , we are required to allocate the provision or benefit for income taxes between continuing operations and discontinued operations . recognition of beneficial conversion feature . the recognition of beneficial conversion feature of $ 13.5 million is the calculated intrinsic value , which is measured as of the commitment date ( i.e. , the issuance date ) of the series b preferred stock , and required to be recorded as a discount in the series b preferred stock with a corresponding entry to equity upon the company obtaining stockholder approval of the transaction . furthermore , due to the fact that the series b preferred stock automatically converted into shares of the company 's common stock upon obtaining stockholder approval , the full discount in the series b preferred stock that was created by the recognition of the beneficial conversion feature is fully accreted as a deemed dividend which increases the company 's accumulated deficit and net loss attributable to common shareholders . liquidity and capital resources we have incurred significant net losses since inception and relied on our ability to fund our operations through revenues from the sale of our products , debt financings and equity financings , including our private placement in march 2018 ( “ 2018 private placement ” ) . as we have incurred losses , a successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure . this may not occur and , unless and until it does , we will continue to need to raise additional capital . at december 31 , 2018 , our principal sources of liquidity consisted of cash of $ 29.1 million and accounts receivable ( net ) of $ 15.1 million . we believe that our current available cash , combined with the availability of our expanded credit facility with squadron capital ( described below ) and draws on our revolving credit facility , will be sufficient to fund our planned expenditures and meet our obligations for at least 12 months following our financial statement issuance date . historically , our principal sources of cash have included customer payments from the sale of our products , proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt . our principal uses of cash have included cash used in operations , payments relating to purchases of surgical instruments , repayments of borrowings under the amended credit facility , payments due under the orthotec settlement agreement and acquisitions of businesses and intellectual property rights . we expect that our principal uses of cash in the future will be similar . we expect that , as our revenues grow , our sales and marketing , research and development expenses and our capital expenditures will continue to grow and , as a result , we will need to generate significant net revenues to achieve profitability . operating losses and negative cash flows may continue for at least the next year as we continue to incur costs related to the execution of our operating plan and introduction of new products . i n march 2018 , we entered into financing transactions to raise an aggregate of $ 50 million , through a $ 45.2 million private placement of series b convertible preferred stock and warrants exercisable for common stock , and a warrant exercise agreement with a holder of an existing warrant for an aggregate consideration of $ 4.8 million , generating net proceeds of $ 47.3 million . we paid $ 15.1 million of the net proceeds to fund the cash portion of the purchase price for safeop . on november 6 , 2018 , we closed the $ 35.0 million term loan with squadron , a provider of debt financing to growing companies in the orthopedic industry . net proceeds of approximately $ 34.1 million were used to retire our existing $ 29.2 million term debt with globus . the remainder of the proceeds are being used for general corporate purposes . 42 on march 27 , 2019 , we closed on an expanded credit facility with squadron for up to $ 30 million in additional secured financing . this additional financing will be made available under our existing credit faci lity with squadron . no amounts have been drawn on the line of credit as of its issuance date . any amounts drawn will be used for general corporate purposes . the additional borrowings under the credit facility will mature concurrent with the current secure d financing from squadron and bear interest at libor plus 8 % per annum , subject to a 10 % floor and a 13 % ceiling . for any draws taken , interest-only payments are due monthly through may 2021 , followed by principal payable in 29 equal monthly installments b eginning june 2021 and a lump-sum payment payable at maturity in november 2023. we may seek additional funds from public and private equity or debt financings , borrowings under new or existing debt facilities or other sources to fund our projected operating requirements .
| results of operations the first table below sets forth our statements of operations data for the periods presented . our historical results are not necessarily indicative of the operating results that may be expected in the future . the amounts included for the year ended december 31 , 2018 reflects results from our newly acquired subsidiary from the period of march 9 , 2018 through december 31 , 2018. replace_table_token_1_th 39 replace_table_token_2_th year ended december 31 , 2018 compared to the year ended december 31 , 2017 revenues . revenues were $ 91.7 million for the year ended december 31 , 2018 compared to $ 101.7 million for the year ended december 31 , 2017 , representing a decrease of $ 10.0 million , or 9.8 % . revenue from u.s. products was $ 83.7 million for the year ended december 31 , 2018 compared to $ 86.9 million for the year ended december 31 , 2017 , representing a decrease of $ 3.2 million , or 3.7 % . the decrease in revenue for the year ended december 31 , 2018 was attributed primarily to our decision to exit the stocking distributor model and terminate distributor relationships that are not representative of our long-term business strategy . while our u.s. product revenue declined for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 , revenues from our strategic distribution channel increased for the year ended december 31 , 2018 as detailed below ( in thousands ) : replace_table_token_3_th revenue from international supply agreement , which is attributed to sales to globus under which we supply our products for globus ' international customers , was $ 8.0 million for the year ended december 31 , 2018 compared to $ 14.8 million for the year ended december 31 , 2017 , representing a decrease of $ 6.8 million .
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generally , a non-gaap financial measure is a numerical measure of financial performance , financial position or cash flows that excludes ( or includes ) amounts that are included in ( or excluded from ) the most directly comparable measure calculated and presented in accordance with gaap . the non-gaap financial measures should be viewed as a supplement to , and not a substitute for , financial measures presented in accordance with gaap . non-gaap measures as presented herein may not be comparable to similarly titled measures used by other companies . the following combined management 's discussion and analysis of financial condition and results of operations is separately filed by duke energy corporation ( collectively with its subsidiaries , duke energy ) and its subsidiaries duke energy carolinas , llc ( duke energy carolinas ) , progress energy , inc. ( progress energy ) , duke energy progress , inc. ( duke energy progress ) , duke energy florida , inc. ( duke energy florida ) , duke energy ohio , inc. ( duke energy ohio ) and duke energy indiana , inc. ( duke energy indiana ) ( collectively referred to as the subsidiary registrants ) . however , none of the registrants makes any representation as to information related solely to duke energy or the subsidiary registrants of duke energy other than itself . duke energy duke energy is an energy company headquartered in charlotte , north carolina . duke energy operates in the u.s. primarily through its wholly owned subsidiaries , duke energy carolinas , duke energy progress , duke energy florida , duke energy ohio , and duke energy indiana , as well as in latin america . when discussing duke energy 's consolidated financial information , it necessarily includes the results of the subsidiary registrants , which , along with duke energy , are collectively referred to as the duke energy registrants . management 's discussion and analysis should be read in conjunction with the consolidated financial statements and notes for the years ended december 31 , 2014 , 2013 and 2012 . executive overview merger with progress energy on july 2 , 2012 , duke energy merged with progress energy , with duke energy continuing as the surviving corporation , and progress energy becoming a wholly owned subsidiary of duke energy . duke energy progress and duke energy florida , progress energy 's regulated utility subsidiaries , are now indirect wholly owned subsidiaries of duke energy . duke energy 's consolidated financial statements include progress energy , duke energy progress and duke energy florida activity beginning july 2 , 2012. immediately preceding the merger , duke energy completed a one-for-three reverse stock split with respect to the issued and outstanding shares of duke energy common stock . all share and per share amounts presented herein reflect the impact of the one-for-three reverse stock split . for additional information on the details of this transaction including regulatory conditions and accounting implications , see note 2 to the consolidated financial statements , “ acquisitions , dispositions and sales of other assets. ” disposition of the nonregulated midwest generation business on august 21 , 2014 , duke energy entered into a purchase sale agreement ( psa ) to sell its nonregulated midwest generation business and duke energy retail sales llc ( disposal group ) to dynegy inc. ( dynegy ) for approximately $ 2.8 billion in cash subject to adjustments at closing for changes in working capital and capital expenditures . the completion of the transaction , conditioned on approval by federal energy regulatory commissions ( ferc ) , is expected by the end of the second quarter of 2015. for additional information on the details of this transaction including regulatory conditions and accounting implications , see note 2 to the consolidated financial statements , “ acquisitions , dispositions and sales of other assets. ” 2014 financial results the following table summarizes adjusted earnings and net income attributable to duke energy . replace_table_token_13_th ( a ) see results of operations below for duke energy 's definition of adjusted earnings and adjusted earnings per diluted share as well as a reconciliation of this non-gaap financial measure to net income attributable to duke energy and net income attributable to duke energy per diluted share . 34 part ii adjusted earnings increased from 2013 to 2014 primarily due to the impact of the revised rates and favorable weather , partially offset by higher depreciation and amortization expense . adjusted earnings increased from 2012 to 2013 primarily due to the inclusion of a full year of progress energy results in 2013 , the impact of the revised rates , net of higher depreciation and amortization expense and lower allowance for funds used during construction ( afudc ) . see “ results of operations ” below for a detailed discussion of the consolidated results of operations , as well as a detailed discussion of financial results for each of duke energy 's reportable business segments , as well as other . 2014 areas of focus and accomplishments in 2014 , duke energy focused on achieving financial objectives , completing important strategic initiatives , including the agreement to sell the non-regulated midwest generation business and completion of a strategic review of the international business , advancing a platform of growth initiatives , operational excellence , and the strengthening of coal ash management practices and plans to accelerate basin closure strategies resulting from the dan river coal ash spill . sale of the midwest generation business . in 2014 , duke energy entered into a psa to sell the disposal group to dynegy for approximately $ 2.8 billion . this decision supports duke energy 's strategy to focus investments on businesses with more predictable and less volatile earnings . international energy operations . duke energy completed the strategic review of the international operations . as a result of the review , duke energy determined it is in the shareholders ' best interest , at the present time , to continue to own , operate and create value through portfolio optimization and efficiency in the international operations . story_separator_special_tag primary objectives for 2015 are : growing and adapting the business and achieving financial objectives , including delivering on the 2015 adjusted diluted earnings per share ( eps ) guidance range of $ 4.55 to $ 4.75 , and advancing viable future growth opportunities for regulated and nonregulated businesses excelling in safety , operational performance and environmental stewardship developing and engaging employees , while strengthening leadership improving the lives of our customers and the vitality of our communities complete the sale of the nonregulated midwest generation business . in january 2015 , ferc requested additional information regarding the proposed sale of the nonregulated midwest generation business . the parties to the transaction responded to ferc on february 6 , 2015 , and the comment period expired on february 23 , 2015. ferc approval is the final regulatory approval required to close the transaction , which is expected by the end of the second quarter of 2015. proceeds from the sale are expected to be deployed to recapitalize duke energy in a balanced manner , with a combination of an accelerated share repurchase and reductions in holding company debt . however , this plan could change depending on circumstances at the time of closing . growth initiatives . duke energy will continue to pursue regulatory , state and federal approval of the growth projects . these projects will support long-term adjusted earnings growth of four to six percent and support duke energy 's ability to continue providing its customers affordable , reliable energy from an increasingly diverse generation portfolio . in the regulated utilities business , duke energy does not anticipate any significant base rate cases through 2017. growth is expected to be supported by retail and wholesale load growth and significant investments . duke energy expects to invest between $ 4 billion and $ 5 billion annually in regulated business growth projects . many of these projects will be recovered through riders such as transmission and distribution expenditures in indiana and ohio , as well as the crystal river 3 rider in florida and energy efficiency riders in the carolinas . the regulated wholesale business is expected to grow in 2015. the commercial power renewables business is a significant component of the duke energy growth strategy . renewable projects enable duke energy to respond to customer interest in clean tech while increasing diversity in the generation portfolio . the portfolio of wind and solar is expected to continue growing as between $ 1 billion and $ 2 billion is deployed over the next three years .additionally , investments in the atlantic coast pipeline adds approximately $ 1 billion of capital spending through 2017. continue the coal ash management strategy . in december 2014 , u.s. environmental protection agency ( epa ) finalized the resource conservation and recovery act ( rcra ) related to coal combustion residuals ( ccr ) associated with the generation of electricity from coal . the rules classify coal ash as non-hazardous waste and provide guidelines related to the disposal of coal ash . duke energy will continue the compliance strategy with the north carolina coal ash management act of 2014 ( coal ash act ) and complete an evaluation of the provisions for this rule . duke energy will update ash management plans to comply with all state and federal regulations and begin excavation or other compliance work once plans and permits are approved . results of operations in this section , duke energy provides analysis and discussion of earnings and factors affecting earnings on both a gaap and non-gaap basis . management evaluates financial performance in part based on the non-gaap financial measures , adjusted earnings and adjusted diluted eps . these items are measured as income from continuing operations net of income ( loss ) attributable to noncontrolling interests , adjusted for the dollar and per share impact of mark-to-market impacts of economic hedges in the commercial power segment and special items including the operating results of the disposal group classified as discontinued operations for gaap purposes . special items represent certain charges and credits , which management believes will not be recurring on a regular basis , although it is reasonably possible such charges and credits could recur . as result of the agreement in august 2014 to sell the disposal group to dynegy , the operating results of the disposal group are classified as discontinued operations , including a portion of the mark-to-market adjustments associated with derivative contracts . management believes that including the operating results of the disposal group classified as discontinued operations better reflects its financial performance and therefore has included these results in adjusted earnings and adjusted diluted eps . derivative contracts are used in duke energy 's hedging of a portion of the economic value of its generation assets in the commercial power segment . the mark-to-market impact of derivative contracts is recognized in gaap earnings immediately and , if associated with the disposal group , classified as discontinued operations , as such derivative contracts do not qualify for hedge accounting or regulatory treatment . the economic value of generation assets is subject to fluctuations in fair value due to market price volatility of input and output commodities ( e.g. , coal , electricity , natural gas ) . economic hedging involves both purchases and sales of those input and output commodities related to generation assets . operations of the generation assets are accounted for under the accrual method . management believes excluding impacts of mark-to-market changes of the derivative contracts from adjusted earnings until settlement better matches the financial impacts of the derivative contract with the portion of economic value of the underlying hedged asset . management believes the presentation of adjusted earnings and adjusted diluted eps provides useful information to investors , as it provides them an additional relevant comparison of duke energy 's performance across periods . management uses these non-gaap financial measures for planning and forecasting and for reporting results to the duke energy board of directors ( board of directors ) , employees , shareholders , analysts and investors concerning duke energy 's financial performance .
| segment results the remaining information presented in this discussion of results of operations is on a gaap basis . regulated utilities replace_table_token_17_th ( a ) for duke energy progress , 26,634 gigawatt-hours ( gwh ) sales for the year ended december 31 , 2012 , occurred prior to the merger between duke energy and progress energy . ( b ) for duke energy florida , 18,348 gwh sales for the year ended december 31 , 2012 , occurred prior to the merger between duke energy and progress energy . year ended december 31 , 2014 as compared to 2013 regulated utilities ' results were positively impacted by higher retail pricing and rate riders , favorable weather , an increase in wholesale power margins , higher weather-normal sales volumes , and 2013 impairments and other charges . these impacts were partially offset by higher depreciation and amortization expense , higher operation and maintenance costs , higher interest expense , and higher income tax expense . the following is a detailed discussion of the variance drivers by line item . operating revenues . the variance was driven primarily by : a $ 614 million increase in fuel revenues driven primarily by increased demand from electric retail customers resulting from favorable weather conditions , and higher fuel rates for electric retail customers for all jurisdictions , except north carolina . fuel revenues represent sales to retail and wholesale customers ; a $ 556 million net increase in retail pricing primarily due to retail rate changes and updated rate riders ; a $ 216 million increase in electric sales ( net of fuel revenue ) to retail customers due to more favorable weather conditions .
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not yet adopted revenue from contracts with customers ( topic 606 ) : in may 2014 , the fasb and international accounting standards board jointly issued asu 2014-09 , `` revenue from contracts with customers ( topic 606 ) , `` a new revenue recognition standard that provides a framework for addressing revenue issues , improves the comparability of revenue recognition practices across industries , provides useful information to users of financial statements through improved disclosure requirements and simplifies story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review item 1a . “ risk factors ” and “ special note regarding forward-looking statements ” in this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview alarm.com is the leading platform for the intelligently connected property . we offer a comprehensive suite of cloud-based solutions for smart residential and commercial properties , including interactive security , video monitoring , intelligent automation , energy management and wellness solutions . millions of property owners rely on our technology to intelligently secure , monitor and manage their residential and commercial properties . in the last year alone , our platforms processed more than 100 billion data points generated by over 80 million connected devices . we believe that this scale of subscribers , connected devices and data operations makes us the leader in the connected property market . our solutions are delivered through an established network of over 7,000 trusted service providers , who are experts at selling , installing and supporting our solutions . we primarily generate software-as-a-service , or saas , and license revenue through our service provider partners , who resell these services and pay us monthly fees . our service provider partners have indicated that they typically have three to five -year service contracts with residential and commercial property owners who use our solutions . we also generate hardware and other revenue , primarily from our service provider partners and distributors . our hardware sales include gateway modules and other connected devices that enable our services , such as video cameras and smart thermostats . we believe that the length of service contracts with residential and commercial property owners , combined with our robust platforms and over 15 years of operating experience , contribute to a compelling business model . our technology platforms are designed to make connected properties safer , smarter and more efficient . our solutions are used in both smart residential and commercial properties , which we refer to as the connected property market and we have designed our technology platforms for all market participants . this includes not only the residential and commercial property owners who subscribe to our services , but also the hardware partners who manufacture devices that integrate with our platforms and the service provider partners who install and maintain our solutions . our service provider partners can deploy our interactive security , video monitoring , intelligent automation and energy management solutions as standalone offerings or as combined solutions to address the needs of a broad range of customers . our technology enables subscribers to seamlessly connect to their property through our family of mobile apps , websites , and new engagement platforms like voice control through amazon echo , wearable devices like the apple watch , and tv platforms such as apple tv and amazon fire tv . executive overview and highlights of 2017 and 2016 results we primarily generate saas and license revenue , our largest source of revenue , through our service provider partners who resell our services and pay us monthly fees . our service provider partners sell , install and support alarm.com solutions that enable residential and commercial property owners to intelligently secure , connect , control and automate their properties . our service provider partners have indicated that they typically have three to five -year service contracts with residential or commercial property owners . our subscribers consist of all of the properties maintained by those residential and commercial property owners to which we are delivering at least one of our solutions . we derive a portion of our revenue from licensing our intellectual property to third parties on a per customer basis . we also generate saas and license revenue from monthly fees charged to service providers on a per subscriber basis for access to our connect platform . the connect software for interactive security , automation and related solutions is typically deployed and operated by the service provider in its own network operations center . saas and license revenue represented 70 % , 66 % and 67 % of our revenue in 2017 , 2016 and 2015 , respectively . we also generate revenue from the sale of hardware , including cellular radio modules , video cameras , image sensors , thermostats and other peripherals , that enables our solutions . we have a rich history of innovation in cellular technology that enables our robust saas offering . hardware and other revenue represented 30 % , 34 % and 33 % of our revenue in 2017 , 2016 and 2015 , respectively . we typically expect hardware and other revenue to fluctuate as a percentage of total revenue . we believe there is significant opportunity to expand our international business , as approximately 1 % percent of our total revenue during the year ended december 31 , 2017 originated from customers located outside of north america . our products are currently localized and available in 34 countries outside of north america . story_separator_special_tag components of operating results our fiscal year ends on december 31. the key elements of our operating results include : revenue we generate revenue primarily through the sale of our saas solutions over our cloud-based intelligently connected property alarm.com platform through our service provider partner channel . we also generate revenue from the sale of hardware products that enable our solutions . we generate revenue from the sale of licenses and services to service providers for access to our connect software platform . saas and license revenue . we generate the majority of our saas and license revenue primarily from monthly recurring fees charged to our service provider partners sold on a per subscriber basis for access to our cloud-based intelligently connected property alarm.com platform and related solutions . our fees per subscriber vary based upon the service plan and features utilized . we enter into contracts with our service provider partners that establish our pricing as well as other business terms and conditions . these contracts typically have an initial term of one year , with subsequent annual renewal terms . our service provider partners typically enter into contracts with their end-user customers , which we refer to as our subscribers , for their engagement with our solutions . our service provider partners have indicated that those contracts generally range from three to five years in length . we also generate saas and license revenue from monthly fees charged to service providers on a per subscriber basis for access to our connect platform . the connect software for interactive security , automation and related solutions is typically deployed and operated by the service provider in its own network operations center . our agreements for the connect platform solution typically include software and services , such as post-contract customer support , or pcs . under terms in our contractual arrangements with our service provider partners , we are entitled to payment of a monthly fee that is billed per subscriber for the month of service and we recognize revenue over the period of combined service . our service provider partners typically incur and pay the same monthly fee per subscriber account for the entire period a subscriber account is active . we offer multiple service level packages for our solutions , including integrated solutions and a range of a la carte add-ons for additional features . the price paid by our service provider partners each month for the delivery of our solutions is based on the combination of packages and add-ons enabled for each subscriber . we use tiered pricing plans under which our service provider partners may receive prospective pricing discounts driven by volume . we recognize our saas and license revenue on a monthly basis as we deliver our solutions to our subscribers . we define our subscribers as the number of residential or commercial properties to which we are delivering at least one of our solutions . a subscriber who subscribes to one of our service level packages as well as one or more of our a la carte add-ons is counted as one subscriber . the number of subscribers represents our number of subscribers , rounded to the nearest thousand , on the last day of the applicable year . our number of subscribers does not include the customers of our service provider partners to whom we license our intellectual property as they do not utilize one of our platforms . we also generate saas and license revenue from the fees paid to us when we license our intellectual property to third parties on a per customer basis for use of our patents . in november 2013 , we entered into a license agreement with vivint inc. , or vivint , pursuant to which we granted vivint a license to use the intellectual property associated with our intelligently connected 47 property solutions . vivint began generating customers and paying us license revenue in the second quarter of 2014. pursuant to this arrangement , vivint has transitioned from selling our saas solutions directly to its customers to selling its own home automation product to its new customers . for those subscribers vivint added to their saas solution , vivint pays us a license fee , and for subscribers still on the alarm.com platform , vivint pays to utilize our saas alarm.com platform . additionally , in certain markets , our energyhub subsidiary sells its demand response software with an annual service fee , with pricing based on the number of subscribers or amount of aggregate electricity demand made available for a utility 's or market 's control . hardware and other revenue . we generate hardware and other revenue from the sale of video cameras and cellular radio modules that provide access to our cloud-based platforms , and from the sale of other devices , including image sensors and peripherals . we sell hardware to our service provider partners as well as distributors . the purchase of hardware occurs in a transaction that is separate and typically in advance of the purchase of our platform services . we recognize hardware and other revenue when the hardware is delivered to our service provider partners or distributors , net of a reserve for estimated returns . our terms for hardware sales typically allow our service provider partners to return hardware up to one year past the date of original sale . hardware and other revenue also includes activation fees charged to service provider partners for activation of a subscriber 's account on our platforms . we record activation fees initially as deferred revenue and we recognize these fees on a straight-line basis over an estimated life of the subscriber relationship , which is currently ten years . hardware and other revenue also includes fees paid by service provider partners for our marketing services . cost of revenue our cost of saas and license revenue primarily includes the amounts paid to wireless network providers and , to a lesser extent , the costs of running our network operating centers .
| results of operations the following table sets forth our selected consolidated statements of operations and data as a percentage of revenue for the periods presented ( in thousands ) : consolidated statements of operations replace_table_token_10_th _ ( 1 ) excludes amortization and depreciation . ( 2 ) operating expenses include stock-based compensation expense as follows ( in thousands ) : replace_table_token_11_th the following table sets forth the components of cost of revenue as a percentage of revenue : replace_table_token_12_th 50 comparison of years ended december 31 , 2017 to december 31 , 2016 and december 31 , 2016 to december 31 , 2015 revenue replace_table_token_13_th 2017 compared to 2016 the $ 77.8 million increase in total revenue in 2017 compared to 2016 was the result of a $ 62.7 million , or 36 % , increase in our saas and license revenue and a $ 15.1 million , or 17 % , increase in our hardware and other revenue . the increase in our alarm.com segment saas and license revenue in 2017 was primarily due to growth in our subscriber base , including the revenue impact from subscribers we added in 2016 and due to service providers and their subscribers on our connect software platform . to a lesser extent , saas and license revenue increased in the period due to an increase in license fees . the increase in h ardware and other revenue in 2017 compared to 2016 was due to an increase in the volume of video cameras sold including several new product offering releases in 2017 , and due to increases in volume of other peripherals sold including the system enhancement module . our other segment contributed 6 % of the increase in saas and license revenue and 12 % of the increase in hardware and other revenue in 2017 compared to 2016 .
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in addition to historical information , the following discussion also contains forward-looking statements that include risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those set forth under the heading `` risk factors '' in part i , item 1a of this annual report on form 10-k. business overview we are an automated global electronic market maker and broker specializing in routing orders and executing and processing trades in securities , futures and foreign exchange instruments on more than 100 electronic exchanges and trading venues around the world . since our inception in 1977 , we have focused on developing proprietary software to automate broker-dealer functions . the advent of electronic exchanges in the last 23 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and trading venues into one automatically functioning , computerized platform that requires minimal human intervention . in connection with our ipo priced on may 3 , 2007 , ibg , inc. purchased 10.0 % of the membership interests in ibg llc , became the sole managing member of ibg llc and began to consolidate ibg llc 's financial results into its financial statements . our primary assets are our ownership of approximately 13.6 % of the membership interests of ibg llc , the current holding company for our businesses , and our controlling interest and related contractual rights as the sole managing member of ibg llc . the remaining approximately 86.4 % of ibg llc membership interests are held by holdings , a holding company that is owned by our founder , chairman and chief executive officer , thomas peterffy , and his affiliates , management and other employees of ibg llc , and certain other members . the ibg llc membership interests held by holdings will be subject to purchase by us over time in connection with offerings by us of shares of our common stock . business segments the company reports its results in two business segments , electronic brokerage and market making . these segments are analyzed separately as we derive our revenues from these two principal business activities as well as allocate resources and assess performance . electronic brokerage . we conduct our electronic brokerage business through our ib subsidiaries . as an electronic broker , we execute , clear and settle trades globally for both institutional and individual customers . capitalizing on the technology originally developed for our market making business , ib 's systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost , in multiple products and currencies from a single trading account . we offer our customers access to all classes of tradable , primarily exchange-listed products , including stocks , bonds , options , futures , forex and mutual funds traded on more than 100 exchanges and market centers and in 23 countries around the world seamlessly . market making . we conduct our market making business through our th subsidiaries . as one of the largest market makers on many of the world 's leading exchanges , we provide liquidity by offering competitively tight bid/offer spreads over a broad base of over 804,000 tradable , exchange-listed products . as principal , we commit our own capital and derive revenues or incur losses from the difference between the price paid when securities are bought and the price received when those securities are sold . because we provide continuous bid and offer quotations and we are continuously both buying and selling quoted securities , we may have either a long or 47 a short position in a particular product at a given point in time . our entire portfolio is evaluated each second and continuously rebalanced throughout the trading day , thus minimizing the risk of our portfolio at all times . this real-time rebalancing of our portfolio , together with our real-time proprietary risk management system , enables us to curtail risk and to be profitable in both up-market and down-market scenarios . business environment the operating environment for our brokerage business exhibited positive trends in 2013. following a slump in 2012 , exchange-traded volumes rebounded this year , fueled primarily by rising investor optimism and strong valuation gains in the equity markets . market values continued to rise as u.s. indexes added to their gains from 2012 , with the s & p 500 index climbing 30 % over its year-ago level . this contributed to our 39 % increase in customer equity . positive word of mouth referrals and targeted , institutional marketing initiatives drove a 14 % increase in customer accounts in 2013. institutional customers like hedge funds , mutual funds , introducing brokers , proprietary trading groups and financial advisors comprised over 40 % of total accounts at the end of 2013. these larger accounts also drove a 22 % increase in average equity per account to $ 191,000 at year-end . our customer base is geographically diversified . our customers reside in nearly 200 countries and over 60 % of new customers come from outside the u.s. we maintained our position as the largest u.s. electronic broker as measured by number of customer revenue trades . our customers ' trading activity continued to outpace the industry , with an 18 % year-over-year increase in total daily average revenue trades , driving a 22 % increase in commission revenue . persistently low interest rates encouraged customers to take advantage of our competitive margin lending rates , which are tied to the fed funds rate and ranged from 0.5 % to 1.58 % during 2013. this drove our margin balances to a record high of $ 13.5 billion , an increase of 38 % over the prior year , and net interest income to rise 24 % in 2013. results in the market making segment were subdued . 2013 was devoid of significant market moving events , which kept volatility low and depressed our trading gains . story_separator_special_tag the company is currently pursuing the collection of the debts . the ultimate effect of this incident on the company 's results will depend upon market conditions and the outcome of the company 's debt collection efforts . 49 during the year ended december 31 , 2013 , income before income taxes in our market making segment decreased by 62 % , compared with 2012. trading gains were negatively impacted by greater currency translation losses , which contributed 26 % of the decrease from the prior year ; low volatility levels , as measured by the vix® ; and a low ratio of actual to implied volatility . pretax margin decreased to 26 % in 2013 , as compared to 41 % in 2012. market making , by its nature , does not produce predictable earnings . our results in any given period may be materially affected by volumes in the global financial markets , the level of competition and other factors . electronic brokerage is more predictable , but it is dependent on customer activity , growth in customer accounts and assets , interest rates and other factors . for a further discussion of the factors , that may affect our future operating results , please see the description of risk factors in part i , item 1a of this annual report on form 10-k. comprehensive income the company reports results on a comprehensive basis , as required by accounting standards update 2011-05 , comprehensive income ( `` asu 2011-05 '' ) . the statement of comprehensive income reports currency translation results that are a component of other comprehensive income ( `` oci '' ) directly in this statement . the following two tables present net revenues and income before income taxes for each of our business segments for the periods indicated . net revenues of each of our business segments and our total net revenues are summarized below : replace_table_token_7_th ( 1 ) corporate includes corporate related activities as well as inter-segment eliminations . income before income taxes of each of our business segments and our total income before income taxes are summarized below : replace_table_token_8_th ( 1 ) corporate includes corporate related activities as well as inter-segment eliminations . 50 revenue trading gains trading gains are generated in the normal course of market making . trading revenues are , in general , proportional to the trading activity in the markets . our revenue base is highly diversified and comprised of millions of relatively small individual trades of various financial products traded on electronic exchanges , primarily in stocks , options and futures . trading gains accounted for approximately 22 % , 36 % and 46 % of our total revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . trading gains include a portion of translation gains and losses stemming from the basket of foreign currencies we call the global , which we employ to carry out our currency exposure strategy . a discussion of our approach to managing foreign currency exposure is contained in part ii , item 7a of this annual report on form 10-k entitled `` quantitative and qualitative disclosures about market risk . '' trading gains also include revenues from net dividends . market making activities require us to hold a substantial inventory of equity securities . we derive significant revenues in the form of dividend income from these equity securities . this dividend income is largely offset by dividend expense incurred when we make significant payments in lieu of dividends on short positions in securities in our portfolio . dividend income and expense arise from holding market making positions over dates on which dividends are paid to shareholders of record . when a stock pays a dividend , its market price is generally adjusted downward to reflect the value paid to the shareholders of record , which will not be received by those who purchase the stock after the dividend date . hence , the apparent gains and losses due to these price changes must be taken together with the dividends paid and received , respectively , to accurately reflect the results of our market making operations . as a result of the way we have integrated our market making and securities lending systems , our trading gains and our net interest income from the market making segment are interchangeable and depend on the mix of market making positions in our portfolio . when implied interest rates in the equity and equity options and futures markets exceed the actual interest rates available to us , our market making systems tend to buy stock and sell it forward , which produces higher trading gains and lower net interest income . when these rates are inverted , our market making systems tend to sell stock and buy it forward , which produces lower trading gains and higher net interest income . our trading gains are geographically diversified . in 2013 , 2012 and 2011 , we generated 55 % , 37 % and 40 % , respectively , of our trading gains from operations conducted internationally . commissions and execution fees we earn commissions and execution fees from our cleared customers for whom we act as executing and clearing brokers and from our non-cleared customers for whom we act as an execution-only broker . we have a commission structure that allows customers to choose between an all-inclusive `` bundled '' rate or an `` unbundled '' rate that offers lower commissions for high volume customers . for `` unbundled '' commissions , we charge regulatory and exchange fees , at our cost , separately from our commissions , adding transparency to our fee structure . commissions and execution fees accounted for 45 % , 35 % and 32 % of our total revenues for the years ended december 31 , 2013 , 2012 and 2011 , respectively . our commissions and execution fees are geographically diversified .
| results of operations the tables in the period comparisons below provide summaries of our consolidated results of operations . the period-to-period comparisons below of financial results are not necessarily indicative of future results . replace_table_token_9_th 54 the following table sets forth our consolidated results of operations as a percent of our total revenues for the indicated periods : replace_table_token_10_th year ended december 31 , 2013 compared to the year ended december 31 , 2012 net revenues total net revenues for the year ended december 31 , 2013 decreased $ 54.3 million or 5 % , to $ 1,076.2 million from $ 1,130.5 million during the year ended december 31 , 2012. the decrease in net revenues was primarily due to lower trading gains compared to the prior year , partially offset by increases in commissions and execution fees and net interest income . trading volume is an important driver of revenues and costs for both our electronic brokerage and market making segments . during the year ended december 31 , 2013 our volumes in options decreased 6 % from prior year levels while futures contracts and stock shares volumes increased 23 % and 45 % , respectively . trading gains . trading gains for the year ended december 31 , 2013 decreased $ 189.9 million , or 44 % , to $ 245.2 million from $ 435.1 million for the year ended december 31 , 2012. removing the effects of currency translation , the market making segment produced $ 333.8 million in trading gains in the year ended december 31 , 2013 , compared to $ 473.6 million in trading gains for the same period last year . as market makers , we provide liquidity by buying from sellers and selling to buyers .
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reconciliations of net income ( loss ) to ebitda and adjusted ebitda and the presentation of adjusted ebitda as a percentage of net sales were as follows : replace_table_token_4_th ( 1 ) includes amortization of intangibles and additional depreciation expense related to the labarge acquisition and prior acquisitions . ( 2 ) includes deferred financing costs in connection with the labarge acquisition . ( 3 ) includes investment banking , accounting , legal , tax and valuation expenses as a direct result of the labarge acquisition . ( 4 ) merger-related transaction cost resulting from a change-in-control provision for certain labarge key executives and employees arising in connection with the labarge acquisition . adjusted ebitda increased in 2012 over 2011 primarily due to higher net income including the full-year effect of increased revenues and operating expenses , including higher depreciation and amortization expenses , and higher interest expense from the labarge acquisition and a non-cash pre-tax goodwill impairment charge of $ 54.3 million in fiscal 2011. adjusted ebitda increased in 2011 compared to 2010 primarily due to the partial-year effect of increased revenues and operating expenses , including higher depreciation and amortization expenses , and higher interest expense from the labarge acquisition . 36 story_separator_special_tag bottom:0px '' > we report our financial performance based upon the two reportable operating segments ; das and dlt . the results of operations differ between our reportable operating segments due to differences in competitors , customers , extent of proprietary deliverables and performance . the following table summarizes our business segment performance for 2012 and 2011. replace_table_token_7_th ( 1 ) before certain allocated corporate overhead . ( 2 ) includes approximately $ 54.3 million of goodwill impairment expense in the twelve months ended december 31 , 2011 . ( 3 ) includes approximately $ 0.3 million of merger-related transaction expenses in 2012 and $ 12.4 million in 2011 related to the labarge acquisition . ( 4 ) includes investment banking , accounting , legal , tax and valuation expenses as a direct result of the labarge acquisition . ( 5 ) includes approximately $ 0.4 million in 2012 and $ 3.7 million in 2011 of merger-related transaction costs resulting from a change-in-control provision for certain labarge key executives and employees arising in connection with the labarge acquisition . ducommun aerostructures ( das ) das : the increase in sales in 2012 was due to higher net sales of large commercial aircraft and military helicopter products , partially offset by lower net sales of regional aircraft and military fixed wing products . das : segment operating income and ebitda increased in 2012 primarily due to a higher proportion of net sales of higher margin products . 40 ducommun labarge technologies ( dlt ) dlt : net sales in 2012 were up $ 148.9 million over 2011. the increased net sales were primarily due to the full-year effect of incremental sales of $ 148.8 million from the june 2011 labarge acquisition . net sales into the non-aerospace and defense end-use markets remain weak . dlt : segment operating income and ebitda rose primarily due to $ 72.6 million of increased operating income from full-year effect of the labarge acquisition . the results for 2011 included a non-cash pre-tax charge of $ 54.3 million for the impairment of goodwill . backlog backlog is subject to delivery delays or program cancellations , which are beyond our control . backlog is affected by timing differences in the placement of customer orders and tends to be concentrated in several programs to a greater extent than our net sales . backlog in non-aerospace and defense markets tends to be of a shorter duration and is generally fulfilled within a 3-month period . as a result of these factors , trends in our overall level of backlog may not be indicative of trends in our future net sales . backlog reached record levels of $ 656.6 million at december 31 , 2012 , compared to $ 634.4 million at december 31 , 2011 , as shown in more detail below . the record level of backlog reflects strengthening primarily in military and space ( defense technologies ) and commercial aerospace end-use markets and decreases in our non-aerospace and defense end-use markets . approximately $ 407.8 million of total backlog is expected to be delivered during 2013 . 41 replace_table_token_8_th 42 2011 compared to 2010 the following table sets forth net sales , selected financial data as a percentage of net sales , the effective tax rate and diluted earnings ( loss ) per share : replace_table_token_9_th nm = not meaningful net sales by end-use market and operating segment net sales by end-use market and operating segment during 2011 and 2010 , respectively , were as follows : replace_table_token_10_th net sales during 2011 increased $ 172.5 million , or 42.2 % , over 2010 to $ 580.9 million , primarily reflecting net sales of $ 175.4 million from the labarge acquisition . 43 net sales to top customers we had substantial sales to boeing , raytheon , united technologies , spirit aerosystems and owens-illinois in 2011. see part ii , item 8. ducommun incorporated and subsidiariesnotes to consolidated financial statements15 . major customers and concentration of credit risk for further information . 44 cost of sales and gross profit gross profit margins vary considerable by contract . gross profit dollars in 2011 rose over 2010 primarily due to the increased gross profit from the labarge acquisition . story_separator_special_tag we expect to pay down $ 25.0 million to $ 30.0 million on the term loan in 2013. the revolving credit facility matures on june 28 , 2016 , and the term loan matures on june 30 , 2017. interest on the term loan was 5.5 % at december 31 , 2012. the revolving credit facility and term loan covenants require ebitda of more than $ 50.0 million and a maximum leverage ratio under certain circumstances , as well as annual limitations on capital expenditures and limitations on future disposition of property , investments , acquisitions , repurchase of stock , dividends , and outside indebtedness . at december 31 , 2012 , we were in compliance with all covenants . capital expenditures for 2012 were $ 15.8 million , well below the maximum allowed under the credit facility of $ 27.0 million for the year . at december 31 , 2012 , there were no amounts outstanding that would have triggered the leverage ratio covenant . the leverage ratio covenant becomes increasingly restrictive in future periods and will require us to continue to reduce our debt or increase ebitda . 48 the notes bear interest of 9.75 % per annum , payable semi-annually on january 15 and july 15 of each year , beginning in 2012. the notes mature on july 15 , 2018 , at which time the entire principal amount is due . in addition , $ 3.0 million is due on december 23 , 2013 on our promissory note issued in connection with the das-new york acquisition . see part ii , item 8. ducommun incorporated and subsidiariesnotes to consolidated financial statementsnote 7. long-term debt for further information related to long-term debt . we expect to spend a total of approximately $ 15.0 million for capital expenditures in 2013 financed by cash generated from operations , approximately the same as 2012 , principally to support new contract awards at das and dlt . as part of our strategic plan to become a tier 2 supplier , additional up-front investment in tooling will be required for newer programs which have higher engineering content and higher levels of complexity in assemblies . we believe the ongoing aerospace and defense subcontractor consolidation makes acquisitions an increasingly important component of our future growth . we will continue to make prudent acquisitions and capital expenditures for manufacturing equipment and facilities to support long-term contracts for commercial and military aircraft and defense programs . in addition , we will continue to invest to grow our non-aerospace and defense end-use markets . we continue to depend on operating cash flow and the availability of our revolving credit facility to provide short-term liquidity . cash generated from operations and bank borrowing capacity is expected to provide sufficient liquidity to meet our obligations during the next twelve months . cash flow summary net cash provided by ( used in ) operating activities for 2012 , 2011 , and 2010 was $ 47.5 million , ( $ 3.0 ) million and $ 26.5 million , respectively . net cash provided by operating activities in 2012 compared to 2011 reflects higher net income , better working capital management , primarily in inventory , and improved operating efficiency . net cash used in operating activities for 2011 was impacted by lower net income , an increase in accounts receivables , primarily related to the timing of billings to customers and extension of payments by the customers , an increase in inventory , primarily related to work-in-process for production jobs scheduled to ship in 2012 and afterward , payments of accounts payable , and payments in 2011 for expenses recorded in accrued liabilities in 2010. net cash used in operating activities for 2011 was also negatively impacted by $ 25.6 million of merger-related expenses related to the labarge acquisition . net cash used in investing activities for 2011 of $ 339.8 million included $ 325.3 million for the labarge acquisition and $ 0.4 million for the acquisition of certain assets of foam matrix . capital expenditures to support new contract awards at dlt and das were comparable in 2012 and 2011. net cash used in financing activities in 2012 of $ 26.7 million included $ 25.0 million of voluntary principal pre-payments on the term loan . net cash provided by financing activities for 2011 of $ 374.0 million included approximately $ 390.0 million of borrowings , primarily to finance the labarge acquisition , $ 1.3 million of repayment of notes , term loan and revolving credit facility debt , and $ 14.0 million of debt issue cost paid , also related to the labarge acquisition . 49 contractual obligations a summary of our contractual obligations at december 31 , 2012 was as follows : replace_table_token_13_th we have estimated that the fair value of our indemnification obligations as insignificant based upon our history with such obligations and insurance coverage and have included no such obligation in the table above . our ultimate liability with respect to groundwater contamination at certain das facilities will depend upon a number of factors , including changes in existing laws and regulations , the design and cost of construction , operation and maintenance activities , and the allocation of liability among potentially responsible parties . the above table does not include obligations related to these matters . for additional information , see part ii , item 8. ducommun incorporated and subsidiariesnotes to consolidated financial statementsnote 14. contingencies. off-balance sheet arrangements our off-balance sheet arrangements consist of operating leases and indemnities . critical accounting policies critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations and that require the use of subjective estimates based upon past experience and management 's judgment . because of the uncertainty inherent in such estimates , actual results may differ from these estimates . below are those policies applied in preparing our financial statements that management believes
| results of operations 2012 compared to 2011 the results of operations for 2012 compared to 2011 reflect the full-year impact of increased revenues and operating expenses , including depreciation and amortization expenses , and higher interest expense from the june 2011 labarge acquisition and a non-cash pre-tax goodwill impairment charge of $ 54.3 million in 2011. the following table sets forth net sales , selected financial data as a percentage of net sales , the effective tax rate and diluted earnings ( loss ) per share : replace_table_token_5_th nm = not meaningful net sales by end-use market and operating segment net sales by end-use market and operating segment during 2012 and 2011 , respectively , were as follows : replace_table_token_6_th net sales for 2012 increased $ 166.1 million , or 28.6 % , to $ 747.0 million , compared to $ 580.9 million in 2011. the higher revenue was primarily the result of the full-year impact of the june 2011 labarge acquisition . the net sales attributable to labarge in 2012 and 2011 were $ 324.2 million and $ 175.4 million , respectively . net sales in the non-aerospace and defense end-use markets remain weak . 37 net sales to major customers we had substantial sales in 2012 to boeing , raytheon , spirit aerosystems , owens-illinois , the u.s. government and schlumberger . see part ii , item 8. ducommun incorporated and subsidiariesnotes to consolidated financial statementsnote 15. major customers and concentration of credit risk for further information . cost of sales and gross profit gross profit margins vary considerably by contract . gross profit dollars increased primarily due to the full-year impact of the additional gross profit generated from the labarge acquisition . gross profit margins increased due to a higher proportion of net sales of higher margin product , partially offset by lower margins from engineering services . gross profit percentages were also lower in 2011 due to inventory step-up write-off related to the labarge acquisition .
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long-lived assets to be disposed of are carried at fair value less costs to sell . contingent consideration the consideration for our acquisitions often includes future payments that are contingent upon the occurrence of a particular event . story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and related notes beginning on page f-1 of this report . certain totals may not sum due to rounding . executive summary introduction biogen idec is a global biopharmaceutical company focused on discovering , developing , manufacturing and delivering therapies for neurological , autoimmune and hematologic disorders . our principal marketed products include avonex , plegridy , tecfidera , tysabri , and fampyra for multiple sclerosis ( ms ) , alprolix for hemophilia b and eloctate for hemophilia a. we also collaborate on the development and commercialization of rituxan for the treatment of non-hodgkin 's lymphoma , chronic lymphocytic leukemia and other conditions and share profits and losses for gazyva which is approved for the treatment of chronic lymphocytic leukemia . our current revenues depend upon continued sales of our principal products . we may be substantially dependent on sales from our principal products for many years , including an increasing reliance on sales of tecfidera as we expand into additional markets . in the longer term , our revenue growth will be dependent upon the successful clinical development , regulatory approval and launch of new commercial products , our ability to obtain and maintain patents and other rights related to our marketed products and assets originating from our research and development efforts , and successful execution of external business development opportunities . as part of our ongoing research and development efforts , we have devoted significant resources to conducting clinical studies to advance the development of new pharmaceutical products and to explore the utility of our existing products in treating disorders beyond those currently approved in their labels . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0000875045/000087504515000005/ # sbfcaaae8f949449449d45d2ed5d84470 '' style= '' font-family : inherit ; font-size:10pt ; '' > results of operations revenues revenues are summarized as follows : replace_table_token_5_th product revenues product revenues are summarized as follows : replace_table_token_6_th multiple sclerosis ( ms ) avonex and plegridy revenues from avonex and plegridy are summarized as follows : replace_table_token_7_th ( 1 ) e.u . sales began in the third quarter of 2014 and in the u.s. in the fourth quarter of 2014 . 39 for 2014 compared to 2013 , the increase in u.s. avonex revenues was primarily due to price increases , partially offset by a decrease in unit sales volume of 10 % , which was attributable in part to patients transitioning to plegridy and oral ms therapies , including tecfidera . for 2013 compared to 2012 , the increase in u.s. avonex revenues was primarily due to price increases , partially offset by a decrease in unit sales volume of 8 % , which were attributable in part to patients transitioning to oral therapies including tecfidera . for 2014 compared to 2013 , the decrease in rest of world avonex revenues was due to a 7 % decrease in unit demand in europe primarily attributable to patients transitioning to oral therapies including tecfidera , partially offset by a 6 % increase in unit demand in the emerging markets region . rest of world avonex revenue for 2014 compared to 2013 also reflects the negative impact of foreign currency exchange rate changes experienced in 2014 , partially offset by gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program . for 2013 compared to 2012 , the decrease in rest of world avonex revenues was primarily due to pricing reductions resulting from austerity measures enacted in some countries , partially offset by increased unit demand primarily in europe . rest of world avonex revenues for 2013 compared to 2012 also reflects the positive impact of foreign currency exchange rates , partially offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program . tecfidera revenues from tecfidera are summarized as follows : replace_table_token_8_th ( 1 ) u.s. sales began in the second quarter of 2013 . ( 2 ) germany sales began in the first quarter of 2014. for 2014 compared to 2013 , the increase in u.s. tecfidera revenues was primarily due to increases in unit sales volume . for 2014 compared to 2013 , rest of world tecfidera revenues increased as sales in germany began in the first quarter of 2014. we expect that rest of world tecfidera revenue will increase as tecfidera becomes commercially available in additional markets in 2015. tysabri revenues from tysabri are summarized as follows : replace_table_token_9_th for 2014 compared to 2013 , the increase in u.s. tysabri revenues was primarily due to price increases and our recognition , starting in april 2013 , of 100 % of net revenues on tysabri in-market sales due to our acquisition of the remaining rights to tysabri from elan , partially offset by a 4 % decrease in unit sales volume . for 2013 compared to 2012 , the increase in u.s. tysabri revenues was primarily due to our acquisition of the remaining rights to tysabri from elan , price increases and a 1 % increase in unit sales volume , which includes the impact of patients transitioning to tecfidera . based on data reported by elan for 2013 and 2012 and our sales to third party customers , total u.s. tysabri in-market sales were $ 958.3 million and $ 886.0 million for 2013 and 2012 , respectively . for 2014 compared to 2013 , the increase in u.s. tysabri in-market sales was primarily due to price increases , partially offset by patients transitioning to oral therapies including tecfidera . for 2013 compared to 2012 , the increase in in-market sales was due to price increases . 40 for 2014 compared to 2013 , the increase in rest of world tysabri revenues was primarily due to the recognition of $ 53.5 story_separator_special_tag ” upon the first marketing approval of gazyva by the fda , we began recognizing all activity , including sales and marketing and research and development expenses related to the gazyva program in unconsolidated joint business within our consolidated statements of income . prior to its first regulatory approval , we recognized our share of gazyva development and commercialization expenses as research and development expense and selling , general and administrative expense , respectively , within our consolidated statements of income . collaboration costs and expenses for 2013 compared to 2012 increased primarily due to a higher cost of goods sold resulting from an increased volume in rituxan sales , higher associated third party royalties and gazyva sales and marketing and research and development expenses . revenue on sales in the rest of world for rituxan revenue on sales in the rest of world for rituxan consists of our share of pre-tax co-promotion profits on rituxan in canada and royalty revenue on sales outside the u.s. and canada . for 2014 compared to 2013 , revenue on sales in the rest of world for rituxan increased primarily due to the prior year recognition of a $ 41.2 million charge for damages and interest awarded to hoechst in its arbitration with genentech . for 2013 compared to 2012 revenue on sales in the rest of world for rituxan decreased as a result of a $ 41.2 million charge for damages and interest awarded to hoechst , as discussed above , as well as the expirations of royalties on a country-by-country basis . the royalty period for sales in the rest of world is 11 years from the first commercial sale of such product on a country-by-country basis . the royalty periods for the substantial portion of the royalty-bearing sales in the rest of world markets expired during 2012 and 2013. we expect future revenue on sales of rituxan in the rest of world will be limited to our share of pre-tax co-promotion profits in canada . other revenues other revenues are summarized as follows : replace_table_token_16_th royalty revenues we receive royalties from net sales on products related to patents that we licensed . our most significant source of royalty revenue has been derived from net worldwide sales of angiomax , which is licensed to the medicines company ( tmc ) . in march 2012 , the u.s. patent and trademark office granted the extension of the term of the principal u.s. patent that covers angiomax to december 15 , 2014. royalty revenues from the net worldwide sales of angiomax are recognized in an amount equal to the level of net sales achieved during a calendar year multiplied by the royalty rate in effect for that tier under our agreement with tmc . the royalty rate increases based upon which tier of total net sales are earned in any calendar year . during 2012 , we amended our agreement with tmc for the period from january 1 , 2013 to december 15 , 2014 to modestly increase the royalty rate in effect for all tiers . 42 for 2014 compared to 2013 , royalty revenues decreased due to a decrease in the net worldwide sales of angiomax subject to royalty payments . for 2013 compared to 2012 the increase in royalty revenues was primarily related to the increase in the royalty rate as well as an increase in the net worldwide sales of angiomax . our royalty revenues from angiomax ceased as of december 15 , 2014 upon patent expiry . we also expect declines in royalty revenues from our out-licensed patents over the next several years due to changes in the competitive landscape related to one of the underlying technologies we licensed . these changes resulted in an asset impairment charge of $ 34.7 million recorded in the first quarter of 2014 which has been reflected in amortization of acquired intangible assets within our consolidated statement of income . as a result , we estimate that in 2015 we will have a decrease of approximately $ 130 million in royalty revenues . corporate partner revenues our corporate partner revenues include amounts earned under contract manufacturing agreements , which includes revenues related to our arrangement with samsung bioepis , and revenues covering products previously included within our product line that we have sold or exclusively licensed to third parties . for 2014 compared to 2013 , the increase in corporate partner revenue was primarily due to higher contract manufacturing revenue and increased revenue from our biosimilar arrangements , partially offset by lower revenue associated with our zevalin supply agreement . for 2013 compared to 2012 , the increase in corporate partner revenues was primarily due to increased revenue from our biosimilar arrangements and an amendment to our zevalin supply agreement , which resulted in the delivery of our remaining zevalin inventory and the recognition of a previously deferred amount . zevalin is a program we sold in 2007 but have continued to manufacture in accordance with the amendment to our zevalin supply agreement . as part of the amendment , we committed to one additional zevalin manufacturing campaign , which was completed in the third quarter of 2014. for additional information on our relationship with samsung bioepis , please read note 20 , collaborative and other relationships to our consolidated financial statements included within this report . reserves for discounts and allowances revenues from product sales are recorded net of applicable allowances for trade term discounts , wholesaler incentives , medicaid rebates , veterans administration ( va ) and public health service ( phs ) discounts , specialty pharmacy program fees , managed care rebates , product returns , and other governmental rebates or applicable allowances including those associated with the implementation of pricing actions in certain international markets where we operate . reserves established for these discounts and allowances are classified as reductions of accounts receivable ( if the amount is payable to our customer ) or a liability ( if the amount is payable to a party other than our customer ) .
| financial highlights the following table is a summary of financial results achieved : replace_table_token_4_th ( 1 ) commencing in the second quarter of 2013 , product and total revenues include 100 % of net revenues related to tysabri as a result of our acquisition of all remaining rights to tysabri from elan and net revenues related to sales of tecfidera . as described below under “ results of operations , ” our income from operations for the year ended december 31 , 2014 , reflect the following : worldwide avonex revenues totaled $ 3,013.1 million for 2014 , representing an increase of 0.3 % over 2013 . worldwide plegridy revenues totaled $ 44.5 million for 2014 . worldwide tecfidera revenues totaled $ 2,909.2 million for 2014 , representing an increase of 232.1 % over 2013 . worldwide tysabri revenues totaled $ 1,959.5 million for 2014 , representing an increase of 28.4 % over 2013 . worldwide fampyra revenues totaled $ 80.2 million for 2014 , representing an increase of 8.4 % over 2013 . worldwide alprolix revenues totaled $ 76.0 million for 2014 . worldwide eloctate revenues totaled $ 58.4 million for 2014 . our share of revenues from unconsolidated joint business totaled $ 1,195.4 million for 2014 , representing an increase of 6.2 % from 2013 . 37 total cost and expenses increased 29.4 % for 2014 compared to 2013 . this increase resulted from a 42.8 % increase in the amortization of acquired intangible assets , a 36.5 % increase in cost of sales , a 31.1 % increase in research and development expense and a 30.4 % increase in selling , general and administrative expense , partially offset by a 100.0 % decrease in collaboration profit sharing and an increase in the gain on fair value remeasurement of contingent consideration compared with the same period in 2013 .
| 3,898 |
in many cases , these forward-looking statements may be identified by the use of words such as `` will , '' `` may , '' `` should , '' `` could , '' `` believes , '' `` expects , '' `` anticipates , '' `` estimates , '' `` intends , '' `` projects , '' 39 glossary of defined terms `` goals , '' `` objectives , '' `` targets , '' `` predicts , '' `` plans , '' `` seeks , '' or similar expressions . any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report . although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions , forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained . our actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties . such risks and uncertainties include , without limitation , the risk factors discussed in part i , item 1a of this report . we disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information . business objective corenergy primarily owns and seeks to own assets in the u.s. energy sector that perform utility-like functions , such as pipelines , storage terminals , rail terminals and gas and electric transmission and distribution assets . we also may provide other types of capital , including loans secured by energy infrastructure assets . our objective is to generate long-term contracted revenue from operators of our assets , primarily under triple-net participating leases without direct commodity price exposure . the assets are primarily mission-critical , in that utilization of the assets is necessary for the business the operators of those assets seek to conduct and their rental payments are an essential operating expense . we acquire assets that will enhance the stability of our dividend through diversification , while offering the potential for long-term distribution growth . these sale-leaseback or real property mortgage transactions provide the energy company with a source of capital that is an alternative to sources such as corporate borrowing , bond offerings , or equity offerings . we believe our leadership team 's energy and utility expertise provides corenergy with a competitive advantage to acquire , own and lease u.s. energy infrastructure assets in a tax-efficient , transparent and investor-friendly reit . basis of presentation the consolidated financial statements include corenergy infrastructure trust , inc. , as of december 31 , 2018 , and its direct and indirect wholly-owned subsidiaries . all significant intercompany accounts and transactions have been eliminated in consolidation . story_separator_special_tag style= '' text-align : left ; font-size:8pt ; '' > $ 42,979,521 other income ( expense ) net distributions and dividend income $ 106,795 $ 680,091 $ 1,140,824 net realized and unrealized gain ( loss ) on other equity securities ( 1,845,309 ) 1,531,827 824,482 interest expense ( 12,759,010 ) ( 12,378,514 ) ( 14,417,839 ) gain on the sale of leased property , net 11,723,257 — — loss on extinguishment of debt — ( 336,933 ) — total other expense ( 2,774,267 ) ( 10,503,529 ) ( 12,452,533 ) income before income taxes 41,293,150 36,681,934 30,526,988 income tax expense ( benefit ) , net ( 2,418,726 ) 2,345,318 ( 464,420 ) net income 43,711,876 34,336,616 30,991,408 less : net income attributable to non-controlling interest — 1,733,826 1,328,208 net income attributable to corenergy stockholders $ 43,711,876 $ 32,602,790 $ 29,663,200 preferred dividend requirements 9,548,377 7,953,988 4,148,437 net income attributable to common stockholders $ 34,163,499 $ 24,648,802 $ 25,514,763 other financial data ( 1 ) adjusted ebitda re $ 69,395,739 $ 67,944,360 $ 67,768,945 nareit ffo 46,796,201 46,308,969 45,573,219 ffo 47,959,311 46,046,781 45,396,401 affo 49,024,120 50,536,194 52,438,268 ( 1 ) refer to the `` non-gaap financial measures '' section that follows for additional details . year ended december 31 , 2018 compared to year ended december 31 , 2017 revenue . consolidated revenues were $ 89.2 million for the year ended december 31 , 2018 compared to $ 88.7 million for the year ended december 31 , 2017 , representing an increase of $ 482 thousand . lease revenue was $ 72.7 million and $ 68.8 million for the years ended december 31 , 2018 and 2017 , respectively , with the increase of approximately $ 3.9 million driven primarily by variable rent collected on the pinedale lease during 2018. transportation and distribution revenue from our subsidiaries mogas and omega was $ 16.5 million and $ 19.9 million for the years ended december 31 , 2018 and 2017 , respectively . the $ 3.5 million decrease primarily resulted from a change to straight-line revenue recognition on mogas ' long-term contract with spire under the new revenue recognition standard that was adopted on january 1 , 2018. revenue recognized for the year ended december 31 , 2018 was approximately $ 3.2 million lower under the new accounting standard . refer to part iv , item 15 , note 4 ( `` transportation and distribution revenue '' ) for additional details . transportation and distribution expenses . transportation and distribution expenses were $ 7.2 million and $ 6.7 million for the years ended december 31 , 2018 and 2017 , respectively , representing an increase of $ 481 thousand . the increase relates primarily to mogas , which had higher legal and consulting costs during 2018 related to the ferc rate case . the increase was partially offset by lower costs from the timing of projects performed by omega for fort leonard wood . 41 glossary of defined terms general and administrative expenses . general and administrative expenses were $ 13.0 million for the year ended december 31 , 2018 compared to $ 10.8 million for the year ended december 31 , 2017 . story_separator_special_tag the net loss recorded during the year ended december 31 , 2018 related to ( i ) the sale of our equity interest in joliet to zenith terminals and ( ii ) lightfoot 's disposition of its remaining asset interest at the end of 2018. the net gain recorded during the year ended december 31 , 2017 was primarily due to gains realized related to lightfoot upon completion of the arc logistics merger and valuation of the remaining investment in the lightfoot lp and gp interests . see part iv , item 15 , note 10 ( `` fair value '' ) for additional information . interest expense . for the years ended december 31 , 2018 and 2017 , interest expense totaled approximately $ 12.8 million and $ 12.4 million , respectively . this increase was attributable to ( i ) increased interest on the amended pinedale term credit facility during the current year as a result of the refinancing with prudential on december 29 , 2017 , partially offset by ( ii ) interest incurred on outstanding borrowings on the corenergy revolver and corenergy term loan during the prior year . gain on the sale of leased property . for the year ended december 31 , 2018 , a gain on the sale of leased property totaling approximately $ 11.7 million was recorded in connection with the sale of the portland terminal facility to zenith terminals on december 21 , 2018. for additional information , see part iv , item 15 , note 3 ( `` leased properties and leases '' ) . there was no gain on the sale of leased property recorded for the year ended december 31 , 2017 . loss on extinguishment of debt . for the year ended december 31 , 2017 , a loss on extinguishment of debt totaling approximately $ 337 thousand was recorded in connection with entering into the amended and restated corenergy credit facility on july 28 , 2017 and amended pinedale term credit facility on december 29 , 2017. for additional information , see part iv , item 15 , note 11 ( `` debt '' ) . there was no loss on extinguishment of debt recorded for the year ended december 31 , 2018 . income tax expense ( benefit ) . income tax benefit was $ 2.4 million for the year ended december 31 , 2018 compared to an income tax expense of $ 2.3 million for the year ended december 31 , 2017 . the increased benefit in the current year was primarily attributable to ( i ) higher losses generated by our trs subsidiaries and ( ii ) the capital losses generated from the sale of our interest in joliet to zenith terminals and lightfoot 's disposition of its remaining asset interest that will be carried back against capital gains generated from the sale of a portion of the lightfoot investment in the prior year . income tax expense for the year ended december 31 , 2017 was primarily attributable to ( i ) the transition tax adjustment associated with application of lower effective tax rates from the tax cuts and jobs act enacted in december 2017 to existing deferred tax asset balances at our trs entities , ( ii ) the write-off of certain deferred tax assets in connection with the reorganization of omega from a trs subsidiary to a qualified reit subsidiary and ( iii ) realized and unrealized gains recorded associated with our lightfoot investment . net income . net income was $ 43.7 million and $ 34.3 million for the years ended december 31 , 2018 and 2017 , respectively , representing an increase of $ 9.4 million . for the years ended december 31 , 2018 and 2017 , net income attributable to corenergy stockholders was $ 43.7 million and $ 32.6 million , respectively . after deducting $ 9.5 million and $ 8.0 million for the portion of preferred dividends that are allocable to each respective period , net income attributable to common stockholders for the year ended december 31 , 2018 was $ 34.2 million , or $ 2.86 per basic and $ 2.79 diluted common share , as compared to $ 24.6 million , or $ 2.07 per basic and diluted common share , for the prior-year period . year ended december 31 , 2017 compared to year ended december 31 , 2016 revenue . consolidated revenues were $ 88.7 million for the year ended december 31 , 2017 compared to $ 89.3 million for the year ended december 31 , 2016 , representing a decrease of $ 501 thousand . lease revenue was $ 68.8 million and $ 68.0 million for the years ended december 31 , 2017 and 2016 , respectively , with the increase of approximately $ 810 thousand driven primarily by variable rent collected on the pinedale lease during 2017. transportation and distribution revenue from our subsidiaries mogas and omega was $ 19.9 million and $ 21.1 million for the years ended december 31 , 2017 and 2016 , respectively . the $ 1.1 million decrease primarily resulted from projects performed in the prior year by omega for fort leonard wood and other construction projects at mogas . transportation and distribution expenses . transportation and distribution expenses were $ 6.7 million and $ 6.5 million for the years ended december 31 , 2017 and 2016 , respectively , representing an increase of $ 266 thousand . the increase relates primarily to planned pipeline integrity maintenance work at mogas during 2017 , partially offset by decreased costs at omega due to projects performed at fort leonard wood and other construction projects at mogas . 43 glossary of defined terms general and administrative expenses . general and administrative expenses were $ 10.8 million for the year ended december 31 , 2017 compared to $ 12.3 million for the year ended december 31 , 2016 . the most significant components of the variance from the prior-year period are outlined in the following table and explained below : replace_table_token_4_th management fees are directly proportional to our asset base .
| results of operations the following table summarizes the financial data and key operating statistics for corenergy for the years ended december 31 , 2018 , 2017 and 2016 . we believe the operating results detail presented below provides investors with information that will assist them in analyzing our operating performance . the following data should be read in conjunction with our consolidated financial statements and the notes thereto included in part iv , item 15 of this report . 40 glossary of defined terms the following table and discussion are a summary of our results of operations for the years ended december 31 , 2018 , 2017 and 2016 : for the years ended december 31 , 2018 2017 2016 revenue lease revenue $ 72,747,362 $ 68,803,804 $ 67,994,130 transportation and distribution revenue 16,484,236 19,945,573 21,094,112 financing revenue — — 162,344 total revenue 89,231,598 88,749,377 89,250,586 expenses transportation and distribution expenses 7,210,748 6,729,707 6,463,348 general and administrative 13,042,847 10,786,497 12,270,380 depreciation , amortization and aro accretion expense 24,947,453 24,047,710 22,522,871 provision for loan ( gain ) loss ( 36,867 ) — 5,014,466 total expenses 45,164,181 41,563,914 46,271,065 operating income $ 44,067,417 $ 47,185,463 < div
| 3,899 |
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