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rail group assets the components of the rail group assets leased to others are as follows : replace_table_token_34_th depreciation expense on rail group assets leased to others amounted to $ 18.6 million , $ 17.6 million story_separator_special_tag forward looking statements the following “ management 's discussion and analysis of financial condition and results of operations ” contains forward-looking statements which relate to future events or future financial performance and involve known and unknown risks , uncertainties and other factors that may cause actual results , levels of activity , performance or achievements to be materially different from those expressed or implied by these forward-looking statements . you are urged to carefully consider these risks and factors , including those listed under item 1a , “ risk factors. ” in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” or the negative of these terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these forward-looking statements relate only to events as of the date on which the statements are made and the company undertakes no obligation , other than any imposed by law , to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . executive overview our operations are organized , managed and classified into five reportable business segments : grain , ethanol , plant nutrient , rail , and retail . each of these segments is based on the nature of products and services offered . the agricultural commodity-based business is one in which changes in selling prices generally move in relationship to changes in purchase prices . therefore , increases or decreases in prices of the agricultural commodities that the business deals in will have a relatively equal impact on sales and cost of sales and a much less significant impact on gross profit . as a result , changes in sales for the period may not necessarily be indicative of the overall performance of the business and more focus should be placed on changes to gross profit . grain group total grain storage capacity is approximately 150 million bushels as of december 31 , 2016 compared to 164 million bushels at december 31 , 2015. storage decreased due to the sale of assets in iowa during 2016. grain inventories on hand at december 31 , 2016 were 108.4 million bushels , of which 0.9 million bushels were stored for others . this compares to 119.8 million bushels on hand at december 31 , 2015 , of which 3.4 million bushels were stored for others . 2016 performance in the grain group reflected challenges in core grain assets , as well as lower returns from affiliates . the 2015 harvest saw significant challenges in the eastern corn belt where many of our facilities are located and the limited opportunities for space income during the first nine months of 2016. in the fourth quarter of 2016 , we saw significantly better production in our core regions which has allowed us to purchase grain at more typical prices . additionally , performance at one of our equity method grain affiliates was challenged due to weakness in the export market for ddgs as well as losses on trading positions during periods of market volatility in the first half of the year . corn acre planting estimates for 2017 are approximately 90 to 93 million acres , which is down modestly from the 94 million planted in 2016. soybean acres to be planted are estimated at approximately 87 to 90 million acres , which is up compared to the 83 million planted in 2016. additionally , we are expecting a decline in acres dedicated to wheat in 2017. the high wheat stocks on hand in domestic storage facilities , combined with wheat 's ability to be stored for long periods of time have provided strong storage rates for the company in 2016 which shifts incentive for production to other grains . assuming yields in the areas the company does business are consistent with trends , this should create a good base for the company 's grain group in 2017 with combined corn and soybean acreage ranging from flat to a small increase . in 2017 , our grain group will also continue its focus on driving profitable growth and enhancing risk management and grain marketing services . ethanol group the ethanol group continued to execute well , realizing high levels of production and exercising effective risk management throughout the year . some weakness in margins on co-products , such as ddg , occurred in the second half of the year due to lower international demand as well as localized elevated levels of vomitoxin in the 2016 corn crop . higher gasoline demand , improved demand and prices for ddg in relation to corn price , and an ample corn supply are factors that could potentially improve margins going into 2017. volumes shipped for the years ended december 31 , 2016 and 2015 were as follows : 20 replace_table_token_7_th the above table shows only shipped volumes that flow through the company 's sales revenues . total ethanol , ddg , and corn oil production by the unconsolidated llcs are higher , however , the portion of this volume that is sold directly to their customers is excluded here . construction is nearing completion of a project to double the ethanol production capacity of our facility in albion , michigan . albion is positioned in an attractive market for supply of corn and demand for ethanol . story_separator_special_tag in january 2017 , the company announced that the retail segment will be closed in the first half of 2017. we expect to incur incremental severance and shut-down costs in the range of $ 9 to $ 14 million as well as future gains or losses on the disposition of property , however the timing and amounts of those asset sales is not known at this point . other replace_table_token_15_th the net corporate operating loss ( costs not allocated back to the business units ) decreased $ 54.4 million to a loss of $ 28.3 million for 2016. the most significant decrease was due to the prior year $ 51.4 million settlement charge for the termination of the defined benefit pension plan . income taxes income tax expense of $ 6.9 million was provided at 32.3 % . in 2015 , an income tax benefit of $ 0.2 million was provided at 2.1 % . the lower effective tax rate in 2015 relative to the loss before income taxes was due primarily to a goodwill write-off that did not provide a corresponding tax benefit . 25 comparison of 2015 with 2014 grain group replace_table_token_16_th operating results for the grain group decreased $ 67.6 million compared to full year 2014 results . sales and merchandising revenues decreased $ 198 million compared to 2014 due to a decrease in commodity prices which was partially offset by a 12 percent increase in bushels sold as a result of the auburn bean & grain acquisition in late 2014. average prices for bushels sold during the year decreased by 13 percent for corn and 17 percent for soybeans compared to 2014. cost of sales and merchandising revenues decreased $ 191 million following the decrease in average commodity prices and increase in bushels sold noted above . gross profit decreased $ 7.5 million due to declines of $ 1.2 million from blending operations , $ 7.6 million from space income , and $ 9.6 million from the negative financial impact on risk management positions resulting from weather-induced market volatility . this was partially offset by gross profit increases of $ 1.4 million for merchandising fees and $ 5.4 million in higher margins on contracted sales . operating , administrative , and general expenses were $ 11.6 million higher than 2014 largely due to a $ 7.2 million increase in labor and benefits . the grain group also recognized a goodwill impairment charge of $ 46.4 million driven by compressed margins over the past several years and anticipated unfavorable operating conditions in domestic and global commodity markets , including oil and ethanol , as well as foreign exchange impacts . equity in earnings of affiliates decreased $ 12.9 million due to reduced operating results of ltg and thompsons limited . it also includes our share ( $ 2.8 million ) of a correction of a prior period accounting error at lansing trade group . other income increased $ 4.8 million , which is attributable to a $ 6.0 million increase in gain from equity ownership transactions in ltg compared to the prior year . during the current year , our ownership interest was reduced from 39 % to 31 % resulting in a gain of $ 23.1 million whereas in the prior year out ownership was reduced from 48 % to 39 % resulting in a gain of $ 17.1 million . ethanol group replace_table_token_17_th operating results for the ethanol group decreased $ 63.8 million compared to full year 2014 results . sales and merchandising and service fee revenues decreased $ 210 million , with over 90 percent of the decrease related to ethanol sales . while ethanol 26 gallons sold increased over two percent , average ethanol prices decreased 27 percent . ddg volumes remained flat but revenues decreased 20 percent compared to the prior year due to a lower price per ton . cost of sales and merchandising revenues decreased $ 186 million following the decrease in average corn , ethanol , and ddg prices . gross profit decreased $ 23.7 million and is attributed to the decrease in ethanol and ddg prices relative to corn prices which caused margin compression . equity in earnings of affiliates decreased $ 51.7 million from prior year and represents a reduction of income from investments in three unconsolidated ethanol llcs . throughout the year , the ethanol facilities ' productivity and output remained strong , however earnings declined due to the same factors that caused a decrease in consolidated gross profit . the decrease in income attributable to noncontrolling interests is a direct result of the lower earnings at our consolidated ethanol facility that has noncontrolling interest owners . plant nutrient group replace_table_token_18_th operating results for the plant nutrient group decreased $ 24.4 million compared to full year 2014 results . sales and merchandising revenues increased $ 46 million due to $ 51 million in sales at the kay flo industries facilities acquired during 2015. revenues in the legacy business were flat . volumes were up five percent , however this was due primarily to tons sold by facilities acquired in recent acquisitions . cost of sales and merchandising revenues increased $ 43.4 million , also primarily due to the acquisition activity noted above . the acquired facilities offset by a modest decline in legacy business resulted in a $ 2.6 million increase to gross profit compared to the prior year . operating , administrative , and general expenses increased $ 14.0 million from the prior year , of which $ 13.8 million related to the 2015 acquisition of kay flo industries . of those costs , $ 4.9 million were non-recurring acquisition related items , including cost of sales increases as a result of inventory purchase accounting adjustments . goodwill impairment charges of $ 9.7 million for our farm center and cob businesses were recorded due to reduced volumes over the past several years .
| operating results the following discussion focuses on the operating results as shown in the consolidated statements of operations with a separate discussion by segment . additional segment information is included in note 13 to the company 's consolidated financial statements in item 8. replace_table_token_9_th comparison of 2016 with 2015 grain group replace_table_token_10_th 22 operating results for the grain group decreased $ 6.2 million compared to full year 2015 results . sales and merchandising revenues decreased $ 126.5 million compared to 2015. this was partially offset by a decrease of cost of sales and merchandising revenues of $ 110.9 million for a net unfavorable gross profit impact of approximately $ 15.6 million . the decrease was driven by $ 6.0 million in gross profit reduction from the 2016 sale of underperforming assets in iowa as well as $ 4.4 million of decrease in margins on sale of grain . we also saw a significant decline in opportunities for basis appreciation compared to 2015 for a negative gross profit variance of $ 14.2 million compared to the prior year . this was caused by a poor harvest causing elevated basis levels in the fourth quarter of 2015. these items were partially offset by $ 4.5 million of increased income from blending operations , $ 3.9 million of increased earnings on risk management fees , and a $ 1.7 million favorable variance on trading income . operating , administrative and general expenses were $ 9.3 million lower than in 2015. the decrease was primarily due to $ 8.2 million in reduced costs from the sale of iowa facilities with cost reductions in labor and benefits at remaining facilities accounting for an additional $ 1.7 million . the decreases were offset by $ 2.7 million of additional allocation charges , including amortization and support costs for the company 's new enterprise resource planning system .
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our commercialized medicines and product candidates in development are designed to help patients with eye diseases , allergic and inflammatory diseases , cancer , cardiovascular and metabolic diseases , neuromuscular diseases , infectious diseases , and rare diseases . as described in part i , item 1 . `` business , '' we currently have seven products that have received marketing approval and 21 product candidates in clinical development , all of which were discovered in our research laboratories . also refer to part i , item 1 . `` business '' for a summary of key events in 2018 and 2019 to date , and plans for the remainder of 2019 , related to our clinical programs . developing and commercializing new medicines entails significant risk and expense . before significant revenues from the commercialization of our antibody candidates or new indications for our marketed products can be realized , we ( or our collaborators ) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the fda and regulatory authorities in other countries . in addition , the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive , and new developments may render our products and technologies uncompetitive or obsolete . our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our continued success in commercializing eylea . we expect to continue to incur substantial expenses related to our research and development activities , a portion of which we expect to be reimbursed by our collaborators . also , our research and development activities outside our collaborations , the costs of which are not reimbursed , are expected to expand and require additional resources . we also expect to incur substantial costs related to the commercialization of eylea , dupixent , praluent , kevzara , and libtayo . our financial results may fluctuate from quarter to quarter and will depend on , among other factors , the net sales of our marketed products , the scope and progress of our research and development efforts , the timing of certain expenses , the continuation of our collaborations , in particular with sanofi and bayer , including our share of collaboration profits or losses from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators , and the amount of income tax expense we incur , which is partly dependent on the profits or losses we earn in each of the countries in which we operate . we can not predict whether or when new products or new indications for marketed products will receive regulatory approval or , if any such approval is received , whether we will be able to successfully commercialize such product ( s ) and whether or when they may become profitable . critical accounting policies and use of estimates a summary of the significant accounting policies that impact us is provided in note 1 to our consolidated financial statements . the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : it requires an assumption ( or assumptions ) regarding a future outcome ; and changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition . management believes the current assumptions used to estimate amounts reflected in our consolidated financial statements are appropriate . however , if actual experience differs from the assumptions used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our results of operations , and in certain situations , could have a material adverse effect on our liquidity and financial condition . the critical accounting estimates that impact our consolidated financial statements are described below . 61 revenue recognition during the first quarter of 2018 , we adopted accounting standards codification ( `` asc '' ) 606 , revenue from contracts with customers . under the terms of the new standard , revenue is measured as the amount of consideration we expect to be entitled to in exchange for transferring promised goods or providing services to a customer , and is recognized when ( or as ) we satisfy performance obligations under the terms of a contract . product revenue product sales consist of u.s. sales of eylea , libtayo , and arcalyst . we record revenue from product sales upon delivery to our distributors and specialty pharmacies ( collectively , our customers ) . revenue from product sales is recognized at a point in time when our customer is deemed to have obtained control of the product , which generally occurs upon receipt by our customers . the amount of revenue we recognize from product sales varies due to rebates , chargebacks , and discounts provided under governmental and other programs , distribution-related fees , and other sales-related deductions . in order to determine the transaction price , we estimate , utilizing the expected value method , the amount of variable consideration that we will be entitled to . this estimate is based upon contracts with customers and government agencies , statutorily-defined discounts applicable to government-funded programs , historical experience , estimated payer mix , and other relevant factors . calculating these provisions involves estimates and judgments . we review our estimates of rebates , chargebacks , and other applicable provisions each period and record any necessary adjustments in the current period 's net product sales . refer to the `` results of operations - revenues - net product sales `` section below for further details regarding our provisions , and credits/payments , for sales-related deductions . story_separator_special_tag the remaining activities and related costs , such as patient monitoring and administration , generally occur ratably throughout the life of the individual contract or study . in the event of early termination of a clinical trial , we accrue and recognize expenses in an amount based on our estimate of the remaining noncancelable obligations associated with the winding down of the clinical trial and or penalties . for clinical study sites , where payments are made periodically on a per-patient basis to the institutions performing the clinical study , we accrue expenses on an estimated cost-per-patient basis , based on subject enrollment and activity in each quarter . the amount of clinical study expense recognized in a quarter may vary from period to period based on the duration and progress of the study , the activities to be performed by the sites each quarter , the required level of patient enrollment , the rate at which patients actually enroll in and drop-out of the clinical study , and the number of sites involved in the study . clinical trials that bear the greatest risk of change in estimates are typically those that have a significant number of sites , require a large number of patients , have complex patient screening requirements , and span multiple years . during the course of a trial , we adjust our rate of clinical expense recognition if actual results differ from our estimates . our estimates and assumptions for clinical expense recognition could differ significantly from our actual results , which could cause material increases or decreases in research and development expenses in future periods when the actual results become known . stock-based compensation we recognize stock-based compensation expense for grants of stock option , restricted stock awards , and restricted stock units under our long-term incentive plans to employees and non-employee members of our board of directors based on the grant-date fair value of those awards . the grant-date fair value of an award is generally recognized as compensation expense over the award 's requisite service period . we use the black-scholes model to compute the estimated fair value of stock option awards . using this model , fair value is calculated based on assumptions with respect to ( i ) expected volatility of our common stock price , ( ii ) the periods of time over which employees and members of our board of directors are expected to hold their options prior to exercise ( expected lives ) , ( iii ) expected dividend yield on our common stock , and ( iv ) risk-free interest rates , which are based on quoted u.s. treasury rates for securities with maturities approximating the options ' expected lives . expected volatility has been estimated based on actual movements in our stock price over the most recent historical periods equivalent to the options ' expected lives . expected lives are principally based on our historical exercise experience with previously issued employee and board of directors option grants . the expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future . stock-based compensation expense also includes an estimate , which is made at the time of grant , of the number of awards that are expected to be forfeited . this estimate is revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . the assumptions used in computing the fair value of stock option awards reflect our best estimates but involve uncertainties related to market and other conditions , many of which are outside of our control . changes in any of these assumptions may materially affect the fair value of stock option awards granted and the amount of stock-based compensation recognized in future periods . 63 income taxes we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns , including deferred tax assets and liabilities for expected amounts of global intangible low-taxed income ( gilti ) inclusions . under this method , deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts ( `` temporary differences '' ) at enacted tax rates in effect for the years in which the differences are expected to reverse . a valuation allowance is established for deferred tax assets for which it is more likely than not that some portion or all of the deferred tax assets will not be realized . we periodically re-assess the need for a valuation allowance against our deferred tax assets based on various factors including our historical earnings experience by taxing jurisdiction , forecasts of future operating results , and utilization of net operating losses and tax credits prior to their expiration . significant judgment is required in making this assessment . uncertain tax positions , for which management 's assessment is that there is more than a 50 % probability of sustaining the position upon challenge by a taxing authority based upon its technical merits , are subjected to certain recognition and measurement criteria . significant judgment is required in making this assessment , and , therefore , we re-evaluate uncertain tax positions and consider various factors , including , but not limited to , changes in tax law , the measurement of tax positions taken or expected to be taken in tax returns , and changes in facts or circumstances related to a tax position . we adjust the level of the liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions . inventories we capitalize inventory costs associated with our products prior to regulatory approval when , based on management 's judgment , future commercialization is considered probable and the future economic benefit is expected to be realized ; otherwise , such costs are expensed .
| results of operations net income replace_table_token_5_th revenues replace_table_token_6_th net product sales net product sales of eylea in the united states increased in 2018 compared to 2017 and 2016 due to higher sales volume , partly offset by an increase in sales-related deductions primarily due to payer sales mix and new rebate and discount programs . in addition , on september 28 , 2018 , the fda approved libtayo for the treatment of patients with metastatic or locally advanced cscc . the following table summarizes the provisions , and credits/payments , for sales-related deductions . replace_table_token_7_th 65 sanofi collaboration revenue replace_table_token_8_th antibodies the lower reimbursement of antibody research and development costs in 2018 compared to 2017 and 2016 was partly due to the company 's discovery and preclinical development agreement with sanofi ending on december 31 , 2017 without any extension and , therefore , no further funding from sanofi under the antibody discovery agreement after 2017. in addition , the lower reimbursement of antibody research and development costs during 2018 compared to 2017 was primarily related to the timing of recognition of revenue related to clinical manufacturing for dupixent and a lower proportion of development reimbursements for dupixent that sanofi is required to fund under our license and collaboration agreement ( for example , following receipt of positive phase 3 results or u.s. regulatory approval ) . the lower reimbursement of antibody research and development costs under our license and collaboration agreement in 2017 , compared to 2016 , was also primarily due to a lower proportion of development reimbursements for dupixent as described above . in 2017 , the fda and the european commission approved dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis . in october 2018 , the fda also approved dupixent as an add-on maintenance therapy in patients with moderate-to-severe asthma aged 12 years and older .
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our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth in the section titled “ risk factors ” under part i , item 1a above . 69 we operate on a fiscal year that ends on december 31. overview we are a life sciences technology company focused on building innovative products and solutions to interrogate , understand and master biological systems at resolution and scale that matches the complexity of biology . our expanding suite of offerings leverages our cross-functional expertise across biology , chemistry , software and hardware to provide a comprehensive , dynamic and high-resolution view of complex biological systems . we have launched multiple products that enable researchers to understand and interrogate biological analytes in their full biological context . our commercial product portfolio leverages our chromium and chromium connect instruments , which we refer to as “ chromium instruments ” or “ instruments , ” and our proprietary microfluidic chips , slides , reagents and other consumables for our visium and chromium solutions , which we refer to as “ consumables. ” we bundle our software with these products to guide customers through the workflow , from sample preparation through analysis and visualization . since launching our first product in mid-2015 , and as of december 31 , 2020 , we have sold 2,412 instruments to customers around the world , including all of the top 100 global research institutions as ranked by nature in 2019 based on publications and all of the top 20 global biopharmaceutical companies by 2019 research and development spend . our products cover a wide variety of applications and allow researchers to analyze biological systems at fundamental resolutions and on massive scales , such as at the single cell level for millions of cells . our chromium instruments and chromium consumables are designed to work together exclusively . after buying a chromium instrument , customers purchase consumables from us for use in their experiments . in addition to instrument and consumable sales , we derive revenue from post-warranty service contracts for our chromium instruments . for the years ended december 31 , 2020 and 2019 , sales of our chromium instruments accounted for 13 % and 14 % of our revenue , respectively , sales of our consumables accounted for 85 % and 84 % of our revenue , respectively , and sales of services accounted for 2 % of our revenue in each year . we currently serve thousands of researchers in more than 45 countries . our customers include a range of academic , government , biopharmaceutical , biotechnology and other leading institutions around the globe . in both the years ended december 31 , 2020 and 2019 , approximately 65 % and 70 % , respectively , of our direct sales revenue came from sales to academic institutions . as of december 31 , 2020 , we employed a commercial team of over 290 employees , including more than 100 commissioned sales representatives , many with ph.d. degrees and many with significant industry experience . we follow a direct sales model in north america and certain regions of europe , representing the majority of our revenue . we sell our products through third-party distributors in asia , certain regions of europe , oceania , south america , the middle east and africa . we currently sell our products for research use only . for the years ended december 31 , 2020 and 2019 , sales within north america accounted for approximately 53 % and 57 % of our revenue , respectively . revenue increased 22 % to $ 298.8 million in the year ended december 31 , 2020 as compared to $ 245.9 million in the year ended december 31 , 2019 , primarily due to the increase in adoption of our instruments by customers and the use of associated consumables on those instruments . we focus a substantial portion of our resources on developing new products and solutions . our research and development efforts are centered around improving the performance of our existing assays and software , developing new chromium solutions such as multi-omics solutions , developing our visium platform , improving and developing new capabilities for our chromium platform , developing combined software and workflows across multiple solutions and investigating new technologies including the development of our in situ technology . we incurred research and development expenses of $ 123.4 million and $ 83.1 million for the years ended december 31 , 2020 and 2019 , respectively . we intend to make significant investments in this area for the foreseeable future . in addition , in 2020 , we invested in asset acquisitions resulting in in-process research and development charges of approximately $ 447.5 million . there were no similar acquisitions in the year ended december 31 , 2019. our instrument manufacturing is contracted out to a third-party contract manufacturer in asia and the united states and we manufacture the majority of our consumable products in-house , with a small amount of our components outsourced to key suppliers . we have designed our operating model to be capital efficient and to scale efficiently as our product volumes grow . historically , we have financed our operations primarily from the sale of our instruments and consumable products , the issuance and sale of our convertible preferred stock and common stock and the issuances of debt . on september 16 , 2019 , we completed an initial public offering ( “ ipo ” ) , in which we sold 11,500,000 shares of class a common stock ( which included 1,500,000 shares that were offered and sold pursuant to the full exercise of the ipo underwriters ' option to purchase additional 70 shares ) at a price to the public of $ 39.00 per share . we received aggregate net proceeds of $ 410.8 million after deducting offering costs , underwriting discounts and commissions of $ 37.7 million . story_separator_special_tag our customer service teams around the world are operating remotely and remain available to assist our customers and partners as needed ; due to the measures taken to ensure the safety of 10x personnel described above , we were able to materially increase our research and development capacity in the second , third and fourth quarters of 2020 relative to the height of the covid-19 shutdown . in 2020 , we launched four new products for our customers : ( 1 ) our targeted gene expression solution will allow researchers to target the genes most relevant for their research , validate their hypotheses faster and reduce sequencing costs ; ( 2 ) our single cell multiome atac+gene expression solution is designed to allow researchers to read both gene expression and epigenetic programming in the same cells across thousands to tens of thousands of cells in a single experiment ; ( 3 ) our visium spatial gene expression solution with immunofluorescence allows whole transcriptome spatial analysis and protein detection in the same tissue section ; and ( 4 ) a new version of our single cell immune profiling solution offers increased sensitivity , reduced sequencing costs and access to rare gene signatures ; despite the impacts of the covid-19 pandemic , including that the majority of 10x personnel worldwide continue to work remotely , these arrangements have not materially affected our ability to maintain our business operations , including the operation of financial reporting systems , internal control over financial reporting and disclosure controls and procedures . we implemented a cloud-based enterprise resource planning ( “ erp ” ) system , oracle cloud , to automate our business processes including our forecasting , accounts receivable , inventory and vendor management processes which went live during the third quarter of 2020. we were also able to complete the underwritten public follow-on offering and the acquisition of cartana during the third quarter of 2020 , the acquisition of readcoor during the fourth quarter of 2020 and the acquisition of tetramer shop aps in january 2021 ; and we continue to actively review and manage costs to navigate the current environment and to allow 10x to remain in a strong financial and operating position until the pandemic is brought under control . while the disruption is currently expected to be temporary , there is considerable uncertainty around its duration . we expect these disruptions to continue to impact our operating results , however , the extent of the financial impact and duration can not be reasonably estimated at this time . for further discussion of the risks relating to the impacts of the covid-19 pandemic , see the section titled “ risk factors , ” generally , and “ risk factors—the impacts and potential impacts of the covid-19 pandemic continues to create significant uncertainty for our business , financial condition and results of operations , ” specifically , under part i , item 1a . acquisitions on august 21 , 2020 , we purchased all of the outstanding shares of cartana , a privately held company based in stockholm , sweden , for $ 41.8 million , inclusive of $ 0.6 million of transaction costs and net of cash acquired of $ 1.5 million . cartana is developing in situ technology , consisting of a suite of proprietary reagents , which aims to enable researchers to visualize spatially resolved rna expression profiles with sub-cellular resolution throughout fresh frozen or formalin-fixed , paraffin-embedded tissue sections . on october 13 , 2020 , we purchased all of the outstanding shares of readcoor , a privately held company based in cambridge , massachusetts , for $ 407.4 million , inclusive of $ 1.6 million of transaction costs and net of cash acquired of $ 9.2 million . the total purchase consideration comprised of $ 101.4 million in cash and $ 306.0 million in shares of the company 's common stock , the purchase agreement provided for the company to issue 1,901,382 shares of the company 's class a common stock which was based on a contractual value of $ 250.0 million divided by the ten-day weighted average price of the company 's common stock shortly prior to the acquisition . in determining the total purchase consideration paid for readcoor , these shares 72 were valued at $ 306.0 million based on the fair value of the company 's class a common stock on the acquisition date . readcoor is also developing in situ technology . both these acquisitions were accounted for as asset acquisitions . see note 3 to the consolidated financial statements for further details . on january 8 , 2021 , we acquired 100 % of the outstanding shares of tetramer shop aps , a privately held company based in copenhagen , denmark , for $ 10 million in cash . tetramer shop aps develops and provides reagents for precise monitoring of antigen-specific t cells in research and development . key business metrics we regularly review a number of operating and financial metrics , including the instrument installed base and consumable pull-through , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . we believe that these metrics are representative of our current business ; however , we anticipate these may change or may be substituted for additional or different metrics as our business grows and as we introduce new products . instrument installed base replace_table_token_3_th our products are sold to academic , government , biopharmaceutical , biotechnology and other leading institutions around the globe . our chromium controller instrument is user installable and does not require in-person training . our chromium connect instrument requires installation and we offer in-person training for its use . we believe the instrument installed base is one of the indicators of our ability to drive customer adoption of our products . we define the instrument installed base as the cumulative number of chromium instruments sold since inception .
| cash flow summary the following table summarizes our cash flows for the periods indicated : replace_table_token_12_th operating activities the net cash used in operating activities of $ 217.9 million for the year ended december 31 , 2020 was due primarily to a net loss of $ 542.7 million , net cash outflow from changes in operating assets and liabilities of $ 50.4 million , partially offset by adjustments for class a common stock issued for in-process research and development related to the readcoor asset acquisition of $ 306.0 million , stock-based compensation expense of $ 48.6 million , depreciation and amortization of $ 14.0 million , amortization of leased right-of-use assets of $ 5.0 million and loss on extinguishment of debt of $ 1.5 million . the net cash outflow from operating assets and liabilities was primarily due to a decrease in accrued contingent liabilities of $ 24.5 million as a result of a payment of $ 34.5 million in december 2020 relating to the bio-rad judgement ( see note 7 for details ) , an increase in accounts receivable of $ 17.8 million due to timing of collections , an increase in inventory of $ 14.6 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand , a decrease in other noncurrent liabilities of $ 3.8 million , an increase in prepaid expenses and other current assets of $ 5.3 million , a decrease of $ 4.8 million in payment of operating lease expenses , an increase in other assets of $ 2.7 million and a decrease in accounts payable of $ 7.8 million due to timing of vendor payments .
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as a result of adopting asc 606 on january 1 , 2018 , engineering and construction contracts are now generally accounted for as a single unit of account ( a single performance obligation ) , resulting in a more constant recognition of revenue and margin over the term of the contract than under the previous guidance in which the company typically segmented revenue and margin recognition between the engineering and construction phases of its contracts . prior to 2018 , changes in the mix of work performed by the company had a larger impact , favorably or unfavorably , on the company 's margins . segment profit margins were generally higher during the earlier stages of the project life cycle as project execution activities were more heavily weighted to higher margin engineering activities rather than lower margin construction activities , particularly when there was a significant amount of materials , including customer-furnished materials , recognized during construction . for example , during 2017 , margins in the company 's energy & chemicals segment were adversely affected by a shift in the mix of work from higher margin engineering activities to lower margin construction activities . consolidated new awards in 2018 were $ 27.7 billion compared to $ 12.6 billion in 2017 and $ 21.0 billion in 2016 . the energy & chemicals and mining , industrial , infrastructure & power segments were the significant drivers of new award activity 29 during 2018 , including a liquefied natural gas export facility in canada , a copper project in the south of peru and an iron ore replacement mine in australia . all business segments contributed to the new award activity in 2017 , including a mining project in chile , a power restoration project in puerto rico , a contract extension for the logcap iv program , a propylene oxide project in texas and infrastructure projects in the united states and the netherlands . the energy & chemicals ; mining , industrial , infrastructure & power ; and government segments were the significant drivers of new award activity during 2016 , including an award for the tengiz oil expansion project in kazakhstan , which was awarded in the third quarter . approximately 80 percent of consolidated new awards for 2018 were for projects located outside of the united states compared to 53 percent for 2017. consolidated backlog was $ 40.0 billion as of december 31 , 2018 , $ 30.9 billion as of december 31 , 2017 , and $ 45.0 billion as of december 31 , 2016 . the increase in backlog in 2018 primarily resulted from the new award activity discussed above . the decrease in backlog in 2017 primarily resulted from the removal of two nuclear power plant projects for westinghouse electric company llc ( `` westinghouse '' ) and an adjustment to limit the contractual term of the magnox nuclear decommissioning project in the united kingdom ( the `` magnox rsrl project '' ) to a five year term , as well as new award activity being outpaced by work performed . as of december 31 , 2018 , approximately 71 percent of consolidated backlog related to projects located outside of the united states compared to 58 percent as of december 31 , 2017 . on march 1 , 2016 , the company acquired 100 percent of stork holding b.v. ( `` stork '' ) for an aggregate purchase price of 695 million ( or approximately $ 756 million ) , including the assumption of debt and other liabilities . stork , based in the netherlands , is a global provider of maintenance , modification and asset integrity services associated with large existing industrial facilities in the oil and gas , chemicals , petrochemicals , industrial and power markets . the company paid 276 million ( or approximately $ 300 million ) in cash consideration . the operations of stork are reported in the diversified services segment below . in february 2016 , the company made an initial cash investment of $ 350 million in cooec fluor heavy industries co. , ltd. ( `` cfhi '' ) , a joint venture in which the company has a 49 % ownership interest and offshore oil engineering co. , ltd. , a subsidiary of china national offshore oil corporation , has a 51 % ownership interest . through cfhi , the two companies own , operate and manage the zhuhai fabrication yard in china 's guangdong province . the company made additional investments of $ 26 million , $ 26 million and $ 62 million in 2018 , 2017 and 2016 , respectively , and has a future funding commitment of $ 26 million that is expected to be paid in the fourth quarter of 2019. for a more detailed discussion of the operating performance of each business segment , corporate general and administrative expense and other items , see `` — segment operations '' and `` — corporate , tax and other matters '' below . discussion of critical accounting policies and estimates the company 's discussion and analysis of its financial condition and results of operations is based upon its consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's significant accounting policies are described in the notes to consolidated financial statements . the preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . estimates are based on information available through the date of the issuance of the financial statements and , accordingly , actual results in future periods could differ from these estimates . story_separator_special_tag the warranty periods typically extend for a limited duration following substantial completion of the company 's work on a project . historically , warranty claims have not resulted in material costs incurred , and any estimated costs for warranties are included in the individual project cost estimates for purposes of accounting for long-term contracts . backlog in the engineering and construction industry is a measure of the total dollar value of work to be performed on contracts awarded and in progress . although backlog reflects business that is considered to be firm , cancellations , deferrals or scope adjustments may occur . backlog is adjusted to reflect any known project cancellations , revisions to project scope and cost , foreign currency exchange fluctuations and project deferrals , as appropriate . consolidated backlog differs from the company 's remaining unsatisfied performance obligations ( `` rupo '' ) discussed in note 3 to the consolidated financial statements . backlog includes the amount of revenue the company expects to recognize under ongoing operations and maintenance contracts for the remainder of the current year renewal period plus up to three additional years if renewal is considered to be probable , while rupo includes only the amount of revenue the company expects to recognize under ongoing operations and maintenance contracts with definite terms and substantive termination provisions . engineering and construction partnerships and joint ventures certain contracts are executed jointly through partnership and joint venture arrangements with unrelated third parties . generally , these arrangements are characterized by a 50 percent or less , noncontrolling ownership or participation interest that requires only a small initial investment . the arrangements are often formed for the single business purpose of executing a specific project and allow the company to share risks and secure specialty skills required for project execution . in accordance with asc 810 , `` consolidation , '' the company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a variable interest entity ( `` vie '' ) . the company considers a partnership or joint venture a vie if it has any of the following characteristics : ( a ) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support , ( b ) characteristics of a controlling financial interest are missing ( either the ability to make decisions through voting or other rights , the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity ) , or ( c ) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and or their rights to receive the expected residual returns of the entity , and substantially all of the entity 's activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights . upon the occurrence of certain events outlined in asc 810 , the company reassesses its initial determination of 31 whether the partnership or joint venture is a vie . the majority of the company 's partnerships and joint ventures qualify as vies because the total equity investment is typically nominal and not sufficient to permit the entity to finance its activities without additional subordinated financial support . the company also performs a qualitative assessment of each vie to determine if the company is its primary beneficiary , as required by asc 810. the company concludes that it is the primary beneficiary and consolidates the vie if the company has both ( a ) the power to direct the economically significant activities of the entity and ( b ) the obligation to absorb losses of , or the right to receive benefits from , the entity that could potentially be significant to the vie . the company considers the contractual agreements that define the ownership structure , distribution of profits and losses , risks , responsibilities , indebtedness , voting rights and board representation of the respective parties in determining if the company is the primary beneficiary . the company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary . as required by asc 810 , management 's assessment of whether the company is the primary beneficiary of a vie is continuously performed . for construction partnerships and joint ventures , unless full consolidation is required , the company generally recognizes its proportionate share of revenue , cost and profit in its consolidated statement of earnings and uses the one-line equity method of accounting in the consolidated balance sheet , which is a common application of asc 810-10-45-14 in the construction industry . the cost and equity methods of accounting are also used , depending on the company 's respective ownership interest and amount of influence on the entity , as well as other factors . at times , the company also executes projects through collaborative arrangements for which the company recognizes its relative share of revenue and cost . deferred taxes and uncertain tax positions deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the company 's financial statements or tax returns . the 2017 tax act , which was enacted on december 22 , 2017 , significantly changed how the u.s. taxes corporations . the 2017 tax act requires complex computations to be performed that were not previously required by u.s. tax law , significant judgments to be made in interpretations of the provisions of the 2017 tax act , significant estimates in calculations , and the preparation and analysis of information not previously relevant or regularly produced .
| results of operations consolidated revenue was $ 19.2 billion , $ 19.5 billion and $ 19.0 billion during 2018 , 2017 and 2016 , respectively . during 2018 , a revenue decline in the energy & chemicals segment was partially offset by revenue growth in the government segment . revenue in the mining , industrial , infrastructure & power and diversified services segments remained flat compared to 2017 . the company adopted accounting standards codification ( `` asc '' ) topic 606 `` revenue from contracts with customers '' on january 1 , 2018. the impact of adoption was an increase to the company 's revenue during 2018 of $ 132 million , primarily in the energy & chemicals segment . see note 3 in the notes to consolidated financial statements . during 2017 , revenue growth in the mining , industrial , infrastructure & power , government and diversified services segments was partially offset by a revenue decline in the energy & chemicals segment . 28 earnings before taxes for 2018 increased 25 percent to $ 482 million from $ 386 million in 2017 . earnings in 2018 were adversely affected by pre-tax charges totaling $ 361 million resulting from forecast revisions for estimated cost and schedule impacts on a fixed-price , gas-fired power plant project , a fixed-price downstream project and a fixed-price , offshore project . these charges were partially offset by a gain of $ 125 million associated with the sale of the company 's interest in a joint venture in the united kingdom . earnings in 2018 also benefitted from the adoption of asc 606 which resulted in an increase to earnings before taxes of $ 134 million , primarily in the energy & chemicals segment .
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derivative assets and liabilities derivative assets and liabilities relate to the foreign currency exchange and interest rate contracts discussed in note 4. fair value and carrying value were the same because the contracts were recorded at fair value . the fair values of the foreign currency contracts were calculated as the difference between the applicable forward foreign exchange rates at the reporting date and the contracted foreign story_separator_special_tag except for the historical statements contained in this report , the matters discussed in the following discussion and analysis include forward-looking statements that are subject to certain risks , uncertainties and assumptions . such forward-looking statements are intended to be identified in this document by the words , anticipate , believe , estimate , expect , intend , may , objective , outlook , plan , project , possible , potential , should and similar expressions . actual results may vary materially . forward-looking statements speak only as of the date they are made , and the company does not undertake any obligation to update them to reflect changes that occur after that date . factors that could cause actual results to differ materially include the items described in item 1a of this annual report on form 10-k. overview the company produces and sells intermediate chemicals that are used in a wide variety of applications worldwide . the overall business comprises three reportable segments : surfactants surfactants , which accounted for 74 percent of consolidated net sales in 2011 , are principal ingredients in consumer and industrial cleaning products such as detergents for washing clothes , dishes , carpets , floors and walls , as well as shampoos , body washes , toothpastes and fabric softeners . other applications include germicidal quaternary compounds , lubricating ingredients , emulsifiers ( for spreading agricultural products ) , plastics and composites and biodiesel . surfactants are manufactured at six north american sites ( five in the u.s. and one in canada ) , three european sites ( united kingdom , france and germany ) , three latin american sites ( mexico , brazil and colombia ) and one asian site ( philippines ; the company acquired controlling interest in stepan philippines inc. ( spi ) in the third quarter of 2010 ) . also in the third quarter of 2010 , the company purchased manufacturing assets in jurong island , singapore , and initiated the development of a methyl esters plant in that location . commercial production of methyl esters at the singapore plant is expected in the second quarter of 2012. the company also holds a 50 percent ownership interest in a joint venture , tiorco , llc ( tiorco ) , that markets chemical solutions for increasing the production of crude oil and natural gas from existing fields . the joint venture is accounted for under the equity method , and its financial results are excluded from surfactant segment operating results . polymers polymers , which accounted for 23 percent of consolidated net sales in 2011 , include two primary product lines : polyols and phthalic anhydride . polyols are used in the manufacture of rigid laminate insulation board for thermal insulation in the construction industry . polyols are also a base raw material for flexible foams , coatings , adhesives , sealants and elastomers . phthalic anhydride is used in unsaturated polyester resins , alkyd resins and plasticizers for applications in construction materials and components of automotive , boating and other consumer products . in addition , phthalic 23 anhydride is used internally in the production of polyols . in the u.s. , polymer product lines are manufactured at the company 's millsdale , illinois , site . in europe , polyols are manufactured at the company 's subsidiaries in germany and poland . the poland entity was acquired in the third quarter of 2010. in asia , polyols are produced at the company 's 80-percent owned joint venture in nanjing , china . specialty products specialty products , which accounted for three percent of consolidated net sales in 2011 , include flavors , emulsifiers and solubilizers used in the food and pharmaceutical industries . specialty products are primarily manufactured at the company 's maywood , new jersey , site . in the second quarter of 2011 , the company purchased three product lines from lipid nutrition b.v. ( lipid nutrition ) , a part of loders croklaan b.v. see the 2011 acquisition ' section that follows for details of that transaction . all three segments have growth strategies that require investment outside of north america . recent global initiatives include surfactant investments in brazil and singapore , polymer investments in germany and poland and a specialty products investment in the netherlands ( lipid nutrition ) . these growth activities have resulted in higher near-term costs while facilitating the company 's long-term growth strategies . 2011 acquisition on june 23 , 2011 , the company purchased the clarinol ® , marinol ® , and pinnothin ® product lines of lipid nutrition . the acquired product lines are included in the company 's specialty products segment , and provide a portfolio of nutritional fats for the food , supplement and nutrition industries . the acquired product lines are produced at the company 's maywood , new jersey , plant and outside contract manufacturers . the purchase price of the acquisition , which included $ 5.0 million of inventory , was $ 13.6 million of cash . 2010 acquisitions on july 2 , 2010 , the company purchased the manufacturing assets of peter cremer gmbh 's 100,000 ton per year methyl esters plant located on jurong island in singapore . the company is installing methyl esters fractionation capability on the site . methyl esters are a core building block of the company 's surfactants segment , and the acquisition of the jurong island manufacturing assets provides the company an opportunity to reach its global customer base with methyl esters and value added derivatives made from tropical oils available in the region . story_separator_special_tag the sales volume decline was attributable to the uk subsidiary where some laundry and cleaning and personal care business was lost due to price competition . net sales for latin american operations improved 33 percent due to a 13 percent increase in average selling prices and a 14 percent increase in sales volume , which accounted for $ 16.9 million and $ 15.8 million , respectively , of the year-over-year net sales change . the favorable effects of foreign currency translation contributed $ 4.0 million to the net sales growth . sales volume increased for all three latin american subsidiaries , with the brazil facility posting a 22 percent increase due to business gained as a result of the location 's additional neutralizing capacity . the higher average selling prices were largely attributable to increased raw material costs . the strengthening of all three locations ' currencies against the u.s. dollar led to the favorable currency translation effect . the net sales increase for asia operations reflected a full year of sales for the company 's philippines subsidiary in 2011 compared to approximately five months of sales in 2010. excluding the additional months included in the current year 's results , sales volume was up 17 percent over last year . 30 surfactants operating income for 2011 was $ 7.8 million higher than operating income for 2010. gross profit increased $ 13.7 million principally due to the effects of improved margins in north america and the inclusion of the philippines income in segment results . lower european operations gross profit , due to reduced sales volume and higher manufacturing expenses , and lower latin america gross profit , largely due to costs related to the start up of the neutralizer expansion in brazil , negatively impacted surfactants gross profit . operating expenses increased $ 5.9 million , or eight percent . year-over-year comparisons of gross profit by region and total segment operating expenses and operating income follow : replace_table_token_12_th gross profit for north american operations improved 11 percent year-over-year despite a four percent decline in sales volume . a more favorable sales mix and the previously noted increase in average selling prices more than offset the impact of the decrease in sales volume . in addition , 2010 gross profit was negatively affected by expenses associated with a one-month lockout of hourly workers at the company 's millsdale ( illinois ) plant related to a labor agreement dispute . gross profit for european operations declined 10 percent due to lower sales volume and higher manufacturing expenses . manufacturing expenses were up about $ 2.9 million , or 10 percent , year-over-year primarily as a result of increased maintenance costs for the united kingdom and germany facilities . in addition , the effects of a planned three-week shutdown for a mandatory inspection at the company 's germany subsidiary contributed to the rise in manufacturing expenses . the favorable effects of foreign currency translation lessened the year-over-year decline in gross profit by $ 0.9 million . gross profit for latin american operations declined 14 percent despite the 14 percent increase in sales volume . one-time costs related to a delay in the start up of the recent neutralizer capacity expansion project in brazil and increased manufacturing costs attributable to the new neutralization capabilities more than offset the effect of the higher sales volume . in addition to the costs for brazil , the decline in gross profit also reflected selling price increases that lagged raw material cost increases , particularly for the mexico subsidiary . with spending on these one-time activities complete , fourth quarter 2011 gross profit exceeded fourth quarter 2010 gross profit by $ 1.2 million , or 42 percent . 31 the $ 4.0 million gross profit increase for asia operations reflected a full year of profit for the company 's philippines subsidiary in 2011 compared to only five months of gross profit in 2010 , when it was first consolidated after securing majority ownership . in addition , the current year results benefited from a $ 1.4 million recovery of value added tax receivables , which were reserved for in a prior year due to collection uncertainty . operating expenses for the surfactants segment increased $ 5.9 million , or eight percent , year over year . higher expenses for north american operations ( $ 3.7 million ) , additional expenses for the singapore and philippines locations , which were first consolidated in the third quarter of 2010 ( $ 1.7 million ) , and the effects of foreign currency translation ( $ 1.1 million ) accounted for most of the operating expense increase . the increase in north america operating expenses was attributable to higher research and development ( $ 2.1 million ) and marketing expenses ( $ 1.8 million ) . higher salary and temporary help expenses accounted for the increased north america research and development expense . increased support expenses for the expanding asia operations accounted for most of the increase in north american marketing expense . the remainder of the year-over-year difference was attributable to lower european operation expenses ( $ 1.9 million ) partially offset by higher latin american operation expenses ( $ 1.4 million ) . polymers polymers net sales for 2011 increased $ 91.1 million , or 28 percent , over net sales for 2010. higher average selling prices , a nine percent improvement in sales volume and the favorable effects of foreign currency translation accounted for $ 55.3 million , $ 28.4 million and $ 7.4 million , respectively , of the increase . the higher average selling prices reflected increased costs for raw materials . all regions contributed to the improvement in sales volume . a year-over-year comparison of net sales by region is displayed below : replace_table_token_13_th net sales for north american operations increased 22 percent due to a 16 percent increase in average selling prices and a five percent increase in sales volume , which accounted for $ 36.1 million and $ 10.4 million , respectively , of the net sales improvement .
| summary net income , attributable to the company for 2011 , increased 10 percent to $ 72.0 million , or $ 6.42 per diluted share , compared to $ 65.4 million , or $ 5.90 per diluted share , for 2010. a detailed discussion of segment operating performance follows the summary . consolidated net sales increased $ 412.0 million , or 29 percent , between years . higher average selling prices , a three percent improvement in sales volume and the favorable effects of foreign currency translation accounted for approximately $ 340.6 million , $ 43.8 million and $ 27.6 million , respectively , of the increase . higher year-over-year raw material costs were the primary drivers for the increase in average selling prices . sales volume was up for all three reportable segments . the foreign currency translation effect reflected a weaker u.s. dollar against all foreign currencies in which the company transacts business . the company 's 2011 operating income grew $ 10.6 million , or 10 percent , over 2010 operating income . gross profit increased $ 19.6 million , or eight percent , primarily on improved results for the surfactants and polymers segments . gross profit for the specialty products segment was also up year-over-year due to the new lipid nutrition product line acquired in the second quarter of 2011. the favorable effects of foreign currency translation added $ 2.5 million to the year-over-year increase in gross profit . operating expenses increased $ 9.0 million , or seven percent , year over year primarily due to the following : marketing expenses , which include selling expenses , increased $ 5.5 million , or 14 percent , year over year . expenses related to the company 's growth initiatives in singapore , brazil and poland and the consolidation of the philippines entity accounted for $ 2.6 million of the increase .
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the asset captures the timing differences between expense recognition and current recovery in rates and will reverse over the remaining life of the related plant . ( a ) recoverable michigan income taxes story_separator_special_tag executive overview dte energy is a diversified energy company with 2014 operating revenues of approximately $ 12.3 billion and approximately $ 28.0 billion in assets . we are the parent company of dte electric and dte gas , regulated electric and natural gas utilities engaged primarily in the business of providing electricity and natural gas sales , distribution and storage services throughout michigan . we operate three energy-related non-utility segments with operations throughout the united states . the following table summarizes our financial results : replace_table_token_12_th the increase in 2014 income from continuing operations attributable to dte energy company is primarily due to higher earnings in the energy trading , electric , power and industrial projects , and gas storage and pipelines segments . the decrease in 2013 income from continuing operations attributable to dte energy company is primarily due to lower earnings in the energy trading segment , partially offset by higher earnings in the gas and power and industrial projects segments . please see detailed explanations of segment performance in the following results of operations section . dte energy 's strategy is to achieve long-term earnings growth , a strong balance sheet and an attractive dividend yield . our utilities ' growth will be driven by base infrastructure , new generation and environmental compliance capital investments . we are focused on executing plans to achieve operational excellence and customer satisfaction with a focus on customer affordability . we operate in a constructive regulatory environment and have solid relationships with our regulators . we have significant investments in our non-utility businesses . we employ disciplined investment criteria when assessing growth opportunities that leverage our assets , skills and expertise and provide diversity in earnings and geography . specifically , we invest in targeted energy markets with attractive competitive dynamics where meaningful scale is in alignment with our risk profile . we expect growth opportunities in the gas storage and pipelines and power and industrial projects segments . a key priority for dte energy is to maintain a strong balance sheet which facilitates access to capital markets and reasonably priced short-term and long-term financing . near-term growth will be funded through internally generated cash flows and the issuance of debt . we have an enterprise risk management program that , among other things , is designed to monitor and manage our exposure to earnings and cash flow volatility related to commodity price changes , interest rates and counterparty credit risk . capital investments our utility businesses require significant base capital investments each year in order to maintain and improve the reliability of asset bases , including power generation plants , distribution systems , storage fields and other facilities and fleets . dte electric 's capital investments over the 2015-2019 period are estimated at $ 5.7 billion for base infrastructure , $ 1.4 billion for new generation and $ 400 million for environmental compliance . dte electric plans to seek regulatory approval in general rate case filings and renewable energy plan filings for capital expenditures consistent with prior ratemaking treatment . dte gas 's capital investments over the 2015-2019 period are estimated at $ 1 billion for base infrastructure and $ 600 million for gas main renewal , meter move out , and pipeline integrity programs . in april 2013 , the mpsc issued an order approving an infrastructure recovery mechanism for dte gas and authorized the recovery of the cost of service related to $ 77 million of annual investment in its gas main renewal , meter move out , and pipeline integrity programs . in november 2014 , dte gas filed an application with the mpsc for approval of an increased infrastructure recovery mechanism surcharge to recover an additional $ 47 million of annual capital expenditures for its gas main renewal program . dte gas plans to seek regulatory approval in general rate case filings for base infrastructure capital expenditures consistent with prior ratemaking treatment . 24 environmental matters we are subject to extensive environmental regulation . additional costs may result as the effects of various substances on the environment are studied and governmental regulations are developed and implemented . actual costs to comply could vary substantially . we expect to continue recovering environmental costs related to utility operations through rates charged to our customers . dte electric is subject to the epa ozone and fine particulate transport and acid rain regulations that limit power plant emissions of sulfur dioxide and nitrogen oxides . since 2005 , the epa and the state of michigan have issued additional emission reduction regulations relating to ozone , fine particulate , regional haze . mercury , and other air pollution . these rules will lead to additional emission controls on fossil-fueled power plants to reduce nitrogen oxide , sulfur dioxide , acid gases , particulate matter and mercury emissions . to comply with these requirements , dte electric spent approximately $ 2.2 billion through 2014 . it is estimated that dte electric will make capital expenditures of approximately $ 100 million in 2015 and up to approximately $ 30 million of additional capital expenditures through 2019 based on current regulations . as directed by a june 2013 presidential memorandum , the epa is implementing regulatory actions under the clean air act to address emissions of greenhouse gases ( ghgs ) from the utility sector and other sectors of the economy . among these actions , the epa is proposing performance standards for emissions of carbon dioxide from new and existing electric generating units ( egus ) . the new source performance standards for new egus were proposed in september 2013 and the standards for existing , reconstructed and modified egus were proposed in june 2014. the epa plans to issue a final standard for both new and existing sources by july 2015 as described in the june 2013 presidential memorandum . story_separator_special_tag through our long term agreement with southwestern energy production company , we believe bluestone lateral and susquehanna gathering system are strategically positioned for future growth of the marcellus shale . progress continues on preliminary development activities on the proposed nexus pipeline , a transportation path for natural gas from the utica shale in ohio to michigan and ontario . during 2014 , several producers signed agreements as shippers , indicating their firm volume commitment subject to certain conditions customary in the pipeline industry . we are planning to have a partnership interest in the nexus pipeline . power and industrial projects power and industrial projects is comprised primarily of projects that deliver energy and utility-type products and services to industrial , commercial and institutional customers ; produce ref and sell electricity from renewable energy projects . power and industrial projects results are discussed below : replace_table_token_21_th operating revenues increased $ 339 million in 2014 and increased $ 127 million in 2013 . the 2014 increase is primarily due to a $ 354 million increase associated with higher volumes from ref projects and a $ 32 million increase associated with the start-up of a renewable power project , partially offset by a $ 46 million decrease due primarily to lower coal prices associated with the steel business . the 2013 increase is primarily due to a $ 161 million increase associated with higher volumes from ref projects and a $ 102 million increase due to the on-site energy projects acquired in the 2012 fourth quarter , partially offset by a $ 75 million decrease from exiting the coal transportation and marketing business and a $ 63 million decrease due primarily to lower coal prices associated with the steel business . 30 operation and maintenance expense increased $ 367 million in 2014 and increased $ 126 million in 2013 . the 2014 increase is primarily due to a $ 365 million increase associated with higher volumes from ref projects , a $ 23 million increase associated with the start-up of a renewable power project and a $ 20 million increase due to higher volumes , maintenance and general administrative expenses in the steel business , partially offset by a $ 46 million decrease due primarily to lower coal prices associated with the steel business . the 2013 increase is primarily due to a $ 173 million increase associated with higher volumes from ref projects and an $ 84 million increase due to the on-site energy projects acquired in the 2012 fourth quarter , partially offset by a $ 67 million decrease from exiting the coal transportation and marketing business and a $ 67 million decrease due primarily to lower coal prices associated with the steel business . depreciation and amortization expense increased by $ 5 million in 2014 and increased by $ 7 million in 2013 . the 2014 increase is primarily due to $ 4 million associated with the start-up of a renewable power project . the 2013 increase is primarily due to $ 10 million associated with the on-site energy projects acquired in the 2012 fourth quarter , partially offset by a $ 3 million decrease from exiting the coal transportation and marketing business . asset ( gains ) and losses , reserves and impairments , net increased by $ 8 million in 2014 and decreased by $ 1 million in 2013 . the 2014 increase was due primarily to a gain associated with a sale of an on-site project in 2014 and an asset impairment recorded in the prior year . other ( income ) and deductions decreased by $ 7 million in 2014 and increased $ 29 million in 2013 due primarily to variations in volumes of refined coal produced at ref sites with investors , and in 2014 , lower equity earnings at various projects . production tax credits increased by $ 44 million in 2014 and increased $ 9 million in 2013 primarily due to higher production volumes of refined coal that resulted in higher tax credits at ref projects . outlook — the company has constructed and placed in service nine ref facilities including five facilities located at third party owned coal-fired power plants . the company has sold membership interests in four of the facilities . we continue to optimize these facilities by seeking investors for facilities operating at dte electric and other utility sites . we intend to relocate an underutilized facility , located at a dte electric site , to an alternative coal-fired power plant which may provide increased production and emission reduction opportunities in future years . we expect sustained production levels of metallurgical coke and pulverized coal supplied to steel industry customers for 2015. substantially all of the metallurgical coke margin is maintained under long-term contracts . we have five renewable power generation facilities in operation . our on-site energy services will continue to be delivered in accordance with the terms of long-term contracts . we will continue to look for additional investment opportunities and other energy projects at favorable prices . power and industrial projects will continue to leverage its extensive energy-related operating experience and project management capability to develop additional energy projects to serve energy intensive industrial customers . energy trading energy trading focuses on physical and financial power and natural gas marketing and trading , structured transactions , enhancement of returns from dte energy 's asset portfolio , and optimization of contracted natural gas pipeline transportation and storage , and generating capacity positions . energy trading also provides natural gas , power and related services , which may include the management of associated storage and transportation contracts on the customers ' behalf , and the supply or purchase of renewable energy credits to various customers . 31 energy trading results are discussed below : replace_table_token_22_th operating revenues and fuel , purchased power and gas were impacted by an increase in gas volumes and prices , primarily in our gas structured strategy for the year ended december 31 , 2014 .
| results of operations the following sections provide a detailed discussion of the operating performance and future outlook of our segments . replace_table_token_13_th electric our electric segment consists principally of dte electric . electric results are discussed below : replace_table_token_14_th gross margin increased by $ 47 million in 2014 and decreased $ 4 million in 2013 . revenues associated with certain mechanisms and surcharges are offset by related expenses elsewhere in the consolidated statements of operations . 26 the following table details changes in various gross margin components relative to the comparable prior period : replace_table_token_15_th replace_table_token_16_th ( a ) represents power that is not distributed by dte electric . ( b ) represents deliveries for self generators who have purchased power from alternative energy suppliers to supplement their power requirements . operation and maintenance expense decreased $ 45 million in 2014 and decreased $ 52 million in 2013 . the decrease in 2014 is primarily due to decreased employee benefit expenses of $ 68 million , decreased distribution operations expenses of $ 36 million , and decreased power plant generation expenses of $ 7 million , partially offset by higher restoration and line clearance expenses of $ 19 million , increased low income energy assistance of $ 17 million , and increased energy optimization and renewable energy expenses of $ 13 million . in addition , 2014 included $ 17 million of expenses related to the transition of pld customers to dte electric 's distribution system effective july 1 , 2014. in may 2014 , the mpsc approved a trm that provides for recovery of the deferred net incremental revenue requirement associated with the transition that is reflected in the depreciation and amortization line in the consolidated statement of operations .
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unless the context otherwise requires , “ g-iii ” , “ us ” , “ we ” and “ our ” refer to g-iii apparel group , ltd. and its subsidiaries . references to fiscal years refer to the year ended or ending on january 31 of that year . for example , our fiscal year ended january 31 , 2016 is referred to as “ fiscal 2016. ” the following presentation of management 's discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our financial statements , the accompanying notes and other financial information appearing elsewhere in this report . overview g-iii designs , manufactures and markets an extensive range of apparel , including outerwear , dresses , sportswear , swimwear , women 's suits and women 's performance wear , as well as women 's handbags , footwear , small leather goods , cold weather accessories and luggage . we sell our products under our own proprietary brands , which include vilebrequin , g.h . bass , bass , andrew marc and marc new york , licensed brands and private retail labels . while our products are sold at a variety of price points through a broad mix of retail partners and our own stores , a majority of our sales are concentrated with our ten largest customers . sales to our ten largest customers comprised 61.3 % of our net sales in 2014 , 58.4 % of our net sales in fiscal 2015 and 63.5 % of our net sales in fiscal 2016. we operate in fashion markets that are intensely competitive . our ability to continuously evaluate and respond to changing consumer demands and tastes , across multiple market segments , distribution channels and geographic areas is critical to our success . although our portfolio of brands is aimed at diversifying our risks in this regard , misjudging shifts in consumer preferences could have a negative effect on our business . our success in the future will depend on our ability to design products that are accepted in the marketplace , source the manufacture of our products on a competitive basis , and continue to diversify our product portfolio and the markets we serve . starting with the first quarter of fiscal 2016 , we began reporting based on two segments : wholesale operations and retail operations . this change in our reportable segments is intended to better represent how our resources are allocated and our performance is assessed by our chief operating decision maker . the wholesale operations segment consists of our former licensed products and non-licensed products segments and includes sales of products under brands licensed by us from third parties , as well as sales of products under our own brands and private label brands . the retail operations segment consists primarily of our wilsons leather and g.h . bass stores , as well as a limited number of calvin klein performance stores . see note k to our consolidated financial statements for financial information with respect to these segments . we have expanded our portfolio of proprietary and licensed brands through acquisitions and by entering into license agreements for new brands or for additional products under previously licensed brands . our acquisitions have helped to broaden our product offerings , expand our ability to serve different tiers of distribution and add a retail component to our business . acquisitions are part of our strategy to expand our product offerings and increase the portfolio of proprietary and licensed brands that we offer through different tiers of retail distribution . in june 2015 , we entered into a joint venture agreement with karl lagerfeld group bv pursuant to which we acquired a 49 % ownership interest in klna , an entity that holds brand rights to karl lagerfeld trademarks for all consumer products ( except eyewear , fragrance , cosmetics , watches , jewelry , and hospitality services ) and apparel in the united states and canada . in addition , klna was granted an exclusive , irrevocable , royalty-free license to use the trademarks in mexico with respect to the same products . we account for our investment in the joint venture using the equity method of accounting . g-iii is also the first licensee of the joint venture and has been granted a five year license ( with two renewals of five years each ) for women 's apparel , women 's handbags , and men 's outerwear . we began shipping karl lagerfeld sportswear , dresses , women outerwear and handbags in the third quarter of fiscal 2016 and karl lagerfeld women 's footwear in the first quarter of fiscal 2017. in february 2016 , we expanded our partnership with respect to the karl lagerfeld brand through the acquisition of an approximately 19 % minority interest in the parent company of the group that holds the worldwide rights to the karl lagerfeld brand . 33 the g.h . bass business acquired in november 2013 added a well-known heritage brand that developed the iconic original penny loafer ( known as “ weejuns ” ) . we sell g.h . bass footwear , apparel and accessories primarily through g.h . bass outlet stores located in the united states . this acquisition doubled the size of our retail footprint and enabled us to leverage our wilsons infrastructure to operate our bass stores . g.h . bass licenses the brand for wholesale distribution of men 's and women 's footwear , men 's sportswear and men 's and boy 's tailored clothing . we also used our in-house expertise to produce certain key categories for bass , including our launch of bass women 's apparel in fall 2015. the vilebrequin business acquired in august 2012 provides us with a premier brand selling status products worldwide . story_separator_special_tag critical accounting policies are those that are most important to the portrayal of our financial condition and our results of operations , and require management 's most difficult , subjective and complex judgments , as a result of the need to make estimates about the effect of matters that are inherently uncertain . our most critical accounting estimates , discussed below , pertain to revenue recognition , accounts receivable , inventories , income taxes , goodwill and intangible assets and equity awards . in determining these estimates , management must use amounts that are based upon its informed judgments and best estimates . we continually evaluate our estimates , including those related to customer allowances and discounts , product returns , bad debts and inventories , and carrying values of intangible assets . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . revenue recognition goods are shipped to retailers in accordance with specific customer orders . we recognize wholesale sales when the risks and rewards of ownership have transferred to the customer , determined by us to be when title to the merchandise passes to the customer . in addition , we act as an agent in brokering sales between customers and overseas factories . on these transactions , we also recognize commission fee income on sales that are financed by and shipped directly to our customers . title to goods shipped by overseas vendors , transfers to customers when the goods have been delivered to the customer . net sales take into account reserves for returns and allowances . we estimate the amount of reserves and allowances based on current and historical information and trends . sales are reported net of returns , discounts and allowances . discounts , allowances and estimates of future returns are recognized when the related revenues are recognized . we recognize commission income upon the completion of the delivery by our vendors to the customer . we recognize retail sales upon customer receipt of our merchandise , generally at the point of sale . our retail sales are recorded net of applicable sales tax . 35 accounts receivable in the normal course of business , we extend credit to our wholesale customers based on pre-defined credit criteria . accounts receivable , as shown on our consolidated balance sheet , are net of allowances and anticipated discounts . in circumstances where we are aware of a specific customer 's inability to meet its financial obligation ( such as in the case of bankruptcy filings , extensive delay in payment or substantial downgrading by credit sources ) , a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected . for all other wholesale customers , an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements , assessments of collectability based on historical trends and an evaluation of the impact of economic conditions . an allowance for discounts is based on reviews of open invoices where concessions have been extended to customers . costs associated with allowable deductions for customer advertising expenses are charged to advertising expenses in the selling , general and administrative section of our consolidated statements of income . costs associated with markdowns and other operational charge backs , net of historical recoveries , are included as a reduction of net sales . all of these are part of the allowances included in accounts receivable . we reserve against known charge backs , as well as for an estimate of potential future deductions by customers . these provisions result from seasonal negotiations with our customers as well as historical deduction trends , net of historical recoveries and the evaluation of current market conditions . inventories wholesale inventories are stated at lower of cost ( determined by the first-in , first-out method ) or market , which comprises a significant portion of our inventory . retail inventories are valued at the lower of cost or market as determined by the retail inventory method . vilebrequin inventories are stated at the lower of cost ( determined by the weighted average method ) or market . we continually evaluate the composition of our inventories , assessing slow-turning , ongoing product as well as fashion product from prior seasons . the market value of distressed inventory is based on historical sales trends of our individual product lines , the impact of market trends and economic conditions , expected permanent retail markdowns and the value of current orders for this type of inventory . a provision is recorded to reduce the cost of inventories to the estimated net realizable values , if required . income taxes as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax expense , together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheet . goodwill and intangible assets asc 350 requires that goodwill and intangible assets with an indefinite life be tested for impairment at least annually and are required to be written down when impaired . we perform our test in the fourth fiscal quarter of each year , or more frequently , if events or changes in circumstances indicate the carrying amount of such assets may be impaired . goodwill and intangible assets with an indefinite life are tested for impairment by comparing the fair value of the reporting unit with its carrying value .
| results of operations the following table sets forth selected operating data as a percentage of our net sales for the fiscal years indicated below : 2016 2015 2014 net sales 100.0 % 100.0 % 100.0 % cost of goods sold 64.2 64.2 66.0 gross profit 35.8 35.8 34.0 selling , general and administrative expenses 26.8 27.0 25.6 depreciation and amortization 1.1 1.0 0.8 operating profit 7.9 7.8 7.6 other income — 0.5 — interest and financing charges , net ( 0.3 ) ( 0.4 ) ( 0.5 ) income before income taxes 7.6 7.9 7.1 income taxes 2.8 2.8 2.7 net income 4.8 5.1 4.4 add : loss attributable to noncontrolling interest — 0.1 0.1 net income attributable to g-iii
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fair value measurements at december 31 , 2014 level 1 level story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included 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 these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in item 1a : “ risk factors. ” this section and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties . forward-looking statements may be identified by the use of forward-looking words such as “ anticipate , ” “ believe , ” “ may , ” “ will , ” “ continue , ” “ seek , ” “ estimate , ” “ intend , ” “ hope , ” “ predict , ” “ could , ” “ should , ” “ would , ” “ project , ” “ plan , ” “ expect ” or the negative or plural of these words or similar expressions , although not all forward-looking statements contain these words . forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the 42 forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in the subsection entitled item 1a : “ risk factors ” above , which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in item 8 : “ financial statements and supplementary data ” of this annual report on form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references in this report to particular years or quarters refer to our fiscal years ended december 31 and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we are a leading provider of cloud-based enterprise work management software . we define enterprise work management software as software applications that enable organizations to plan , manage and execute projects and work . our family of applications enables users to manage their projects , professional workforce and it investments , automate document-intensive business processes and effectively engage with their customers , prospects and community via the web and mobile technologies . the continued growth of an information-based economy driven by technological innovation and globalization is causing a fundamental shift in the way work is done . these changes have given rise to a large and growing group of knowledge workers who operate in dynamic work environments as part of geographically dispersed and virtual teams . mckinsey estimates that , as of may , 2013 , there were more than 200 million knowledge workers globally . we believe that manual processes and legacy on- premise enterprise systems are insufficient to address the needs of the modern work environment . in order for knowledge workers to be successful , they need to interact with intuitive enterprise work systems in a collaborative way , including real-time access at any time , from anywhere and on any device . today , legacy processes and systems are being disrupted and replaced by cloud-based enterprise work management software that improves visibility , collaboration and productivity . in response to these changes , we are helping transform how work gets done by providing organizations and their knowledge workers with software applications that better align resources with business objectives and increase visibility , governance , collaboration , quality of customer experience and responsiveness to changes in the business environment . this results in increased work capacity , higher productivity , better execution and greater levels of customer engagement . our applications are easy-to-use , highly scalable and offer real-time collaboration for knowledge workers distributed on a local or global scale . our applications address enterprise work challenges in the following categories : project and information technology ( it ) financial management . enables customers to manage their organization 's projects , professional workforce and it costs . workflow automation . enables customers to automate document-intensive workflows among internal functional areas as well as with their partners and supply chain . digital engagement . enables customers to effectively engage with their customers , prospects and community via the web and mobile technologies . we sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel . in addition to our direct sales organization , we have an indirect sales organization , which sells to distributors and value-added resellers . we employ a land-and-expand go-to-market strategy . after we demonstrate the value of an initial application to an organization , our sales and account management teams work to expand the adoption of that initial application across the organization , as well as cross-sell additional applications to address other enterprise work management needs of the organization . our customer success organization supports our direct sales efforts by managing the post-sale customer lifecycle . our subscription agreements are typically sold either on a per-seat basis or on a minimum contracted volume basis with overage fees billed in arrears , depending on the application being sold . we service customers ranging from large global corporations and government agencies to small- and medium-sized businesses . we have more than 2,000 customers with over 235,000 users across a broad range of industries , 43 including financial services , retail , technology , manufacturing , education , consumer goods , media , telecommunications , government , food and beverage , healthcare and life sciences . we have achieved significant growth and scale in a relatively short period of time . story_separator_special_tag 2013 acquisitions filebound . in may 2013 , we acquired the businesses of filebound solutions , inc. and marex group , inc. , together filebound , a provider of cloud-based and perpetual license-based workflow automation and enterprise content management software , with a combination of cash , seller notes and equity , for total consideration of $ 14.7 million . the acquisition of filebound provided our customers the ability to automate document-based workflows and control access and distribution of their content to boost productivity , encourage collaboration and improve compliance . comsci . in november 2013 , we acquired the business of comsci llc , or comsci , a provider of cloud-based financial management software , with a combination of cash and equity , for total consideration of $ 7.6 million , with additional contingent consideration payable if certain performance targets are achieved . the acquisition of comsci enabled our customers to have visibility into the cost , quality and value of internal services delivered within their organizations . clickability . in december 2013 , we acquired the business of clickability , inc. , or clickability , a cloud-based platform for web content management , for $ 12.3 million . the acquisition of clickability provided an enterprise content management software application that is used by enterprise marketers and media companies to create , maintain and deliver websites that shape visitor experiences and empower non-technical staff to create , management , publish , analyze and refine content and social media assets without information technology intervention . for accounting purposes , the acquisition of clickability was recorded as of december 31 , 2013 and , accordingly , the operations of clickability had no impact on our statement of operations . 2014 acquisitions solution q. in november 2014 , the company acquired 100 % of the outstanding capital of solution q inc. ( solution q ) for total purchase consideration of $ 6.1 million , which includes cash of $ 4.5 million , net of $ 0.4 million of cash acquired , and 150,977 shares of the company 's common stock with a fair value of $ 1.6 million . solution q provides mid-market organizations an easy-to-use , turnkey solution for their project management and portfolio visibility needs . revenues recorded since the acquisition date for the year ended december 31 , 2014 were approximately $ 0.3 million . mobile commons . in december 2014 , the company acquired 100 % of the outstanding capital of mobile commons , inc. ( mobile commons ) for total purchase consideration of $ 10.2 million including cash of $ 5.7 million , net of $ 0.3 million of cash acquired , 386,253 shares of common stock valued at $ 4.5 million and excluding potential additional consideration for incremental additional revenue described below . the company agreed to pay additional consideration of up to $ 1.5 million in both cash and common stock to the selling shareholders of mobile commons based on the achievement of certain incremental revenue targets during fiscal 2015. the acquisition-date fair value of the contingent payment was measured based on the probability-adjusted present value of the consideration expected to be transferred , which amounted to $ 0.5 million . mobile commons ' enterprise-class application drives and manages digital engagement through two-way sms programs and campaigns . revenues recorded since the acquisition date for the year ended december 31 , 2014 were 45 approximately $ 0.5 million . 2015 acquisitions ultriva . on november 13 , 2015 , the company acquired 100 % of the outstanding capital of ultriva , inc. ( ultriva ) for total purchase consideration of $ 7.2 million , which includes cash of $ 5.6 million , net of $ 0.4 million of cash acquired , 179,298 shares of the company 's common stock with a fair value of $ 1.4 million , and an additional $ 200,000 in shares of common stock , subject to indemnification claims , one year from the date of the acquisition . ultriva provides cloud-based supply chain work management software . revenues recorded since the acquisition date for the year ended december 31 , 2015 were approximately $ 0.5 million . 2016 acquisitions leadlander . on january 7 , 2016 , upland completed its purchase of substantially all of the assets of a california-based website analytics provider . the purchase price consideration paid was approximately $ 8.2 million in cash payable at closing ( net of $ 0.2 million of cash acquired ) and a $ 1.2 million cash holdback payable in 12 months ( subject to indemnification claims ) . the foregoing excludes additional potential earnout payments tied to performance-based conditions . in addition to the cash consideration described above , the asset purchase agreement included a contingent share consideration component pursuant to which upland expects to issue an aggregate of approximately $ 2.4 million in shares of its common stock to the seller after july 7 , 2016 based on certain minimal post-closing performance-based conditions . hipcricket . on march 14 , 2016 , upland completed its purchase of substantially all of the assets of hipcricket , inc. , a cloud-based mobile messaging software provider . the consideration paid to the seller consisted of our issuance of one million shares of our common stock and the transfer of our epm live product business . the value of the shares on the closing date of the transaction was approximately $ 6.2 million and the fair value of our epm live product business was approximately $ 6.0 million . prior to the transaction , hipcricket was owned by an affiliate of esw capital , llc , which is a shareholder of upland . raymond james & co. provided a fairness opinion to upland in connection with the transaction . our acquisitions may have a material adverse impact on our results of operations , including a potential material adverse impact on our cost of revenue in the short term , as we seek to integrate our acquired businesses over the following six to twelve months in order to achieve additional operating efficiencies .
| results of operations consolidated statements of operations data the following tables set forth our results of operations for the specified periods , as well as our results of operations for the specified periods as a percentage of revenue . the period-to-period comparisons of results of operations are not necessarily indicative of results for future periods . replace_table_token_11_th 52 ( 1 ) includes stock-based compensation . ( 2 ) includes depreciation and amortization of $ 3,916,000 , $ 3,147,000 , and $ 1,640,000 in 2015 , 2014 , and 2013 , respectively . ( 3 ) see note 8 to our consolidated financial statements included elsewhere in this 10-k for a discussion and reconciliation of historical net loss attributable to common stockholders and weighted average shares outstanding for historical basic and diluted net loss per share calculations . 53 comparison of fiscal years ended december 31 , 2015 and 2014 revenue replace_table_token_12_th total revenue was $ 69.9 million in 2015 , compared to $ 64.6 million in 2014 , an increase of $ 5.3 million , or 8 % . of the increase in total revenue , $ 11.2 million was due to the acquisitions we closed in 2014 and 2015. the organic business ' total revenue decreased by $ 2.3 million in 2015 compared to 2014 due to the change in the foreign currency exchange rate between the canadian dollar versus the u.s. dollar for those periods . therefore , on a constant currency basis , our organic total revenue decreased by $ 3.6 million , or 6 % . this decline in organic revenue is primarily due to the decline in professional services revenues in accordance with our plan to focus on growing higher margin recurring revenues and de-emphasizing lower-margin professional services revenues .
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changes in unrealized gains and losses on marketable securities represent the only difference story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations should be read together with the consolidated financial statements , related notes and other financial information included elsewhere in this annual report on form 10-k. overview synta pharmaceuticals corp. is a biopharmaceutical company focused on discovering , developing , and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions , including cancer and chronic inflammatory diseases . we have two drug candidates in clinical trials for treating multiple types of cancer and several drug candidates in the preclinical stage of development . all of our drug candidates have been discovered and developed internally using our proprietary , unique chemical compound library and integrated discovery engine . we retain full ownership of all of our drug candidates . we were incorporated in march 2000 and commenced operations in july 2001. since that time , we have been principally engaged in the discovery and development of novel drug candidates . as of december 31 , 2012 , we have funded our operations principally with $ 465.2 million in net proceeds from private and public offerings of our equity , as well as $ 17 million in gross proceeds from two term loans , including $ 15 million from a term loan that was executed in september 2010 with general electric capital corporation , or gecc , and one other lender , and $ 2 million from a term loan that was executed in march 2011 with oxford finance corporation , or oxford . in january and february 2012 , we raised approximately $ 33.0 million in net proceeds from the sale of an aggregate of 8,050,000 shares of our common stock in a public offering at a public offering price of $ 4.40 per share , including 7,000,000 shares in the initial closing in january 2012 and 1,050,000 shares in a second closing in february 2012 following the full exercise of the over-allotment option granted to the underwriters . in july 2012 , we raised approximately $ 25.8 million in net proceeds from a registered direct offering of 3,976,702 shares of our common stock at a price of $ 6.49 per share to certain directors , including our largest stockholder . in december 2012 , we raised approximately $ 59.8 million in net proceeds from a registered direct offering of 7,000,000 shares of our common stock at a price of $ 8.60 per share to investors and certain directors , including our largest stockholder . on may 2 , 2012 , as amended , we entered into an at-the-market issuance sales agreement , or sales agreement , with mlv & co. llc , or mlv , pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 28 million from time to time , at our option , through mlv as our sales agent , subject to certain terms and conditions . to date , no shares have been sold under the sales agreement . in addition to raising capital from financing activities , we have also received substantial capital from partnering activities . in october 2007 , we entered into a global collaborative development , commercialization and license agreement with glaxosmithkline , or gsk , for the joint development and commercialization of elesclomol . this collaboration was terminated in september 2009. in december 2008 , we entered into a collaborative license agreement with hoffman-la roche , or roche , for our cracm inhibitor program . this collaboration was terminated effective on february 16 , 2012. as of december 31 , 2012 , we have received $ 167.2 million in nonrefundable partnership payments under these agreements with gsk and with roche , including $ 96 million in upfront payments , $ 50 million in operational milestones and $ 21.2 million in research and development funding . as of december 31 , 2012 , these nonrefundable partnership payments together with the cash proceeds from equity financings , the term loans from gecc and oxford , and the exercise of common stock warrants and options , provided aggregate cash proceeds of approximately $ 652.5 million . we have also generated funds from government grants , equipment lease financings and investment income . we are engaged in 56 preliminary partnership discussions for a number of our programs , which may provide us with additional financial resources if consummated . we have devoted substantially all of our capital resources to the research and development of our drug candidates . since our inception , we have had no revenues from product sales . as of december 31 , 2012 , we had an accumulated deficit of $ 461.2 million . we expect to incur significant operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical development and clinical trials , and seek regulatory approval and eventual commercialization . we will need to generate significant revenues from product sales to achieve future profitability and may never do so . oncology programs we have two clinical-stage programs and one preclinical-stage program in oncology : ganetespib ( hsp90 inhibitor ) ganetespib is a potent , synthetic , small molecule inhibitor of hsp90 , a chaperone protein that is essential to the function of certain other proteins , such as tyrosine kinases and transcription factors that drive the growth , proliferation , and survival of many different types of cancer . ganetespib is currently being evaluated in a broad range of clinical trials both in combination with other therapies and as a single agent . in clinical trials to date , ganetespib has shown encouraging evidence of clinical activity , including , when used as monotherapy , prolonged tumor shrinkage in patients who have progressed after , or failed to respond to , treatment with commonly-used drugs for these tumors , and in combination with chemotherapy where improvements in overall survival have been seen in a randomized study . story_separator_special_tag after completion of docetaxel treatment , patients on the ganetespib arm are eligible to continue to receive ganetespib monotherapy as maintenance treatment . the trial will be conducted in many of the 60 centers across europe and north america that participated in the galaxy-1 trial , together with approximately 60 additional centers . results from the interim analysis for galaxy-1 were used to inform the eligibility criteria for the galaxy-2 trial . galaxy-2 will enroll patients who have progressed following treatment with one prior platinum-containing regimen of chemotherapy as first-line therapy , and who were diagnosed with metastatic disease at least six months prior to study entry . the primary endpoint of galaxy-2 will be overall survival . two event-driven interim analyses of the overall survival primary endpoint of galaxy-2 have been specified . based on current projections and statistical assumptions , we expect these analyses , together with the final overall survival analysis , to occur in 2014. in 2011 , we presented results from a phase 2 trial of ganetespib administered as a monotherapy in patients with advanced nsclc at the asco annual meeting and the international association for the study of lung cancer ( iaslc ) 14th world conference on lung cancer , respectively . results presented at these meetings showed a connection between single-agent ganetespib clinical activity and certain tumor genetic profiles . four of eight patients who were alk+ , i.e. , for whom tumor genetic testing revealed rearrangements in the alk gene , experienced confirmed partial responses following treatment with ganetespib ( a 50 % objective response rate , using the standard definition of complete response plus partial response ) . to further characterize ganetespib activity in the alk+ nsclc treatment setting , we initiated the chiara trial in 2012 to evaluate ganetespib monotherapy in alk+ nsclc patients who have not been previously treated with a direct alk inhibitor . we expect to use results from an initial phase of enrollment , which was completed in the first quarter of 2013 , to inform our decision on whether to continue additional enrollment in this trial . 59 preclinical results from experiments conducted in our laboratories have demonstrated synergy between ganetespib and crizotinib or other alk inhibitors . these data support our view of future combination approaches with ganetespib and alk inhibitors for treatment of alk+ nsclc . a number of cancer centers and cooperative groups have approached us with proposals to support trials evaluating ganetespib in combination with other agents in alk+ disease . an investigator-sponsored phase 1/2 trial evaluating ganetespib and crizotinib combinations in patients with alk+ nsclc that have not been previously treated with an alk inhibitor began enrolling patients at memorial sloan-kettering cancer center ( mskcc ) in new york city in 2012. breast cancer in 2012 , we initiated the enchant trial designed to evaluate ganetespib monotherapy as first-line treatment for both metastatic her2+ breast cancer and tnbc . patients in both cohorts will be assessed at baseline and at week 3 , 6 , and 12 with a combination of pet and ct scans . the primary endpoint of this study is overall response rate at week 12. up to 35 patients will be enrolled in each of the her2+ and tnbc cohorts . we expect preliminary results from the enchant trial in the first half of 2013. in addition to evaluating monotherapy administration of ganetespib in breast cancer , we and our collaborators believe that combination therapy with ganetespib has promise . mskcc has announced that it will initiate a phase 1/2 trial evaluating ganetespib in combination with paclitaxel and herceptin in her2+ breast cancer , and ganetespib in combination with paclitaxel in tnbc . additional clinical trials in addition to the clinical trials we plan to initiate and continue in 2013 , a number of ganetespib trials sponsored by third parties , including cooperative groups , foundations , and individual investigators , have recently been initiated or are expected to initiate in 2013. these include the following : the trials evaluating ganetespib in breast cancer and in alk+ lung cancer sponsored by mskcc described above ; a randomized trial evaluating the combination of fulvestrant and ganetespib in patients with hormone receptor-positive , metastatic breast cancer , being conducted at the dana-farber cancer institute , which began enrolling patients in 2012 ; a trial evaluating the combination of ganetespib with capecitabine and radiation in patients with locally advanced rectal cancer being conducted at emory university , which began enrolling patients in 2012 ; a trial evaluating both ganetespib monotherapy and the combination of ganetespib and bortezomib in multiple myeloma , which began enrolling patients in 2012 and is supported by a grant of up to $ 1 million by the multiple myeloma research foundation ; a randomized trial evaluating the combination of ganetespib and low dose ara-c chemotherapy in elderly patients with acute myeloid leukemia ( aml ) being conducted at cardiff university , which began enrolling patients in 2012 ; and a trial evaluating ganetespib in combination with pemetrexed and cisplatin in patients with malignant pleural mesothelioma , being sponsored by cancer research uk , which we expect to begin enrolling patients in the first half of 2013. in addition , a european cooperative group plans to initiate a randomized trial comparing paclitaxel with and without ganetespib in patients with advanced ovarian cancer in 2013 . 60 elesclomol ( mitochondria-targeting agent ) elesclomol is a first-in-class , investigational drug candidate that triggers programmed cell death ( apoptosis ) , in cancer cells through a novel mechanism : disrupting cancer cell mitochondrial metabolism . in preclinical experiments , anti-cancer activity of elesclomol has been shown to correlate with certain biomarkers , including lactate dehydrogenase ( ldh ) , which can distinguish between active mitochondria ( sufficient oxygen present ) and inactive mitochondria ( insufficient oxygen present ) . consistent with these findings in three randomized clinical trials , ldh was an important predictor of elesclomol treatment outcome . our current clinical program for elesclomol includes a clinical trial of elesclomol as a monotherapy in aml .
| consolidated results of operations years ended december 31 , 2012 , 2011 and 2010 revenue replace_table_token_12_th roche overview . in december 2008 , as amended in february 2010 , february 2011 and july 2011 , we entered into a collaborative license agreement with roche to discover , develop , and commercialize small-molecule drugs targeting cracm channels and received a $ 16 million nonrefundable upfront payment from roche in january 2009. reimbursements of research and development costs to us by roche were recorded as cost sharing revenue in the period in which the related research and development costs were incurred . the initial two-year research term concluded on december 31 , 2010. on november 16 , 2011 , the company received written notice of roche 's election to terminate the roche agreement , which termination became effective on february 16 , 2012 . ( see notes 2 and 8 in the accompanying consolidated financial statements . ) license and milestone revenue under the roche agreement decreased by $ 6.7 million in 2012 as compared to 2011 and increased by $ 2.1 million in 2011 as compared to 2010. in the fourth quarter of 2011 , upon notification of roche 's election to terminate the roche agreement , we accelerated the recognition of approximately $ 2.1 million of remaining deferred revenue from the upfront payment because we had no remaining significant performance obligations . 67 grant revenue grant revenue decreased by $ 0.8 million in 2012 as compared to 2011 and by $ 0.1 million in 2011 as compared to 2010. in march 2011 , we received a grant from the dod , in the approximate amount of $ 1 million , for the development of sta-9584 in advanced prostate cancer .
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for the year ended december 31 , 2014 , the company realigned its reportable segments for financial reporting purposes as a result of the anchor and sos acquisitions in 2014 resulting in a new segment , oilfield services . this reporting change did not impact segment reporting for 2013 or the company 's consolidated results for any year . unitholders should read the following discussion and analysis of the financial condition and results of operations of the company in conjunction with the historical consolidated financial statements and notes of the company included elsewhere in this annual report . overview we are a leading independent producer of high-quality , specialty hydrocarbon products in north america . we are headquartered in indianapolis , indiana , and own specialty and fuel products facilities primarily located in northwest louisiana , northwest wisconsin , northern montana , western pennsylvania , texas , new jersey , eastern missouri and north dakota . we own and lease oilfield services locations in texas , oklahoma , louisiana , arkansas , colorado , utah , wyoming , montana , new mexico , new york , north dakota , pennsylvania and ohio . we own and lease additional facilities , primarily related to production and distribution of specialty , fuel and oilfield services products , throughout the united states ( “ u.s. ” ) . our business is organized into three segments : specialty products , fuel products and oilfield services . in our specialty products segment , we process crude oil and other feedstocks into a wide variety of customized lubricating oils , white mineral oils , solvents , petrolatums and waxes . our specialty products are sold to domestic and international customers who purchase them primarily as raw material components for basic industrial , consumer and automotive goods . we also blend and market specialty products through our royal purple , bel-ray , trufuel and quantum brands . in our fuel products segment , we process crude oil into a variety of fuel and fuel-related products , including gasoline , diesel , jet fuel , asphalt and heavy fuel oils , and from time to time resell purchased crude oil to third party customers . our oilfield services segment manufactures and markets products and provides oilfield services including drilling fluids , completion fluids and solids control services to the oil and gas exploration industry throughout the u.s. 2015 update story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > with the amount paid to unitholders in the previous quarter . the distribution was paid on february 12 , 2016 , to unitholders of record as of the close of business on february 2 , 2016. for the full year 2015 , we paid total cash distributions of $ 224.6 million , versus $ 210.2 million in 2014. however , in light of the current volatility in market conditions and based on a desire to maintain the appropriate level of liquidity , we continue to evaluate whether it is appropriate to maintain our current distribution level . our board of directors will review the distribution rate quarterly , and there can be no assurance that the current distribution level will be maintained . the actual distributions we will declare will be subject to our operating performance , prevailing market conditions ( including crack spreads ) , the impact of unforeseen events and the approval of our board of directors and the actual distributions will be pursuant to our distribution policy described in item 5 “ market for registrant 's common equity , related unitholder matters and issuer purchases of equity securities — cash distribution policy. ” 2016 capital spending forecast we currently anticipate total capital expenditures to range between $ 125.0 million and $ 150.0 million in 2016. this decrease in anticipated capital expenditures is due mainly to the conclusion of a multi-year organic growth project campaign in late 2015. liquidity update on december 31 , 2015 , we had availability under our revolving credit facility of approximately $ 233.5 million , based on a $ 411.3 million borrowing base , $ 66.8 million in outstanding standby letters of credit and $ 111.0 million in outstanding borrowings . in addition , we had $ 5.6 million of cash on hand as of december 31 , 2015 . we believe we will continue to have sufficient liquidity from cash on hand , cash flow from operations , borrowing capacity and other means by which to meet our financial commitments , debt service obligations , contingencies and anticipated capital expenditures . on a continuous basis , we focus on various initiatives , including working capital initiatives , to further enhance our liquidity over time , given current market conditions . renewable fuel standard update we , along with the broader refining industry , remain subject to compliance costs under the renewable fuel standard ( “ rfs ” ) . under the regulation of the environmental protection agency ( “ epa ” ) , the rfs provides annual requirements for the total volume of renewable transportation fuels which are mandated to be blended into finished petroleum fuels . if a refiner does not meet its required annual renewable volume obligation ( “ rvo ” ) , the refiner can purchase blending credits in the open market , referred to as renewable identification numbers ( “ rins ” ) . for the year ended december 31 , 2015 , our total cost to purchase rins was $ 38.8 million , versus $ 9.4 million in 2014. our gross rins obligation , which includes rins that are required to be secured through either blending or through the purchase of rins in the open market , was 99 million rins in 2015. for the full-year 2016 , we anticipate our gross rins obligation will increase to 120 million rins , given recent production capacity expansions at two of our fuel products refineries . we continue to anticipate that expenses related to rfs compliance have the potential to remain a significant expense for our fuel products segment , assuming current market prices for rins . story_separator_special_tag ( 2 ) aggregate purchase price is net of cash acquired and excludes debt assumed . key performance measures our sales and net income are principally affected by the price of crude oil , demand for specialty products , fuel products and oilfield products and services , prevailing crack spreads for fuel products , the price of natural gas used as fuel in our operations and our results from derivative instrument activities . our primary raw materials are crude oil and other specialty feedstocks , and our primary outputs are specialty petroleum products , fuel products and oilfield services products . the prices of crude oil , specialty products , fuel products and oilfield products and services are subject to fluctuations in response to changes in supply , demand , market uncertainties and a variety of additional factors beyond our control . we monitor these risks and enter into derivative instruments designed to help mitigate the impact of commodity price fluctuations on our business . the primary purpose of our commodity risk management activities is to economically 58 hedge our cash flow exposure to commodity price risk so that we can meet our cash distribution , debt service and capital expenditure requirements despite fluctuations in crude oil and fuel products prices . we enter into derivative contracts for future periods in quantities that do not exceed our projected purchases of crude oil and natural gas and sales of fuel products . please refer to part ii , item 7a “ quantitative and qualitative disclosures about market risk — commodity price risk ” for detailed information regarding our derivative instruments and our commodity price risk . as of december 31 , 2015 , we have hedged refining margins , or crack spreads , on approximately 0.9 million barrels of fuel products through the first quarter of 2016 at an average refining margin of $ 8.98 per barrel . please refer to note 8 “ derivatives ” under part ii , item 8 “ financial statements and supplementary data — notes to consolidated financial statements ” and part ii , item 7a “ quantitative and qualitative disclosures about market risk — commodity price risk ” for detailed information regarding our derivative instruments and our commodity price risk . our management uses several financial and operational measurements to analyze our performance . these measurements include the following : sales volumes ; production yields ; specialty products , fuel products and oilfield services segment gross profit ; and specialty products , fuel products and oilfield services segment adjusted ebitda . sales volumes . we view the volumes of specialty products and fuel products sold as an important measure of our ability to effectively utilize our operating assets . our ability to meet the demands of our customers is driven by the volumes of crude oil and feedstocks that we run at our facilities . higher volumes improve profitability both through the spreading of fixed costs over greater volumes and the additional gross profit achieved on the incremental volumes . production yields . in order to maximize our gross profit and minimize lower margin by-products , we seek the optimal product mix for each barrel of crude oil we refine , or feedstocks we , or third parties , process , which we refer to as production yield . specialty products , fuel products and oilfield services segment gross profit . specialty products , fuel products and oilfield services gross profit are important measures of our ability to maximize the profitability of our specialty products , fuel products and oilfield services segments . we define gross profit as sales less the cost of crude oil and other feedstocks and other production-related and service-related expenses , the most significant portion of which includes labor , plant fuel , utilities , contract services , maintenance , depreciation and processing materials . we use gross profit as an indicator of our ability to manage our business during periods of crude oil and natural gas price fluctuations , as the prices of our specialty products and fuel products generally do not change immediately with changes in the price of crude oil and natural gas . the increase or decrease in selling prices typically lags behind the rising or falling costs , respectively , of crude oil feedstocks for specialty products . other than plant fuel , production-related expenses generally remain stable across broad ranges of specialty products and fuel products throughput volumes , but can fluctuate depending on maintenance activities performed during a specific period . our fuel products segment gross profit per barrel may differ from standard u.s. gulf coast , group 3 , padd 4 billings , montana or 3/2/1 and 2/1/1 market crack spreads due to many factors , including derivative activities to hedge both our fuel products segment sales and the cost of crude oil reflected in gross profit , our fuel products mix as shown in our production table being different than the ratios used to calculate such market crack spreads , lcm inventory adjustments reflected in gross profit , operating costs including fixed costs , actual crude oil costs differing from market indices and our local market pricing differentials for fuel products in the shreveport , louisiana , san antonio , texas , superior , wisconsin and great falls , montana vicinities as compared to u.s. gulf coast , group 3 and padd 4 billings , montana postings . specialty products , fuel products and oilfield services segment adjusted ebitda . we believe that specialty products , fuel products and oilfield services segment adjusted ebitda measures are useful as they exclude transactions not related to our core cash operating activities and provide metrics to analyze our ability to pay distributions to our unitholders as adjusted ebitda is a component in the calculation of distributable cash flow and allows us to meaningfully analyze the trends and performance of our core cash operations as well as make decisions regarding the allocation of resources to segments . in addition to the foregoing measures , we also monitor our selling and general and administrative expenses .
| financial results we reported a net loss of $ 139.4 million in 2015 , versus a net loss of $ 112.2 million in 2014 . we reported adjusted ebitda ( as defined in item 6 “ selected financial data — non-gaap financial measures ” ) of $ 257.7 million in 2015 , versus $ 305.9 million in 2014 . we generated $ 376.4 million of cash flow from operations in 2015 , versus $ 226.8 million in 2014 . distributable cash flow ( “ dcf ” ) ( as defined in item 6 “ selected financial data — non-gaap financial measures ” ) was $ 161.9 million in 2015 , compared to $ 146.3 million in 2014. our 2015 full-year adjusted ebitda results included a lower of cost or market ( “ lcm ” ) inventory adjustment of $ 81.8 million ; $ 24.3 million of losses related to liquidation of last-in , first-out ( “ lifo ” ) inventory layers ; and $ 22.3 million of early settlements of select derivative instruments . our full year performance benefited from balanced contributions in our specialty products and fuel products segments , both of which benefited from a marked , progressive decline in crude oil prices during the past year . strength within the specialty and fuel products segments was partially offset by weaker performances in our oilfield services segment and at dakota prairie refining , llc ( “ dakota prairie ” ) , our joint venture with mdu resources group , inc. ( “ mdu ” ) . total refinery throughputs increased to a record 123,051 bpd in 2015 , versus 117,427 bpd in 2014 , while total sales volumes increased to a record 126,216 bpd in 2015 , versus 122,852 bpd in 2014 . our specialty products segment generated adjusted ebitda of $ 201.7 million in 2015 , a decrease of 8.7 % versus the prior year period .
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scripps networks , llc is a wholly owned subsidiary of scripps networks interactive , inc. , which is a wholly owned subsidiary of discovery , inc. ( 7 ) includes 3,315,006 share of series aa convertible preferred stock which is convertible into 6,630,012 shares of common stock . securities authorized for issuance under equity compensation plans the company adopted the 2014 equity incentive stock plan ( the “ plan ” ) . the plan provides for the issuance of up to 166,667 incentive stock options and nonqualified stock options to the company 's employees , officers , directors , and certain consultants . the plan is administered by the company 's board , and has a term of 10 years . under this plan , 16,667 stock options have been granted to mr. alex bafer , in february 1 , 2018. the table below sets forth information as of december 31 , 2019. plan category number of securities to be issued upon exercise of outstanding options , warrants and rights weighted-average exercise price of outstanding options , warrants and rights number of securities remaining available for future issuance under equity compensation plans ( excluding securities reflected in column ( a ) ) ( a ) ( b ) ( c ) equity compensation plans approved by security holders 16,667 $ 28.20 150,000 equity compensation plans not approved by security holders - $ - - total 16,667 $ 28.20 150,000 36 item 13. certain relationships and related transactions , and director independence . we do not have a written policy for the review , approval or ratification of transactions with related parties or conflicted transactions . when such transactions arise , they are referred to our board of directors for its consideration . amounts owed to related parties as of december 31 , 2019 and 2018 consist of the following : replace_table_token_7_th our chairman , mr. bafer , advanced an unsecured , non-interest-bearing loan which is due on demand . the amounts due to john textor , chief executive officer , represent a liability assumed in the acquisition of eai . the amounts due to other related parties also represent liabilities assumed in the acquisition of eai . during the year ended december 31 , 2019 , the company received approximately $ 423,000 from related parties , including a $ 300,000 advance from facebank , inc. , a development stage company controlled by mr. textor , $ 56,000 from mr. bafer , $ 37,000 from mr. textor and $ 30,000 from other related parties . during the year ended december 31 , 2019 , the company paid approximately $ 156,000 to related parties , including $ 56,000 to mr. bafer , $ 49,000 to mr. textor and $ 51,000 to other related parties . we assumed a $ 172,000 note payable due to a relative of the ceo , john textor . the note has three-month roll-over provision and different maturity and repayment amounts if not fully paid by its due date and bears interest at 18 % per annum . we have accrued default interest for additional liability in excess of the principal amount . the note is currently in default . in july 2015 , we issued convertible promissory notes to mr. bafer , chairman , in exchange for the cancellation of previously issued promissory notes in the aggregate of $ 530,000 and accrued interest of $ 13,000 for a total of $ 543,000 . the notes are unsecured , bear interest of 5 % per annum , matured on october 1 , 2015 and are convertible into shares of common stock at a conversion price equal to the lowest closing stock price during the 20 trading days prior to conversion with a 50 % discount . in october 2015 , the notes matured and became past due . as a result , the stated interest of 5 % increased to 22 % pursuant to the term story_separator_special_tag unless otherwise indicated , references in this annual report on form 10-k to “ facebank , ” “ we , ” “ us , ” “ our ” and the “ company ” are to facebank group , inc. and its subsidiaries , unless the context requires otherwise . the following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the accompanying related notes included in this annual report on form 10-k. overview facebank group , inc. was incorporated under the laws of the state of florida in february 2009 under the name york entertainment , inc. on september 30 , 2019 , the company 's name was changed to facebank group , inc. on april 1 , 2020 , facebank effected a merger ( the “ merger ” ) pursuant to which fubotv , inc. , a delaware corporation and a leading live tv streaming platform for sports , news and entertainment , became a wholly owned subsidiary of the company . on may 1 , 2020 , the company 's trading symbol was changed to fubo . before the merger , facebank group was and continues to be a character-based virtual entertainment company , and a leading developer of digital human likeness for celebrities and consumers , focused on applications in traditional entertainment , sports entertainment , live events , social networking , mixed reality ( ar/vr ) and artificial intelligence . facebank group is positioned as a technology driven , intellectual property company with significant revenue participations in the digital likeness of leading celebrities and character-based entertainment properties . story_separator_special_tag the securities and exchange commission ( the “ sec ” ) , considers an entity 's most critical accounting policies to be those policies that are both most important to the portrayal of a company 's financial condition and results of operations and those that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation . for a more detailed discussion of the accounting policies of the company , see note 2 of the notes to the consolidated financial statements , “ summary of significant accounting policies ” . we believe the following critical accounting policies , among others , require significant judgments and estimates used in the preparation of our consolidated financial statements . impairment testing of long-lived assets the company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable . when such factors and circumstances exist , the company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount . impairment , if any , is based on the excess of the carrying amount over the fair value , based on market value when available , or discounted expected cash flows , of those assets and is recorded in the period in which the determination is made . during the year ended december 31 , 2019 , the company recorded impairment charges of approximately $ 8.6 million related to the intangible assets acquired with the company 's acquisition of nexway . acquisitions and business combinations the company allocates the fair value of purchase consideration issued in business combination transactions to the tangible assets acquired , liabilities assumed , and separately identified intangible assets acquired 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 technology , trade-marks and trade names , useful lives , and discount rates . management 's 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 one year from the acquisition date , we may record adjustments to the assets acquired and liabilities assumed , with the corresponding offset to goodwill . upon the conclusion of the measurement period , any subsequent adjustments are recorded to earnings . goodwill the company tests goodwill for impairment at the reporting unit level on an annual basis on december 31 for each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable . the company assesses qualitative factors to determine whether it is more likely than not that the fair value of a single reporting unit is less than its carrying amount under asu no . 2017-04 , goodwill and other ( topic 350 ) : simplifying the accounting for goodwill impairment , issued by the fasb . if it is determined that the fair value is less than its carrying amount , the excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss . the company tested goodwill for impairment as of december 31 , 2019 and based on its review , the company recognized an impairment charge totaling $ 74.4 million , in connection with its acquisition of facebank ag and nexway . there were no goodwill impairment charges recorded during the year ended december 31 , 2018. changes in economic and operating conditions and the impact of covid-19 could result in goodwill impairment in future periods . 26 intangible assets the company 's intangible assets represent definite lived intangible assets , which are being amortized on a straight- line basis over their estimated useful lives as follows : human animation technologies 7 years trademark and trade names 7 years animation and visual effects technologies 7 years digital asset library 5-7 years intellectual property 7 years customer relationships 11 years revenue from contracts with customers the company recognizes revenue from contracts with customers under asc 606 , revenue from contracts with customers ( the “ revenue standard ” ) on a net basis , as the company is an agent and not a principal . the core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . a good or service is transferred to a customer when , or as , the customer obtains control of that good or service . the following five steps are applied to achieve that core principle : ● step 1 : identify the contract with the customer ● step 2 : identify the performance obligations in the contract ● step 3 : determine the transaction price ● step 4 : allocate the transaction price to the performance obligations in the contract ● step 5 : recognize revenue when the company satisfies a performance obligation the company recognized net revenues from contracts with customers of approximately $ 4.3 million during the year ended december 31 , 2019 , primarily from the sale of software licenses . revenue from the sale of software licenses are recognized as a single performance obligation at the point in time that the software license is delivered to the customer
| general and administrative during the year ended december 31 , 2019 general and administrative expenses totaled $ 13.8 million compared to $ 6.8 million for the year ended december 31 , 2018. the increase of $ 7.0 million is primarily related to $ 7.7 million of general and administrative expenses from our 2019 acquisitions of facebank ag and nexway , offset by $ 0.7 million of lower general and administrative expenses , consisting of $ 2.5 million of lower stock-based compensation expenses , offset by increases of $ 1.8 million for employee salaries and related expenses , legal and professional fees , and other administrative expenses . amortization of intangible assets during the year ended december 31 , 2019 amortization expenses for intangible assets totaled $ 20.7 million compared to $ 8.2 million for the year ended december 31 , 2018. the increase of $ 12.5 million was primarily due to amortization expenses recognized in connection with our acquisition of evolution ai corp in september 2018. long-term asset impairments during the year ended december 31 , 2019 impairment expenses related to long-term assets totaled $ 83.0 million . we recognized $ 74.4 million of impairments related to goodwill and $ 8.6 million of impairments related to the intangible assets acquired in connection with our acquisitions of nexway and facebank ag .
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our management 's judgment and income tax assumptions are used to determine the levels , if any , of valuation allowances associated with deferred tax assets . effective with the spin-off of wpx on december 31 , 2011 , certain state and federal tax attributes ( primarily alternative minimum tax credits ) will be allocated between us and wpx pursuant to the consolidated return regulations . although the final allocation of these tax attributes can not be determined until the consolidated tax returns for tax year 2011 are complete , an estimate of the allocated tax attributes has been recorded in 2011. earnings ( loss ) per common share basic earnings ( loss ) per common share is based on the sum of the weighted-average number of common shares outstanding and vested restricted stock units . diluted earnings ( loss ) per common share includes any dilutive effect of stock options , nonvested restricted stock units and , for applicable periods presented , convertible debt , unless otherwise noted . foreign currency translation certain of our foreign subsidiaries use the canadian dollar as their functional currency . assets and liabilities of such foreign subsidiaries are translated at the spot rate in effect at the applicable reporting date , and the combined statements of operations are translated into the u.s. dollar at the average exchange rates in effect during the applicable period . the resulting cumulative translation adjustment is recorded as a separate component of accumulated other comprehensive income ( loss ) . transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise . subsequent changes in exchange rates result in transaction gains and losses which are reflected in the consolidated statement of operations . 91 the williams companies , inc. notes to consolidated financial statements ( continued ) discontinued operations in addition to the accounting policies previously discussed , the following policies were considered significant to our former exploration and production business . significant estimates and assumptions included the valuation of oil and natural gas reserves , valuation of derivatives and hedge accounting correlations and probability ; property , plant and equipment related to oil story_separator_special_tag story_separator_special_tag style= '' font-size:6px ; margin-top:0px ; margin-bottom:0px '' > we expect to maintain consolidated liquidity ( which includes liquidity at wpz ) of at least $ 1 billion from cash and cash equivalents and unused revolving credit facilities ; we expect wpz to fund its $ 325 million of current debt maturities with a new debt issuance ; in january 2012 , wpz completed an equity issuance of 7 million common units representing limited partner interests in it at a price of $ 62.81 per unit . in february 2012 , the underwriters exercised their option to purchase an additional 1.05 million common units for $ 62.81 per unit , with expected settlement on february 28 , 2012 ; on february 17 , 2012 , williams partners completed the acquisition of 100 percent of the ownership interests in certain entities from delphi midstream partners , llc in exchange for $ 325 million in cash , net of cash acquired in the transaction and subject to certain closing adjustments , and approximately 7.5 million wpz common units . potential risks associated with our planned levels of liquidity and the planned capital and investment expenditures discussed above include : sustained reductions in energy commodity prices from the range of current expectations ; lower than expected distributions , including incentive distribution rights , from wpz . wpz 's liquidity could also be impacted by a lack of adequate access to capital markets to fund its growth ; lower than expected levels of cash flow from operations from midstream canada & olefins . liquidity based on our forecasted levels of cash flow from operations and other sources of liquidity , we expect to have sufficient liquidity to manage our businesses in 2012. our internal and external sources of consolidated liquidity include cash generated from our operations , cash and cash equivalents on hand , and our credit facilities . additional sources of liquidity , if needed , include bank financings , proceeds from the issuance of long-term debt and equity securities , and proceeds from asset sales . these sources are available to us at the parent level and are expected to be available to certain of our subsidiaries , particularly equity and debt issuances from wpz . wpz is expected to be self-funding through its cash flows from operations , use of its credit facility , and its access to capital markets . wpz makes cash distributions to us in accordance with the partnership agreement , which considers our level of ownership and incentive distribution rights . our ability to raise funds in the capital markets will be impacted by our financial condition , interest rates , market conditions , and industry conditions . 66 replace_table_token_16_th ( 1 ) includes $ 467 million of cash and cash equivalents that is being held by certain subsidiary and international operations and is not considered available for general corporate purposes . the remainder of our cash and cash equivalents is primarily held in government-backed instruments . ( 2 ) in june 2011 , we replaced our existing $ 900 million unsecured revolving credit facility agreement that was scheduled to expire in may 2012 with a new $ 900 million five-year senior unsecured revolving credit facility agreement . at december 31 , 2011 , we are in compliance with the financial covenants associated with this new credit facility agreement ( see note 11 of notes to consolidated financial statements ) . ( 3 ) in june 2011 , wpz replaced its existing $ 1.75 billion unsecured revolving credit facility agreement that was scheduled to expire in february 2013 with a new $ 2 billion five-year senior unsecured revolving credit facility agreement . story_separator_special_tag 's senior unsecured notes that matured in june 2011 ; we paid $ 457 million of quarterly dividends on common stock for the year ended december 31 , 2011 ; $ 425 million in net borrowings and payments related to wpz 's revolving credit facility in 2011 . 2010 $ 369 million received from wpz 's december 2010 equity offering used primarily to reduce revolver borrowings mentioned below and to fund a portion of wpz 's acquisition of a midstream business in pennsylvania 's marcellus shale in december 2010 ; $ 200 million received in revolver borrowings from wpz 's $ 1.75 billion unsecured credit facility primarily used for wpz 's general partnership purposes and to fund a portion of the cash consideration paid for wpz 's acquisition of certain gathering and processing assets in colorado 's piceance basin in november 2010 ; $ 600 million received from wpz 's public offering of 4.125 percent senior unsecured notes in november 2010 primarily used to fund a portion of the cash consideration paid to our former exploration and production business for wpz 's acquisition of certain gathering and processing assets in colorado 's piceance basin ; $ 430 million received in revolver borrowings from wpz 's $ 1.75 billion unsecured credit facility primarily used to fund our increased ownership in oppl , a transaction that closed in september 2010 ; $ 437 million received from a wpz equity offering used to reduce wpz 's revolver borrowings mentioned above ; $ 3.491 billion received by wpz in february 2010 from the issuance of $ 3.5 billion of senior unsecured notes related to our previously discussed restructuring ; $ 3 billion of senior unsecured notes retired in february 2010 and $ 574 million paid in associated premiums utilizing proceeds from the $ 3.5 billion debt issuance ; $ 250 million received from revolver borrowings on wpz 's $ 1.75 billion unsecured credit facility in february 2010 to repay a term loan ; we paid $ 284 million of quarterly dividends on common stock for the year ended december 31 , 2010 . 2009 we received $ 595 million net cash from the issuance of $ 600 million aggregate principal amount of 8.75 percent senior unsecured notes due 2020 to fund general corporate expenses and capital expenditures ; we paid $ 256 million of quarterly dividends on common stock for the year ended december 31 , 2009 . 69 investing activities significant transactions include : 2011 capital expenditures totaled $ 2.8 billion in 2011 ; we contributed $ 137 million to our laurel mountain equity investment . 2010 capital expenditures totaled $ 2.8 billion in 2010. included is approximately $ 599 million , including closing adjustments , related to our former exploration and production business ' acquisition in the marcellus shale in july 2010 ; we paid approximately $ 949 million , including closing adjustments , for our former exploration and production business ' december 2010 business purchase , consisting primarily of oil and gas properties in the bakken shale ; we contributed $ 488 million to our investments , including a $ 424 million cash payment for wpz 's september 2010 acquisition of an increased interest in oppl ; we paid $ 150 million for wpz 's december 2010 business purchase , consisting primarily of certain midstream assets in the marcellus shale . 2009 capital expenditures totaled $ 2.4 billion , more than half of which related to our former exploration and production businesses . included was a $ 253 million payment by our former exploration and production business for the purchase of additional properties in the piceance basin ; we received $ 148 million as a distribution from gulfstream following its debt offering ; we contributed $ 142 million to our investments , including $ 106 million related to our laurel mountain equity investment and $ 20 million related to our gulfstream equity investment . off-balance sheet arrangements and guarantees of debt or other commitments we have various other guarantees and commitments which are disclosed in notes 9 , 11 , 15 and 16 of notes to consolidated financial statements . we do not believe these guarantees or the possible fulfillment of them will prevent us from meeting our liquidity needs . contractual obligations the table below summarizes the maturity dates of our contractual obligations at december 31 , 2011 : replace_table_token_18_th 70 ( 1 ) includes a right-of-way agreement with the jicarilla apache nation , which is considered an operating lease . we are required to make a fixed annual payment of $ 7.5 million and an additional annual payment , which varies depending on per-unit ngl margins and the volume of gas gathered by our gathering facilities subject to the right-of-way agreement . the table above for years 2013 and thereafter does not include such variable amounts related to this agreement as the variable amount is not yet determinable . ( 2 ) includes an estimated $ 2.2 billion long-term ethane purchase obligation with index-based pricing terms that is reflected in this table at december 31 , 2011 prices . this obligation is part of an overall exchange agreement whereby volumes we transport on oppl are sold at a third-party fractionator in conway , kansas , and we are subsequently obligated to purchase ethane volumes at mont belvieu . the purchased ethane volumes may be utilized or resold at comparable prices in the mont belvieu market . ( 3 ) does not include estimated contributions to our pension and other postretirement benefit plans . we made contributions to our pension and other postretirement benefit plans of $ 83 million in 2011 and $ 76 million in 2010. in 2012 , we expect to contribute approximately $ 94 million to these plans ( see note 7 of notes to consolidated financial statements ) . tax-qualified pension plans are required to meet minimum contribution requirements .
| overview in 2011 , we continued to focus upon growth through disciplined investments in our businesses . examples of this growth included : continued investment in williams partners ' gathering and processing capacity and infrastructure in the marcellus shale area , western united states , and deepwater gulf of mexico . included is a project to design , construct and install a floating production system ( gulfstar fps ) in the eastern deepwater gulf of mexico ; expansion of williams partners ' interstate natural gas pipeline system to meet the demand of growth markets ; expansion of midstream canada & olefins ' facilities to increase production of an ethane/ethylene mix . these investments were funded through cash flow from operations , debt offerings at wpz and cash on hand . our former exploration and production business , wpx , continued to invest in development drilling programs during 2011 that were largely self-funded through cash flow from operations . in november 2011 , wpx completed the issuance of $ 1.5 billion of senior unsecured notes . wpx distributed $ 981 million of the net proceeds to us and retained approximately $ 500 million to fund future investments . primarily utilizing the distribution we received related to the wpx debt issuance , we retired $ 746 million of debt in december 2011. we completed the tax-free spin-off of 100 percent of wpx to our shareholders on december 31 , 2011. during 2011 , the economy has shown mixed signs of recovery ; however , financial markets continue to be volatile as fears of global recession persist . in consideration of our liquidity in this environment , we note that , as of december 31 , 2011 , we have $ 889 million of cash and cash equivalents and $ 2.9 billion of available credit capacity under our credit facilities . our $ 900 million and wpz 's $ 2 billion credit facilities do not expire until june 2016 .
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the fair value measurements story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the `` selected financial data '' and our financial statements and the related notes included elsewhere in this annual report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those set forth under `` risk factors '' and elsewhere in this annual report . background cpsi is a leading provider of healthcare solutions and services for community hospitals and other healthcare systems and post-acute care facilities . founded in 1979 , cpsi offers its products and services through four companies - evident , llc ( `` evident '' ) , trubridge , llc ( `` trubridge '' ) , healthland inc. ( `` healthland '' ) , and american healthtech , inc. ( `` aht '' ) . these combined companies are focused on helping improve the health of the communities we serve , connecting communities for a better patient care experience , and improving the financial operations of our customers . the individual contributions of each of these companies towards this combined focus are as follows : evident , formed in april 2015 , provides a comprehensive acute care electronic health record ( `` ehr '' ) solution , thrive , and related services for community hospitals and their physician clinics . healthland provides a comprehensive acute care ehr solution , centriq , and related services for community hospitals and their physician clinics . trubridge focuses on providing business management , consulting , and managed it services along with its complete revenue cycle management ( `` rcm '' ) solution for all care settings , regardless of their primary healthcare information solutions provider . aht provides a comprehensive post-acute care ehr solution and related services for skilled nursing and assisted living facilities . our companies currently support approximately 1,100 acute care facilities and approximately 3,500 post-acute care facilities with a geographically diverse customer mix within the domestic community healthcare market . our customers primarily consist of community hospitals with 200 or fewer acute care beds , with hospitals having 100 or fewer beds comprising approximately 94 % of our hospital ehr customer base . we operate in three reportable segments : ( 1 ) acute care ehr , ( 2 ) post-acute care ehr and ( 3 ) trubridge . see note 17 to the consolidated financial statements included herein for additional information on our segment reporting . acute care ehr our acute care ehr segment consists of acute care software solutions and support sales generated by evident and healthand . post-acute care ehr our post-acute care ehr segment consists of post-acute care software solutions and support sales generated by aht . trubridge our trubridge segment primarily consists of business management , consulting and managed it services sales generated by trubridge and the sale of rycan 's revenue cycle management workflow and automation software . management overview historically , we have primarily sought revenue growth through sales of healthcare it systems and related services to existing and new customers within our target market , a strategy that has resulted in a ten-year compounded annual growth rate in legacy revenues ( i.e. , revenues related to our legacy evident and trubridge operations ) of approximately 5.9 % as of the end of our most recently completed fiscal year . important to our potential for continued long-term revenue growth is our ability to sell new and additional products and services to our existing customer base , including cross-selling opportunities presented with 37 the acquisition of hhi . we believe that as our combined customer base grows , the demand for additional products and services , including business management , consulting and managed it services , will also continue to grow , supporting further increases in recurring revenues . we also expect to drive revenue growth from new product development that we may generate from our research and development activities . january 2016 marked an important milestone for cpsi , as we announced the completion of our acquisition of healthland holding inc. ( `` hhi '' ) , the first major acquisition in the company 's history . this acquisition expanded our footprint for servicing acute care facilities and introduced us to the post-acute care segment , adding significantly to our already substantial recurring revenue base and further expanding our ability to generate organic recurring revenue growth through additional cross-selling opportunities now available within the combined company . we believe that the addition of hhi and its clients and products has enhanced and will continue to enhance our ability to grow our business and compete in the markets that we serve . our business model is designed such that , as revenue growth materializes , earnings and profitability growth are naturally bolstered through increased future margin realization . once a hospital has installed our solutions , we continue to provide support services to the customer on an ongoing basis and make available to the customer our broad portfolio of business management , consulting , and managed it services . the provision of these services typically requires fewer resources than the initial system installation , resulting in increased overall gross margins . we also look to increase margins through cost containment measures where appropriate . for example , during 2016 we instituted several changes related to our employee benefits offerings , including a spousal carve-out for healthcare benefits . additionally , during the first quarter of 2017 we instituted a limited-time , voluntary severance program offering those employees meeting certain predetermined criteria severance packages involving continuing periodic cash payments and healthcare benefits for varying periods , depending upon the individual 's years of service with the company . story_separator_special_tag we did not identify any events or circumstances that would require interim goodwill impairment testing prior to october 1 , 2017. based on our assessment as of october 1 , 2017 , we determined that there was no impairment of goodwill for our acute care ehr and trubridge reporting units . we also determined as of october 1 , 2017 , that it was more likely than not that we did not have an impairment of our post-acute care ehr reporting unit . during the fourth quarter of 2017 , the cumulation of events , including anticipated attrition of significant customer accounts and a product development acceleration investment plan in our post-acute care ehr software , triggered management to re-assess future discounted cash flow projections for the post-acute care ehr reporting unit . the result of our fair value assessment , with the assistance a third-party valuation expert , resulted in a preliminary conclusion on january 12 , 2018. the valuation assessment , which applied a combination of the income and market valuation approach , measured the reporting unit 's fair value less than the reporting unit 's carrying value and a goodwill impairment of $ 28.0 million was recorded against our post-acute care ehr reporting unit as of december 31 , 2017. we have historically made financing arrangements available to customers on a case-by-case basis depending upon the various aspects of the proposed contract and customer attributes . these financing arrangements include other short-term payment plans and longer-term lease financing through us or third-party financing companies . for those customers not seeking a financing arrangement , the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing , with the remainder of the contracted fees due at various stages of the installation process ( delivery of hardware , installation of software and commencement of training , and satisfactory completion of a monthly accounting cycle or end-of-month operation by and as applicable for each respective application ) . during 2017 , total financing receivables increased by $ 15.5 million , which had a significant impact on operating cash flow . the increase in financing arrangements is primarily due to two reasons . first , meaningful use stage 3 installations are primarily financed through short-term payment plans . second , competitor financing options , primarily through accounts receivables management collections and cloud ehr arrangements , have applied pressure to reduce initial customer capital investment requirements for new ehr installations , leading to the offering of long-term lease options . we have also historically made our software applications available to customers through `` software as a service '' or `` saas '' configurations , including our cloud electronic health record ( `` cloud ehr '' ) offering . these offerings are attractive to some customers because this configuration allows them to obtain access to advanced software products without a significant initial capital outlay . we have experienced a substantial increase in the prevalence of such saas arrangements for new system installations and add-on sales to existing customers since 2015 , a trend we expect to continue for the foreseeable future . unlike 39 our historical perpetual license arrangements under which the related revenue is recognized effectively upon installation , the saas arrangements result in revenue being recognized monthly as the services are provided over the term of the arrangement . as a result , the effect of this trend on the company 's financial statements is reduced system sales revenues during the period of installation in exchange for increased recurring periodic revenues ( reflected in system sales and support revenues ) over the term of the saas arrangement . revenues the company allocates revenue to its multiple element arrangements , including software and software-related services , based on a hierarchy of evidence to support selling prices in accordance with u.s. gaap . revenue from general support agreements for post-contract support services ( support and maintenance ) and business management , information technology management and consulting services are recognized by the company ratably over the term of the agreement . system sales and support . revenues from system sales and support are derived from the sale of information systems and the provision of related support services , including perpetual software licenses , conversion , installation and training services , hardware and peripherals , saas services , forms and supplies , software application support , hardware maintenance , and continuing education . we do not recognize revenue upon the execution of a sales contract . revenue from the sale of the perpetual software license , conversion , and installation and training services is recognized on a module-by-module basis after the installation and training have been completed and the system is functioning as designed for each individual module . revenue from the sale of hardware is recognized upon shipment of the hardware to the customer . support services are provided pursuant to a support agreement under which we provide comprehensive system support and related services in exchange for a monthly fee based on the services provided . the initial term of these contracts typically ranges from three to five years , after which these contracts renew automatically on a year-to-year basis thereafter until terminated . revenues from support services are recognized in the month when these services are performed . our saas services , which include our cloud ehr service , are provided on a remote basis by storing and maintaining servers at our headquarters or other third-party facilities that contain customers ' patient and administrative data . revenues from our saas services are recognized in the month when these services are performed . trubridge . our business management services include electronic billing , insurance services , statement processing , accounts receivable management , payroll processing , and contract management . most of these business management services are sold pursuant to one-year customer agreements , with automatic one-year renewals until terminated . additional services include hosting , backup recovery , medical coding , it and business improvement consulting and other consulting and managed it services if needed .
| results of operations the following table sets forth certain items included in our results of operations for each of the three years in the period ended december 31 , 2017 , expressed as a percentage of our total revenues for these periods : replace_table_token_1_th 41 2017 compared to 2016 revenues . total revenues for the year ended december 31 , 2017 increased 3.6 % , or $ 9.7 million , compared to the year ended december 31 , 2016. system sales and support revenues , consisting of the acute care ehr and post-acute care ehr segments , increased by 1.4 % , or $ 2.6 million , from the year ended december 31 , 2016. system sales and support revenues were comprised of the following for the year ended december 31 , 2017 and 2016 : replace_table_token_2_th nonrecurring acute care ehr system sales and support revenues increased $ 9.5 million , or 22.8 % , primarily as evident 's new installations and add-on volumes increased by $ 10.5 million , or 33.6 % , partially offset by a $ 1.0 million decrease in healthland 's nonrecurring revenue . related to evident 's new system installation volumes , we went live with our thrive ehr solution at 29 new hospital clients during 2017 ( three of which were under a cloud ehr arrangement , under which the related costs are all captured in the period of the installation with the resulting revenue recognized ratably over the contractual term as the services are provided ) compared to 21 new hospital clients during 2016 ( five of which were under a cloud ehr arrangement ) , with a resulting revenue increase of $ 2.4 million . evident 's add-on sales increased $ 8.1 million due to installations related to meaningful use stage three compliance .
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our core portfolio consists of those properties either 100 % owned by , or partially owned through joint venture interests by the operating partnership , or subsidiaries thereof , not including those properties owned through our opportunity funds . these 100 properties primarily consist of urban/street retail , dense suburban neighborhood and community shopping centers and mixed-use properties with a strong retail component . the properties we operate are located primarily in high-barrier-to-entry , densely-populated metropolitan areas in the united states along the east coast and in chicago . there are 72 properties in our core portfolio totaling approximately 5.3 million square feet . fund i has three remaining properties comprising approximately 0.1 million square feet . fund ii has six properties , four of which ( representing 0.6 million square feet ) are currently operating , one is under construction , and one is in the design phase . fund iii has 14 properties , nine of which ( representing 1.7 million square feet ) are currently operating and five of which are in the design phase . fund iv has five properties , four of which are operating with one under design . the majority of our operating income is derived from rental revenues from these 100 properties , including recoveries from tenants , offset by operating and overhead expenses . as our rcp venture invests in operating companies , we consider these investments to be private-equity style , as opposed to real estate , investments . since these are not traditional investments in operating rental real estate but investments in operating businesses , the operating partnership invests in these through a taxable reit subsidiary ( “ trs ” ) . 33 our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns . we focus on the following fundamentals to achieve this objective : own and operate a core portfolio of high-quality retail properties located primarily in high-barrier-to-entry , densely-populated metropolitan areas and create value through accretive redevelopment and re-anchoring activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our core asset recycling and acquisition initiative . generate additional external growth through an opportunistic yet disciplined acquisition program through our opportunity funds . we target transactions with high inherent opportunity for the creation of additional value through : ◦ value-add investments in high-quality urban and or street retail properties with re-tenanting or repositioning opportunities , ◦ opportunistic acquisitions of well-located real-estate anchored by distressed retailers or by motivated sellers and ◦ opportunistic purchases of debt which may include restructuring . these may also include joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets . maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth . story_separator_special_tag style= '' line-height:120 % ; padding-bottom:13px ; text-align : justify ; font-size:10pt ; '' > ( loss ) income attributable to noncontrolling interests - continuing operations and discontinued operations represents the noncontrolling interests ' share of all the opportunity funds variances discussed above . comparison of the year ended december 31 , 2011 ( “ 2011 ” ) to the year ended december 31 , 2010 ( “ 2010 ” ) replace_table_token_19_th note : ( 1 ) includes fees earned by us as general partner or managing member of the opportunity funds that are eliminated in consolidation and adjusts the loss ( income ) attributable to noncontrolling interests . the balance reflected in the table represents third party fees that are not eliminated in consolidation . reference is made to note 3 in the notes to consolidated financial statements for an overview of our four reportable segments . the increase in rental income in the core portfolio was attributable to additional rents following the 2011 core acquisitions . rental income in the opportunity funds increased from additional rents at pelham manor and 161st street of $ 1.7 million for leases that commenced during 2010 and 2011 ( `` 2010/2011 fund redevelopment properties '' ) as well as additional rents of $ 2.1 million following the 2011 fund acquisitions . interest income decreased as a result of the full repayment of two notes during 2010 and 2011. expense reimbursements in the opportunity funds increased for both real estate taxes and common area maintenance as a result of the 2010/2011 fund redevelopment properties and the 2011 fund acquisitions . replace_table_token_20_th 36 property operating expenses in the core portfolio decreased as a result of higher credit loss during 2010. general and administrative expense in the core portfolio increased as a result of higher stock compensation expense and employee severance costs during 2011. the changes in general and administrative expense in the opportunity funds and other , are offsetting , and relate to promote expense within fund i , which is eliminated for consolidated financial statement presentation purposes . depreciation and amortization expense in the opportunity funds increased due to the 2010/2011 fund redevelopment properties and the 2011 fund acquisitions . replace_table_token_21_th equity in earnings of unconsolidated affiliates in the opportunity funds decreased as a result of a decrease in distributions in excess of basis from our albertson 's investment of $ 6.3 million in 2011 and a decrease in our pro-rata share of income from our mervyns investment in 2011. gain on debt extinguishment of $ 1.3 million was the result of the purchase of mortgage debt at a discount in 2011. the $ 33.8 million gain from bargain purchase was attributable to fund ii 's purchase of an unaffiliated membership interest in citypoint in 2010. interest expense in the core portfolio decreased $ 2.0 million in 2011. this was the result of a decrease in average outstanding borrowings during 2011 resulting in a decrease of $ 1.5 million as well as a decrease in loan amortization expense of $ 0.4 million related to refinanced debt in story_separator_special_tag liquidity and capital resources uses of liquidity our principal uses of liquidity are ( i ) distributions to our shareholders and op unit holders , ( ii ) investments which include the funding of our capital committed to the opportunity funds and property acquisitions and redevelopment/re-tenanting activities within our core portfolio , and ( iii ) debt service and loan repayments , including the repurchase of our convertible notes . distributions in order to qualify as a reit for federal income tax purposes , we must currently distribute at least 90 % of our taxable income to our shareholders . for the year ended december 31 , 2012 , we paid dividends and distributions on our common shares and common op units totaling $ 33.2 million . investments fund i and mervyns i fund i and mervyns i have returned all invested capital and accumulated preferred return thus triggering our promote in all future fund i and mervyns i earnings and distributions . as of december 31 , 2012 , $ 86.6 million has been invested in fund i and mervyns i , of which the operating partnership contributed $ 19.2 million . as of december 31 , 2012 , fund i currently owned , or had ownership interests in three remaining assets comprising approximately 0.1 million square feet . in addition , we , along with our fund i investors have invested in mervyns as discussed in item 1. of this form 10-k. fund ii and mervyns ii to date , fund ii 's primary investment focus has been in investments involving significant redevelopment activities and the rcp venture . as of december 31 , 2012 , $ 300.0 million has been invested in fund ii and mervyns ii , of which the operating partnership contributed $ 60.0 million . during september of 2004 , through fund ii , we launched our new york urban/infill redevelopment initiative . fund ii , together with an unaffiliated partner , formed acadia urban development llc ( `` acadia urban development '' ) for the purpose of acquiring , constructing , redeveloping , owning , operating , leasing and managing certain retail or mixed-use real estate properties in the new york city metropolitan area . the unaffiliated partner agreed to invest 10 % of required capital up to a maximum of $ 2.2 million and fund ii , the managing member , agreed to invest the balance to acquire assets in which acadia urban development agreed to invest . of the nine properties acquired by acadia urban development , two have been sold , and one is currently under contact for sale . of the remaining six assets , four are currently at , or near , stabilization , one is currently under construction and one is in the design phase . redevelopment costs incurred during 2012 by acadia urban development in connection with the new york urban/infill redevelopment initiative totaled $ 52.2 million . anticipated additional costs for the property currently under construction are currently estimated to range between $ 107.1 and $ 197.1 million . 40 rcp venture reference is made to note 4 in the notes to consolidated financial statements , for a table summarizing the rcp venture investments from inception through december 31 , 2012 . fund iii during 2007 , we formed fund iii with 14 institutional investors , including all of the investors from fund i and a majority of the investors from fund ii with $ 502.5 million of committed discretionary capital . during 2012 , the committed capital amount was reduced to $ 475.0 million . as of december 31 , 2012 , $ 341.0 million has been invested in fund iii , of which the operating partnership contributed $ 67.9 million . the remaining $ 134.0 million of unfunded capital will be used to fund current redevelopment projects . fund iii has invested in five redevelopment projects as previously discussed in “ —investing activities ” in item 1. of this form 10-k. remaining anticipated costs for the projects currently owned by fund iii that can be estimated aggregate between $ 78.7 million and $ 99.2. other fund iii investments in addition to its five redevelopment projects noted above , fund iii also owns , or has ownership interests in , the following 10 assets comprising approximately 1.7 million square feet as follows : replace_table_token_26_th fund iv during 2012 , we formed fund iv with 17 principally institutional investors as well as some high-net worth individuals . reference is made to note 1 in the notes to consolidated financial statements , for a detailed discussion of fund iv . to date , fund iv has acquired three properties . reference is made to note 2 in the notes to consolidated financial statements , for a detailed discussion of these acquisitions . fund iv has invested in one redevelopment projects as previously discussed in “ —investing activities ” in item 1. of this form 10-k. remaining costs for this project are currently estimated to aggregate between $ 4.0 million and $ 4.5 million . notes receivable as of december 31 , 2012 , our notes receivable , net aggregated $ 129.3 million , with accrued interest thereon of $ 2.7 million . the notes were collateralized by the underlying properties , the borrower 's ownership interest in the entities that own the properties , and or by the borrower 's personal guarantee . effective interest rates on our notes receivable ranged from 6.0 % to 24.0 % with maturities from june 2013 through november 2020. investments made in notes receivable during 2012 are discussed in note 5 in the notes to consolidated financial statements . 41 other investments acquisitions made during 2012 are discussed in note 2 in the notes to consolidated financial statements . core portfolio property redevelopment and re-anchoring our core portfolio redevelopment and re-anchoring programs focus on selecting well-located urban/street retail locations and dense suburban shopping centers and creating significant value through re-tenanting and property redevelopment .
| results of operations reference is made to note 3 in the notes to consolidated financial statements for an overview of our four reportable segments . a discussion of the significant variances and primary factors contributing thereto within the results of operations for the years ended december 31 , 2012 , 2011 and 2010 are addressed below : comparison of the year ended december 31 , 2012 ( “ 2012 ” ) to the year ended december 31 , 2011 ( “ 2011 ” ) replace_table_token_16_th note : ( 1 ) includes fees earned by us as general partner or managing member of the opportunity funds that are eliminated in consolidation and adjusts the loss ( income ) attributable to noncontrolling interests . the balance reflected in the table represents third party fees that are not eliminated in consolidation . reference is made to note 3 of the notes to consolidated financial statements for an overview of our four reportable segments . rental income in the core portfolio increased $ 11.3 million as a result of additional rents of ( i ) $ 6.9 million related to 2012 core portfolio property acquisitions as detailed in note 2 in the notes to consolidated financial statements ( `` 2012 core acquisitions '' ) , ( ii ) $ 2.5 million related to 2011 core portfolio property acquisitions ( `` 2011 core acquisitions '' ) and ( iii ) $ 1.3 million as a result of re-anchoring and leasing activities at bloomfield town square and 2914 third avenue ( `` core redevelopment properties '' ) .
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we offer cost-effective medicaid-related solutions to meet the health care needs of low-income families and individuals , and to assist state agencies in their administration of the medicaid program . we report our financial performance based on two reportable segments : the health plans segment and the molina medicaid solutions segment . our health plans segment consists of health plans in 11 states , and includes our direct delivery business . as of december 31 , 2014 , these health plans served over 2.6 million members eligible for medicaid , medicare , and other government-sponsored health care programs for low-income families and individuals . additionally , we serve a small number of health insurance marketplace members , many of whom are eligible for government premium subsidies . the health plans are operated by our respective wholly owned subsidiaries in those states , each of which is licensed as a health maintenance organization ( hmo ) . our direct delivery business consists primarily of the management of a hospital in southern california under a management services agreement , and the operation of primary care clinics in several states in which we operate . our molina medicaid solutions segment provides business processing and information technology development and administrative services to medicaid agencies in idaho , louisiana , maine , new jersey , west virginia , and the u.s. virgin islands , and drug rebate administration services in florida . we previously reported that our medicaid managed care contract with the state of missouri expired without renewal in 2012 , and effective june 2013 the transition obligations associated with that contract terminated . therefore , beginning in the second quarter of 2013 , we reported the results relating to the missouri health plan as discontinued operations for all periods presented . the following discussion and analysis , with the exception of cash flow information , is presented in the context of continuing operations unless otherwise noted . story_separator_special_tag our health plan subsidiaries have generally been successful in retaining their contracts , but such contracts are subject to risk of loss when a state issues a new request for proposals ( rfp ) open to competitive bidding by other health plans . if one of our health plans is not a successful responsive bidder to a state rfp , its contract may be subject to non-renewal . the state medicaid programs and the federal medicare program periodically adjust premium rates . in addition to contract renewal , our state medicaid contracts may be periodically amended to include or exclude certain health benefits ( such as pharmacy services , behavioral health services , or long-term care services ) ; populations such as the aged , blind or disabled ( abd ) ; and regions or service areas . premium revenue is fixed in advance of the periods covered and , except as described in item 8 of this form 10-k , notes to consolidated financial statements , note 2 `` significant accounting policies , '' is not generally subject to significant accounting estimates . for the year ended december 31 , 2014 , we received more than 95 % of our premium revenue as a fixed amount per member per month ( pmpm ) , pursuant to our medicaid , medicare and marketplace contracts , including agreements with other managed care organizations for which we operate as a subcontractor . these premium revenues are recognized in the month that members are entitled to receive health care services . revenue not received on a fixed pmpm basis is recognized as earned . the amount of the premiums paid to us may vary substantially between states and among various government programs . the following table sets forth the ranges of premiums paid to our state health plans by program , on a per-member per-month basis for the year ended december 31 , 2014 . the `` consolidated '' column represents the weighted-average amounts for our total membership by program . replace_table_token_6_th _ ( 1 ) chip stands for children 's health insurance program . ( 2 ) mmp members who receive both medicaid and medicare coverage from molina healthcare . 39 the following tables set forth our health plans segment membership as of the dates indicated : replace_table_token_7_th _ ( 1 ) our south carolina health plan began serving members under the state of south carolina 's new full-risk medicaid managed care program effective january 1 , 2014 . ( 2 ) medicaid expansion membership phased in , and the marketplace became available for consumers to access coverage , beginning january 1 , 2014. molina medicaid solutions segment the payments received by our molina medicaid solutions segment under its state contracts are based on the performance of multiple services . the first of these is the design , development and implementation ( ddi ) of a medicaid management information system ( mmis ) . an additional service , following completion of ddi , is the operation of the mmis under a business process outsourcing ( bpo ) arrangement . when providing bpo services ( which include claims payment and eligibility processing ) we also provide the state with other services including both hosting and support , and maintenance . because we have determined the services provided under our molina medicaid solutions contracts represent a single unit of accounting , we recognize revenue associated with such contracts on a straight-line basis over the contract term during which bpo , hosting , and support and maintenance services are delivered . there may be certain contractual provisions containing contingencies , however that require us to delay recognition of all or part of our service revenue until such contingencies have been removed . for further information regarding revenue recognition for the molina medicaid solutions segment , refer to item 8 of this form 10-k , notes to consolidated financial statements , in note 2 , `` significant accounting policies . '' story_separator_special_tag replace_table_token_10_th results of operations , continuing operations year ended december 31 , 2014 compared with the year ended december 31 , 2013 health plans segment premium revenue a 28 % increase in membership and an 18 % increase in revenue pmpm in 2014 resulted in an increase in premium revenue of 46 % , or over $ 2.8 billion , when compared with 2013 . medicare premium revenue was approximately $ 627 million in the year ended december 31 , 2014 , compared with approximately $ 526 million in the year ended december 31 , 2013 . enrollment growth was primarily due to medicaid expansion program membership added as a result of the affordable care act , and membership added at our south carolina and illinois health plans . higher pmpm premium revenue was primarily the result of the inclusion of long-term services and supports ( ltss ) benefits in various medicaid managed care programs in california , florida , illinois , new mexico , and ohio . medical care costs although medical margin ( defined as the excess of premium revenue over medical care costs ) increased nearly 20 % in 2014 over 2013 ; our consolidated medical care ratio ( defined as medical care costs as a percentage of premium revenue ) increased to 89.5 % in 2014 from 87.1 % in 2013 . the medical care ratio increased substantially in 2014 as a result of three developments : much of our revenue growth has come from participation in medicaid programs covering ltss . percentage profit margins for ltss benefits are generally lower than percentage profit margins for acute medical benefits . increases to our base premiums in recent years have not kept pace with medical cost trends . lack of coordination in the design of profit caps and medical cost floors in some of our state medicaid contracts is resulting in counterproductive outcomes . in some instances , givebacks due to profitable performance in one product can not be offset against losses in other products . medical care ratios by program for 2014 were as follows : tanf and chip - 89.3 % ; medicaid expansion - 79.4 % ; abd - 92.3 % ; medicare - 95.8 % ; mmp integrated - 92.1 % ; and marketplace - 83.7 % . 43 the following table provides the details of consolidated medical care costs for the periods indicated ( dollars in thousands except pmpm amounts ) : replace_table_token_11_th individual health plan analysis california . the medical care ratio for the california health plan decreased significantly to 83.3 % in 2014 , from 88.9 % in 2013 . additionally , medical margin improved $ 171.0 million when compared with 2013 . this improvement was the result of higher enrollment , primarily due to the addition of approximately 107,000 medicaid expansion members ; and premium increases effective october 1 , 2013 ( 2.5 % ) , and july 1 , 2014 ( 5.5 % ) . during 2014 , the california health plan benefited from the recognition of approximately $ 23 million in premium revenue that related to 2013 as a result of certain programmatic changes implemented by the state of california . in 2013 , the california health plan recognized approximately $ 32 million of premium revenue related to 2012 and earlier years as a result of retroactive rate increases from the state of california . the california health plan served its first mmp members in 2014. florida . due to the re-procurement undertaken by the florida agency for health care administration as part of its managed medical assistance program starting in 2014 , the florida health plan transitioned many of its members to other health plans in the second quarter of 2014 , and then added approximately 105,000 members in the second half of 2014 , both from the addition of new service areas and through acquisitions . although revenue increased approximately 66 % at the florida health plan for the year ended december 31 , 2014 , when compared with 2013 , profitability fell in 2014. medical margin declined $ 14.1 million , and the medical care ratio increased to 95.5 % from 87.3 % in 2013 . the higher medical care costs were the result of 1 ) the assumption of risk for ltss benefits for certain members effective december 2013 ( as noted above percentage profit margins for ltss benefits are generally less than those for other benefits ) ; and 2 ) our inability to recognize revenue related to a rate increase effective september 1 , 2014 , as a result of those rates not being finalized prior to year end . illinois . the medical care ratio for the illinois health plan decreased to 91.7 % in 2014 , from 96.9 % in 2013 . the plan experienced significant growth in 2014 ; enrollment increased approximately 96,000 members overall , with 78,000 members added in the fourth quarter alone . this growth occurred primarily within the traditional tanf program , and to a lesser degree within the medicaid expansion program . the illinois health plan served its first mmp members in 2014. michigan . the medical care ratio of the michigan health plan was consistent year over year , at 84.6 % in 2014 , compared with 84.4 % in 2013 . new mexico . premium revenue at the new mexico health plan increased 141 % for 2014 compared with 2013 , primarily as a result of the addition of medicaid behavioral health and ltss benefits effective january 1 , 2014 , and the addition of approximately 54,000 medicaid expansion members during the course of 2014. the medical care ratio of the new mexico health plan increased to 92.6 % in 2014 , from 86.1 % in 2013 .
| fiscal year 2014 financial highlights net income from continuing operations increased to $ 62.6 million in 2014 , from $ 44.8 million in 2013 due to increases in enrollment and revenue , and improved administrative cost efficiency ; which offset higher medical costs and higher tax rates . strong enrollment growth across all of our programs combined with an 18 % increase in premium revenue per member , generated almost $ 3 billion , or 46 % , more premium revenue in 2014 compared with 2013. general and administrative expenses as a percentage of revenue declined to 7.9 % in 2014 , versus 10.1 % in 2013 . medical care costs as a percentage of premium revenue increased to 89.5 % in 2014 , from 87.1 % in 2013. debt financing transactions generated net cash of $ 122.6 million ; such transactions both extended the maturity date and lowered the rate of our convertible senior notes previously due in 2014. health care reform we believe that the government-sponsored initiatives , including the affordable care act ( aca ) , will continue to provide us with significant opportunities for membership growth in our existing markets and in new programs in the future as follows : medicaid expansion . in the states that have elected to participate , the aca provides for the expansion of the medicaid program to offer eligibility to nearly all low-income people under age 65 with incomes at or below 138 % of the federal poverty line . medicaid expansion membership phased in beginning january 1 , 2014. since that date , our health plans in california , illinois , michigan , new mexico , ohio , and washington have begun participating in medicaid expansion . at december 31 , 2014 our membership included approximately 385,000 medicaid expansion members , or 15 % of total membership . marketplace .
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md & a is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes . overview we are primarily a hotel franchisor with franchise agreements representing 6,423 hotels open and 720 hotels under construction , awaiting conversion or approved for development as of december 31 , 2015 , with 507,483 rooms and 58,130 rooms , respectively , in 50 states , the district of columbia and more than 35 countries and territories outside the united states . our brand names include comfort inn , comfort suites , quality , clarion , ascend hotel collection , sleep inn , econo lodge , rodeway inn , mainstay suites , suburban extended stay hotel and cambria hotels & suites ( collectively , the `` choice brands '' ) . the company 's domestic franchising operations are conducted through direct franchising relationships while its international franchise operations are conducted through a combination of direct franchising and master franchising relationships . master franchising relationships are governed by master franchising agreements which generally provide the master franchisee with the right to use our brands and sub-license the use of our brands in a specific geographic region , usually for a fee . our business strategy is to conduct direct franchising in those international markets where both franchising is an accepted business model and we believe our brands can achieve significant scale . we elect to enter into master franchise agreements in those markets where direct franchising is currently not a prevalent or viable business model . when entering into master franchising relationships , we strive to select partners that have professional hotel and asset management capabilities together with the financial capacity to invest in building the choice brands in their respective markets . master franchising relationships typically provide lower revenues to the company as the master franchisees are responsible for managing certain necessary services ( such as training , quality assurance , reservations and marketing ) to support the franchised hotels in the master franchise area and therefore retain a larger percentage of the hotel franchise fees to cover their expenses . in certain circumstances , the company has and may continue to make equity investments in our master franchisees . as a result of our use of master franchising relationships and international market conditions , revenues from international franchising operations comprised 6 % and 8 % of our total revenues in 2015 and 2014 , respectively , while representing approximately 18 % of our franchise system hotels open as of december 31 st of the same periods . therefore , our description of the franchise system is primarily focused on the domestic operations . our company generates revenues , income and cash flows primarily from initial , relicensing and continuing royalty fees attributable to our franchise agreements . revenues are also generated from qualified vendor arrangements and other sources . the hotel industry is seasonal in nature . for most hotels , demand is lower in november through february than during the remainder of the year . our principal source of revenues is franchise fees based on the gross room revenues of our franchised 38 properties . the company 's franchise fee revenues reflect the industry 's seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters . with a focus on hotel franchising instead of ownership , we benefit from the economies of scale inherent in the franchising business . the fee and cost structure of our business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue ; ongoing royalty fees and procurement services revenues . in addition , our operating results can also be improved through our company-wide efforts related to improving property level performance . the company currently estimates , based on its current domestic portfolio of hotels under franchise , that a 1 % change in revenue per available room ( `` revpar '' ) or rooms under franchise would increase or decrease royalty revenues by approximately $ 2.8 million and a 1 basis point change in the company 's effective royalty rate would increase or decrease domestic royalties by approximately $ 0.7 million . in addition to these revenues , we also collect marketing and reservation system fees to support centralized marketing and reservation activities for the franchise system . the company 's hotel franchising business currently has relatively low capital expenditure requirements . the principal factors that affect the company 's franchising results are : the number and relative mix of franchised hotel rooms in the various hotel lodging price categories ; growth in the number of hotel rooms under franchise ; occupancy and room rates achieved by the hotels under franchise ; the effective royalty rate achieved ; the level of franchise sales and relicensing activity ; and our ability to manage costs . the number of rooms at franchised properties and occupancy and room rates at those properties significantly affect the company 's results because our fees are based upon room revenues or the number of rooms at franchised hotels . the key industry standard for measuring hotel-operating performance is revpar , which is calculated by multiplying the percentage of occupied rooms by the average daily room rate realized . our variable overhead costs associated with franchise system growth of our established brands have historically been less than incremental royalty fees generated from new franchises . accordingly , continued growth of our franchise business should enable us to realize benefits from the operating leverage in place and improve operating results . we are required by our franchise agreements to use the marketing and reservation system fees we collect for system-wide marketing and reservation activities . these expenditures , which include advertising costs and costs to maintain our central reservations and property management systems , help to enhance awareness and increase consumer preference for our brands . story_separator_special_tag in conjunction with continued launch of this new line of business , the company expects to incur costs in excess of revenues earned as it further develops skytouch 's product offerings and expands its customer base . in august 2015 , the company completed the acquisition of a company that provides software as a service solution for vacation rental management companies . this business provides central reservations systems , property management systems and integrated software applications including point-of-sale . the transaction has been accounted for using the acquisition method of accounting and accordingly , assets acquired and liabilities assumed were recorded at their fair values as of the acquisition date . the results of this business have been consolidated with the company since august 2015. notwithstanding investments in skytouch and other alternative growth strategies , the company expects to continue to return value to its shareholders over time through a combination of share repurchases and dividends . we believe these investments and strategic priorities , when properly implemented , will enhance our profitability , maximize our financial returns and continue to generate value for our shareholders . the ultimate measure of our success will be reflected in the items below . results of operation : royalty fees , operating income , net income and diluted earnings per share ( `` eps '' ) represent key measurements of these value drivers . these measurements are primarily driven by the operations of our franchise system and therefore our analysis of the company 's operations is primarily focused on the size , performance and potential growth of the franchise system as well as our variable overhead costs . since our hotel franchising activities represent more than 99 % of total revenues , our discussion of our results from operations primarily relate to our franchising activities . refer to md & a heading `` operations review '' for additional analysis of our results . liquidity and capital resources : historically , the company has generated significant cash flows from operations . since our business does not currently require significant reinvestment of capital , we typically utilize cash in ways that management believes provide the greatest returns to our shareholders which include share repurchases and dividends . however , we may determine to utilize cash for acquisitions and other investments in the future . we believe the company 's cash flow from 40 operations and available financing capacity is sufficient to meet the expected future operating , investing and financing needs of the business . refer to md & a heading `` liquidity and capital resources '' for additional analysis . inflation : inflation has been moderate in recent years and has not had a significant impact on our business . non-gaap financial statement measurements the company utilizes certain measures which do not conform to generally accepted accounting principles accepted in the united states ( `` gaap '' ) when analyzing and discussing its results with the investment community . this information should not be considered as an alternative to any measure of performance as promulgated under gaap . the company 's calculation of these measurements may be different from the calculations used by other companies and therefore comparability may be limited . we have included a reconciliation of these measures to the comparable gaap measurement below as well as our reasons for reporting these non-gaap measures . franchising revenues : the company utilizes franchising revenues , which exclude revenues from marketing and reservation system activities , the skytouch technology division , a recently acquired operation that provides software as a service solutions to vacation rental management companies and revenue generated from the ownership of an office building that is leased to a third-party , rather than total revenues when analyzing the performance of the business . marketing and reservation activities are excluded from franchising revenues since the company is contractually required by its franchise agreements to use the fees collected for marketing and reservation activities ; as such , no income or loss to the company is generated . cumulative marketing and reservation system fees not expended are recorded as a liability in the company 's financial statements and are carried over to the next fiscal year and expended in accordance with the franchise agreements . cumulative marketing and reservation expenditures incurred in excess of fees collected for marketing and reservation activities are deferred and recorded as an asset in the company 's financial statements and recovered in future periods . skytouch is a division of the company that develops and markets cloud-based technology products , including inventory management , pricing and connectivity to third party channels , to hoteliers not under franchise agreements with the company . skytouch and our vacation rental technology solutions provider operations are excluded from franchising revenues since those operations do not reflect the company 's core franchising business but represent adjacent , complimentary lines of business . this non-gaap measure is a commonly used measure of performance in our industry and facilitates comparisons between the company and its competitors . calculation of franchising revenues replace_table_token_15_th adjusted ebitda : we also utilize adjusted earnings before interest , taxes , depreciation and amortization ( `` adjusted ebitda '' ) to analyze our results which reflects earnings excluding the impact of interest expense , interest income , provision for income taxes , depreciation and amortization , other ( gains ) and losses and equity earnings of unconsolidated affiliates . we consider adjusted ebitda to be an indicator of operating performance because we use it to measure our ability to service debt , fund capital expenditures , and expand our business . we also use adjusted ebitda , as do analysts , lenders , investors and others , to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry . for example , interest expense can be dependent on a company 's capital structure , debt levels and credit ratings . accordingly , the impact of interest expense on earnings can vary significantly among companies .
| results of operations the company recorded income from continuing operations before income taxes of $ 184.0 million for the year ended december 31 , 2015 , a $ 10.2 million or 6 % increase from the same period of the prior year . the increase in income from continuing operations before income taxes primarily reflects a $ 10.8 million increase in operating income partially offset by a $ 1.2 million increase in other ( gains ) losses , an increase in interest expense of $ 1.3 million and a $ 0.2 million increase in equity loss of affiliates . operating income increased $ 10.8 million as the company 's revenues excluding marketing and reservations , increased by $ 25.8 million or 7 % but were partially offset by a $ 12.8 million or 11 % increase in sg & a expenses . adjusted ebitda for the year ended december 31 , 2015 increased $ 12.9 million or 6 % to $ 236.9 million . the key drivers of these fluctuations are described in more detail below . franchising revenues : franchising revenues were $ 366.7 million for the year ended december 31 , 2015 compared to $ 344.8 million for the year ended december 31 , 2014 , a 6 % increase . the increase in franchising revenues is primarily due to a $ 14 million or 5 % increase in royalty revenues , a $ 5.2 million increase in initial franchise and relicensing fees , and a $ 3.3 million or 14 % increase in procurement services fees . 43 royalty fees domestic royalty fees for the year ended december 31 , 2015 increased $ 18.3 million to $ 281.3 million from $ 263.0 million in 2014 , an increase of 7 % .
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the notes accrue interest at an annual rate of 0.75 % , payable semi-annually in arrears on march 1 and september 1 , beginning on september 1 , 2020. proceeds from the notes and capped call transactions : ( in thousands ) amount principal $ 600,000 less : issuance costs ( 14,527 ) less : capped call transactions ( 51,900 ) $ 533,573 conversion rights the conversion rate is 7.4045 shares of common stock per $ 1,000 principal amount of the notes , representing an initial conversion price of $ 135.05 per share of common stock . the company will settle conversions by paying or delivering , as applicable , cash , shares of its common stock , or a combination of cash and shares of its common stock , at the company 's election , based on the applicable conversion rate . the conversion rate will be adjusted upon the occurrence of certain events , including spin-offs , tender offers , exchange offers , and certain stockholder distributions . beginning on september 1 , 2024 , noteholders may convert their notes at any time at their election . before september 1 , 2024 , noteholders may convert their notes in the following circumstances : during any calendar quarter commencing after the calendar quarter ending on june 30 , 2020 ( and only during such calendar quarter ) , if the last reported sale price per share of the company 's common stock exceeds one hundred and thirty percent ( 130 % ) of the conversion price for each of at least twenty ( 20 ) trading days ( whether or not consecutive ) during the thirty ( 30 ) consecutive trading days ending on , and including , the last trading day of the immediately preceding calendar quarter . during the five consecutive business days immediately after any five consecutive trading day period ( the “ measurement period ” ) , if the trading price per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of common stock on such trading day and the conversion rate on such trading day . upon the occurrence of certain corporate events or distributions , or if the company calls all or any notes for redemption , then the noteholder of any note may convert such note at any time before the close of business on the business day immediately before the related redemption date ( or if the company fails to pay the redemption price due on such redemption date in full , at any time until the company pays such redemption price in full ) . as of december 31 , 2020 , no notes were eligible for conversion at the noteholders ' election . repurchase rights on or after march 1 , 2023 and on or before the 40th scheduled trading day immediately before the maturity date , the company may redeem for cash all or part of the notes at a repurchase price equal to 100 % of the principal amount , plus accrued and unpaid interest , if the last reported sale price of the company 's common stock exceeded 130 % of the conversion price then in effect for at least 20 trading days ( whether or not consecutive ) during any 30 consecutive trading day period ending on , and including , the trading day immediately preceding the date on which the company provides a redemption notice . if certain corporate events that constitute a “ fundamental change ” ( as described below ) occur at any time , each noteholder will have the right , at such noteholder 's option , to require the company to repurchase for cash all of such noteholder 's notes , or any portion of story_separator_special_tag business overview we develop , market , license , host , and support enterprise software applications that help organizations transform how they engage with their customers and process work . we also license our low code pega platform for rapid application development to clients that wish to build and extend their business applications . our cloud-architected portfolio of customer engagement and digital process automation applications leverages artificial intelligence ( “ ai ” ) , case management , and robotic automation technology , built on our unified low code pega platform , empowering businesses to quickly design , extend , and scale their enterprise applications to meet strategic business needs . our target clients are global 3000 organizations and government agencies that require applications to differentiate themselves in the markets they serve . our applications achieve and facilitate differentiation by increasing business agility , driving growth , improving productivity , attracting and retaining customers , and reducing risk . we deliver applications tailored to our clients ' specific industry needs . 24 cloud transition we are in the process of transitioning our business to sell software primarily through subscription arrangements , particularly pega cloud ( “ cloud transition ” ) . until we substantially complete our cloud transition , which we anticipate will occur in early 2023 , we expect to continue to experience lower revenue growth and lower operating cash flow growth or negative cash flow . the actual mix of revenue and new arrangements in a given period can fluctuate based on client preferences . see risk factor `` if we fail to manage our transition to a more subscription-based business model successfully , our results of operations and or cash flows could be negatively impacted . '' in item 1a of this annual report for additional information . story_separator_special_tag a detailed discussion and analysis of the 2019 year-over-year changes can be found in `` item 7. management 's discussion and analysis of financial condition and results of operations '' of our annual report on form 10-k for the year ended december 31 , 2019 . 30 critical accounting estimates and significant judgments management 's discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. and the rules and regulations of the sec for annual financial reporting . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates and judgments on historical experience , knowledge of current conditions , and beliefs of what could occur in the future , given the available information . we believe that , of our significant accounting policies , described in “ note 2. significant accounting policies ” in item 8 of this annual report , the following accounting policies are most important to the portrayal of our financial condition and require the most subjective judgment . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . if actual results differ significantly from management 's estimates and projections , there could be a material effect on our financial statements . revenue recognition our contracts with clients typically contain promises by us to provide multiple products and services . specifically , contracts associated with pega platform sales and other software applications , sold either as licenses to use functional intellectual property or as a cloud-based solution , typically include consulting services . determining whether such products and services within a client contract are considered distinct performance obligations that should be accounted for separately requires significant judgment . we review client contracts to identify all separate promises to transfer goods and services that would be considered performance obligations . judgment is also required in determining whether an option to acquire additional products and services within a client contract represents a material right that the client would not receive without entering into the contract . a contract modification is a legally binding change to the scope , price , or both of an existing contract . contract modifications are reviewed to determine whether they should be accounted for as part of the original contract or as a separate contract . this determination requires significant judgment , which could impact the timing of revenue recognition . we typically account for contract modifications prospectively as a separate contract . the additional performance obligation ( s ) in our contract modifications are generally distinct and priced at their stand-alone selling price . we allocate the transaction price to the distinct performance obligations , including options in contracts determined to represent a material right , based on each performance obligation 's relative stand-alone selling price . judgment is required in estimating stand-alone selling prices . we maximize the use of observable inputs by maintaining pricing analyses that consider our pricing policies , historical stand-alone sales when they exist , and historical renewal prices charged to clients . we have concluded that the stand-alone selling prices of certain performance obligations , specifically the stand-alone selling prices of software licenses and pega cloud arrangements , are highly variable . in these instances , we estimate the stand-alone selling prices using the residual approach , determined based on total transaction price minus the stand-alone selling price of other performance obligations promised in the contract . we update our stand-alone selling price analysis periodically , including a re-assessment of whether the residual approach used to determine the stand-alone selling prices for software licenses and pega cloud arrangements remains appropriate . changes in the assumptions or judgments used in determining the performance obligations in client contracts and stand-alone selling prices could significantly impact the timing and amount of revenue we report in a particular period . goodwill and intangible assets impairment our goodwill and intangible assets result from our previous business acquisitions . goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually or as circumstances indicate their value may no longer be recoverable . we do not carry any intangible assets with indefinite useful lives other than goodwill . we perform our annual goodwill impairment test as of november 30th . to assess if goodwill is impaired , we first perform a qualitative assessment to determine whether further impairment testing is necessary . if based on the qualitative assessment , we consider it more-likely-than-not that our reporting unit 's fair value is less than its carrying amount , we perform a quantitative impairment test . an excess of carrying value over fair value would indicate that goodwill may be impaired . we periodically reevaluate our business and have determined that we have one operating segment and one reporting unit . if our assumptions change in the future , we may be required to record impairment charges to reduce our goodwill 's carrying value . changes in the valuation of goodwill could materially impact our operating results and financial position . we evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that such assets ' carrying amount may not be recoverable .
| results of operations revenue cloud transition we are in the process of transitioning our business to sell software primarily through subscription arrangements , particularly pega cloud . revenue growth has and is expected to continue to be slower during this transition revenue from pega cloud arrangements is typically recognized over the contract term . in contrast , revenue from license sales is generally recognized upfront when the license rights become effective . replace_table_token_2_th ( 1 ) reflects client arrangements subject to renewal ( pega cloud , maintenance , and term license ) . the change in total revenue since 2019 generally reflects the impact of our cloud transition . additional contributing factors were : an increasing portion of our term license contracts include multi-year committed maintenance periods instead of annually renewable maintenance periods . under such arrangements , a larger portion of the total contract value is recognized as maintenance revenue over the contract term rather than as term license revenue upon effectiveness of the license rights . in 2020 , multi-year committed maintenance contributed $ 10.2 million to maintenance revenue growth and reduced term revenue growth by $ 20.8 million . maintenance renewal rates remained over 90 % in 2020. the slight increase in consulting revenue in 2020 was primarily due to increased billable hours , which offset the impact of reduced billable travel expenses due to covid-19 . as part of our long-term strategy , we intend to continue growing and increasingly leveraging our ecosystem of partners on future implementation projects , potentially reducing our future consulting revenue growth rate . gross profit replace_table_token_3_th the increase in gross profit in 2020 was primarily due to cost-efficiency gains as pega cloud grows and scales as a result of our cloud transition and overall revenue growth . the increase in consulting gross profit in 2020 was primarily due to a decrease in travel and entertainment expenses and an increase in consultant utilization .
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we support our drug discovery and development efforts through the commitment of significant resources to discovery , research and development programs and business development opportunities . our marketed products include tecfidera , avonex , plegridy , tysabri , vumerity and fampyra for the treatment of ms ; spinraza for the treatment of sma ; and fumaderm for the treatment of severe plaque psoriasis . we also have certain business and financial rights with respect to rituxan for the treatment of non-hodgkin 's lymphoma , cll and other conditions ; rituxan hycela for the treatment of non-hodgkin 's lymphoma and cll ; gazyva for the treatment of cll and follicular lymphoma ; ocrevus for the treatment of ppms and rms ; and other potential anti-cd20 therapies pursuant to our collaboration arrangements with genentech . for additional information on our collaboration arrangements with genentech , please read note 18 , collaborative and other relationships , to our consolidated financial statements included in this report . our innovative drug development and commercialization activities are complemented by our biosimilar products that expand access to medicines and reduce the cost burden for healthcare systems . through samsung bioepis , our joint venture with samsung biologics co. , ltd. , we market and sell benepali , an etanercept biosimilar referencing enbrel , imraldi , an adalimumab biosimilar referencing humira , and flixabi , an infliximab biosimilar referencing remicade , in certain countries in europe and have exclusive rights to commercialize these products in china . additionally , we have exclusive rights to commercialize two potential ophthalmology biosimilar products , sb11 referencing lucentis and sb15 referencing eylea , in major markets worldwide , including the u.s. , canada , europe , japan and australia . for additional information on our collaboration arrangements with samsung bioepis , please read note 18 , collaborative and other relationships , to our consolidated financial statements included in this report . our revenues depend upon continued sales of our products , as well as the financial rights we have in our anti-cd20 therapeutic programs , and , unless we develop , acquire rights to and or commercialize new products and technologies , we will be substantially dependent on sales from our products and our financial rights in our anti-cd20 therapeutic programs for many years . in the longer term , our revenue growth will depend upon the successful clinical development , regulatory approval and launch of new commercial products as well as additional indications for our existing products , our ability to obtain and maintain patents and other rights related to our marketed products , assets originating from our research and development efforts and or successful execution of external business development opportunities . business environment the biopharmaceutical industry and the markets in which we operate are intensely competitive . many of our competitors are working to develop or have commercialized products similar to those we market or are developing and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products . in addition , the commercialization of certain of our own approved products , products of our collaborators and pipeline product candidates may negatively impact future sales of our existing products . our products continue to face increasing competitive pressures from the introduction of generic versions , prodrugs and biosimilars of existing products as well as products approved under abbreviated regulatory pathways . such products are likely to be sold at substantially lower prices than branded products , which may significantly reduce both the price that we are able to charge for our products and the volume of products we sell . in addition , when 55 a generic version of one of our products is commercialized , it may , in some cases , be automatically substituted for our product and reduce our revenues in a short period of time . sales of our products depend , to a significant extent , on the availability and extent of adequate coverage , pricing and reimbursement from government health administration authorities , private health insurers and other organizations . when a new pharmaceutical product is approved , the availability of government and private reimbursement for that product may be uncertain , as is the pricing and amount for which that product will be reimbursed . drug prices are under significant scrutiny in the markets in which our products are prescribed . we expect drug pricing and other health care costs to continue to be subject to intense political and societal pressures on a global basis . our failure to obtain or maintain adequate coverage , pricing or reimbursement for our products could have an adverse effect on our business , reputation , revenues and results of operations , could curtail or eliminate our ability to adequately fund research and development programs for the discovery and commercialization of new products or could cause a decline or volatility in our stock price . in addition to the impact of competition , pricing actions and other measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures , our sales and operations could also be affected by other risks of doing business internationally , including the impact of foreign currency exchange fluctuations , changes in intellectual property legal protections and changes in trade regulations and procedures as well as the impact of the continued uncertainty of the credit and economic conditions in certain countries in europe . for additional information on our competition and pricing risks that could negatively impact our product sales , please read item 1a . risk factors and item 7a . quantitative and qualitative disclosures about market risk included in this report . brexit in june 2016 the u.k. electorate voted in a referendum to voluntarily depart from the e.u. , known as brexit . in march 2017 the u.k. government formally notified the european council of its intention to leave the e.u . and began to negotiate the terms of its withdrawal and outline the future relationship between the u.k. and the e.u . story_separator_special_tag in november 2019 vumerity became available in the u.s. aducanumab in october 2019 we and our collaboration partner eisai announced that we plan to pursue regulatory approval for aducanumab in the u.s. and that the phase 3 emerge study met its primary endpoint showing a significant reduction in clinical decline . we believe that results from a subset of patients in the phase 3 engage study who received sufficient exposure to high dose aducanumab support findings from emerge . the decision to file is based on a new analysis , conducted in consultation with the fda , of a larger dataset from the phase 3 emerge and engage trials that were discontinued in march 2019 following a futility analysis . for additional information on our plans to file for regulatory approval for aducanumab , please read the subsection entitled `` financial condition , liquidity and capital resources '' included below . elenbecestat in september 2019 we and our collaboration partner eisai announced the decision to discontinue the global phase 3 studies ( mission ad1 and mission ad2 ) of the investigational oral bace inhibitor elenbecestat in patients with early ad . 2019 share repurchase programs in march 2019 our board of directors authorized our march 2019 share repurchase program , which is a program to repurchase up to $ 5.0 billion of our common stock . our march 2019 share repurchase program does not have an expiration date . all share repurchases under our march 2019 share repurchase program will be retired . in december 2019 our board of directors authorized our december 2019 share repurchase program , which is a program to repurchase up to $ 5.0 billion of our common stock . our december 2019 share repurchase program does not have an expiration date . all share repurchases under our december 2019 share repurchase program will be retired . results of operations revenues revenues are summarized as follows : replace_table_token_6_th 59 product revenues product revenues are summarized as follows : replace_table_token_7_th * interferon includes avonex and plegridy . * * percentage not meaningful . 60 multiple sclerosis tecfidera for 2019 compared to 2018 , the 1.6 % increase in u.s. tecfidera revenues was primarily due to a slight net price increase , offset by a small decrease in unit sales volume . for 2019 compared to 2018 , the 10.3 % increase in rest of world tecfidera revenues was primarily due to increases in unit sales volume of 14 % , primarily related to our european and japanese markets , and the favorable impact of foreign currency exchange of $ 16.5 million , partially offset by pricing reductions in certain european countries . in february 2020 the u.s. patent trial and appeal board ( ptab ) decided that our u.s. patent no . 8,399,514 ( the ‘ 514 patent ) is patentable . the ‘ 514 patent covers treatment of ms with 480 mg of dimethyl fumarate per day as provided for in our tecfidera label . this decision may be appealed . the ‘ 514 patent has also been challenged pursuant to the hatch-waxman act in the u.s. district courts of delaware ( the delaware action ) and west virginia ( the west virginia action ) . we are awaiting a decision in the delaware action and the trial in the west virginia action is ongoing . if we receive an adverse judgment in either u.s. district court action , we will appeal but we may face generic competition while our appeal is pending . we will face tecfidera generic competition if an adverse ptab or u.s. district court decision is reached on appeal . in addition , we have entered into settlement agreements with some of the defendants in the delaware action and we now anticipate tecfidera generic competition before the ‘ 514 patent expires in february 2028. generic competition is expected to have an adverse impact on our tecfidera sales and our results of operations . for additional information , please read note 20 , litigation , to our consolidated financial statements included in this report . we anticipate an increase in tecfidera demand in rest of world in 2020 , compared to 2019 , notwithstanding the increasing competition from additional treatments for ms. we expect volume growth in our rest of world markets to offset volume declines in the u.s. interferon avonex and plegridy for 2019 compared to 2018 , the 14.5 % decrease in u.s. interferon revenues was primarily due to a decrease in interferon unit sales volumes of 13 % , which was primarily attributable to patients transitioning to other ms therapies and a net price decrease . for 2019 compared to 2018 , the 2.8 % decrease in rest of world interferon revenues was primarily due to pricing reductions in certain european countries . we expect that interferon revenues will continue to decline in both the u.s. and rest of world markets in 2020 , compared to 2019 , as a result of increasing competition from our other ms products as well as other treatments for ms , including biosimilars , and pricing reductions in certain european markets . avonex for 2019 , 2018 and 2017 u.s. avonex revenues totaled $ 1,202.1 million , $ 1,420.2 million and $ 1,593.6 million , respectively . 61 for 2019 , 2018 and 2017 rest of world avonex revenues totaled $ 463.8 million , $ 495.3 million and $ 557.9 million , respectively . plegridy for 2019 , 2018 and 2017 u.s. plegridy revenues totaled $ 224.5 million , $ 248.1 million and $ 295.5 million , respectively . for 2019 , 2018 and 2017 rest of world plegridy revenues totaled $ 211.4 million , $ 199.4 million and $ 198.8 million , respectively . tysabri for 2019 compared to 2018 , the 1.6 % increase in u.s. tysabri revenues was primarily due to price increases , partially offset by a decrease in unit sales volumes of 4 % .
| financial highlights diluted earnings per share attributable to biogen inc. were $ 31.42 for 2019 , representing an increase of 45.6 % over $ 21.58 in the same period in 2018 . as described below under results of operations , our net income and diluted earnings per share attributable to biogen inc. for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , reflects the following : total revenues were $ 14,377.9 million for 2019 , representing an increase of 6.9 % over $ 13,452.9 million in 2018 . product revenues , net totaled $ 11,379.8 million for 2019 , representing an increase of 4.5 % over $ 10,886.8 million in 2018 . this increase was primarily due to a 21.6 % increase in revenues from spinraza and a 35.4 % increase in revenues from our biosimilar business . product revenues , net , compared to the same period in 2018 , further reflects the unfavorable impact of foreign currency exchange of $ 53.0 million . revenues from anti-cd20 therapeutic programs totaled $ 2,290.4 million for 2019 , representing an increase of 15.7 % over $ 1,980.2 million in 2018 . this increase was primarily due to an increase in royalty revenues on sales of ocrevus . other revenues totaled $ 707.7 million for 2019 , representing an increase of 20.8 % over $ 585.9 million in 2018 . this increase was primarily due to higher revenues from our manufacturing and supply agreement with bioverativ , partially offset by lower revenues from other contract manufacturing agreements . total cost and expenses totaled $ 7,335.3 million for 2019 , representing a decrease of 3.0 % from $ 7,564.3 million in 2018 .
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interest expense recorded under both the pnc bank amended credit agreement and the hsbc bank credit agreement was approximately $ 1,365 , $ 1,438 and $ 764 during the 2016 , 2015 and 2014 fiscal years , respectively , which is included in interest expense on the consolidated statements of operations . in addition , the company accelerated the deferred financing costs of $ 292 which related to the pnc bank credit agreement that was recorded as interest expense in the fourth quarter of the 2016 fiscal year . at february 28 , 2016 , scheduled principal maturities of long-term debt were as follows : replace_table_token_30_th 1 1 . commitments the story_separator_special_tag results of operations . general : park electrochemical corp. ( “ park ” or the “ company ” ) is a global advanced materials company which develops , manufactures , markets and sells high-technology digital and radio frequency ( “ rf ” ) /microwave printed circuit materials products principally for the telecommunications and internet infrastructure and high-end computing markets and advanced composite materials , parts and assemblies products and low-volume tooling for the aerospace markets . park 's core capabilities are in the areas of polymer chemistry formulation and coating technology . the company 's manufacturing facilities are located in singapore , france , kansas , arizona and california . the company also maintains research and development facilities in arizona , kansas and singapore . the company 's fiscal year is the 52 or 53 week period ending the sunday nearest to the last day of february . the 2016 , 2015 and 2014 fiscal years ended on february 28 , 2016 , march 1 , 2015 and march 2 , 2014 , respectively . the 2016 , 2015 and 2014 fiscal years consisted of 52 weeks . unless otherwise indicated in this discussion and analysis , all references to years in this discussion and analysis are to the company 's fiscal years and all annual information in this discussion and analysis is for such fiscal years . 2016 financial overview the company 's total net sales worldwide in 2016 were 10 % lower than in 2015 primarily due to lower sales of the company 's printed circuit materials products in asia and north america , partially offset by higher sales of the company 's aerospace composite materials , parts and assemblies and low-volume tooling . the lower sales in asia were primarily due to a slowdown in demand for the company 's products which are used by oems in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries . the company 's higher sales in asia in 2015 were the result of a spike in demand for the company 's printed circuit materials products in asia caused by internet and telecommunications infrastructure build-out programs in developing countries . in addition , the original equipment manufacturers ( “ oems ” ) which manufacture equipment for these programs rapidly increased their inventory levels in excess of program demands . the company 's gross profit margin , measured as a percentage of sales , decreased to 29.3 % in 2016 from 30.2 % in 2015 due primarily to lower sales and production levels of the company 's printed circuit materials products in asia and north america in 2016 combined with the fixed nature of certain overhead costs , which were partially offset by higher sales of the company 's aerospace products , an improvement in its printed circuit materials production processes in north america , cost reduction initiatives in the united states and lower utility rates . the gross profit in 2016 also benefited from the higher percentage of sales of higher margin , high performance printed circuit materials products than in 2015 and the growing percentage of sales of the company 's more technically advanced high performance products . the company 's earnings from operations and net earnings in 2016 were 10 % lower than in 2015 , primarily as a result of the aforementioned decreases in sales and gross profit margin , partially offset by a 13 % reduction in selling , general and administrative expenses . selling , general and administrative expenses decreased primarily due to cost reduction initiatives , decreases in shipping expenses and legal and professional fees , lower incentive compensation expenses and favorable foreign exchange rates . earnings from operations in 2016 included pre-tax restructuring charges of $ 0.5 million in connection with the closure in fiscal year 2013 of the nelco technology ( zhuhai ftz ) ltd. ( “ nelco zhuhai ” ) facility located in the free trade zone in zhuhai , china and the closure in fiscal year 2009 of the new england laminates co. , inc. facility located in newburgh , new york . earnings from operations in 2015 included pre-tax charges of $ 1.6 million related to a modification of previously issued employee stock options , additional fees incurred in connection with the 2014 fiscal year-end audit and the cost reduction initiatives and facility closures mentioned above . 25 during the first quarter of 2016 , the company sold the nelco zhuhai building in zhuhai , china for $ 2.0 million . there was no gain or loss on the sale of the building , since the carrying value of the building was equal to the selling price . during 2016 , the company repatriated $ 61.0 million to the united states from its subsidiary in singapore primarily to replenish domestic cash that was used to pay a special cash dividend of $ 1.50 per share in the fourth quarter of 2015 and to purchase 718,588 shares of the company 's stock in the fourth quarter of 2015 and during 2016. the company made tax payments of $ 10.7 million in the first quarter of 2016 in connection with such repatriation . story_separator_special_tag the decrease in sales of the company 's printed circuit materials products in north america was primarily driven by a general slowdown in demand for certain legacy products , and the increase in sales of the company 's printed circuit materials products in asia was primarily driven by an increase in demand for the company 's products as a result of the telecommunications infrastructure build-out in developing countries . the higher sales of the company 's aerospace composite materials , parts and assemblies products was primarily due to the qualification of its aerospace composite materials on a long-term jet engine manufacturing program . the company 's total net sales of its printed circuit materials products were $ 126.4 million in 2015 and $ 135.4 million in 2014 and comprised 78 % and 82 % of the company 's total net sales worldwide in 2015 and 2014 , respectively . the company 's total net sales of its aerospace composite materials , parts and assemblies and low-volume tooling products were $ 35.6 million in 2015 and $ 30.4 million in 2014 and comprised 22 % and 18 % of the company 's total net sales worldwide in 2015 and 2014 , respectively . the company 's foreign sales were $ 86.7 million , or 53 % of the company 's total net sales worldwide , during 2015 compared to $ 83.6 million of sales , or 50 % of total net sales worldwide during 2014. the company 's foreign sales during 2015 increased 4 % from 2014 as a result of higher sales in asia . the company 's sales in north america , asia and europe were 46 % , 47 % and 7 % , respectively , of the company 's total net sales worldwide in 2015 compared to 50 % , 43 % and 7 % , respectively , in 2014. the company 's sales in north america decreased 8 % , its sales in asia increased 6 % and its sales in europe decreased 9 % in 2015 compared to 2014 . 30 during 2015 , 92 % of the company 's total net sales worldwide of printed circuit materials consisted of high performance printed circuit materials , compared to 88 % during 2014. gross profit despite the reduction in the company 's total net sales and the fixed nature of certain overhead costs , the company 's gross profit in 2015 was 2 % higher than its gross profit in the prior fiscal year and the overall gross profit as a percentage of net sales increased to 30.2 % in 2015 compared to 29.0 % in 2014. the increase in the gross profit margin was primarily due to reductions in utility rates , cost reduction initiatives in the united states , a decrease in repairs and maintenance expenses and the improved operating performance of the company 's patc business unit as a result of the increase in sales and efficiencies from larger production volumes . the gross profit in 2015 also benefited from the higher percentage of sales of higher margin , high performance printed circuit materials products than in 2014 and the growing percentage of sales of the more technically advanced high performance products . selling , general and administrative expenses selling , general and administrative expenses decreased by $ 0.8 million , or 3 % , during 2015 compared to 2014. such expenses measured as percentages of sales were 15.0 % during 2015 compared to 15.2 % during 2014. the decrease in such expenses in 2015 was primarily the result of lower freight expenses commensurate with lower sales in 2015 than in 2014 , and lower travel and entertainment costs , legal fees and stock option expenses , which were partially offset by unfavorable changes in foreign exchange rates . during 2015 and 2014 , the company recorded non-cash charges of $ 0.2 million and $ 0.7 million , respectively , resulting from the modification of previously issued employee stock options resulting from the $ 1.50 per share special cash dividend paid by the company in february 2015 and the $ 2.50 per share special cash dividend paid by the company in february 2014. selling , general and administrative expenses in 2015 included $ 1.4 million of stock option expenses compared to $ 1.7 million of such expenses in 2014. restructuring charges during 2015 , the company recorded pre-tax restructuring charges of $ 1.2 million in connection with cost reduction initiatives in the united states and the closures in prior years of its facilities located in zhuhai , china and newburgh , new york , compared to pre-tax restructuring charges of $ 0.5 million in 2014 related to the closure of the facility in zhuhai , china . earnings from operations for the reasons set forth above , the company 's earnings from operations were $ 23.4 million for 2015 , including the non-cash pre-tax charges of $ 0.2 million associated with the modification of previously issued employee stock options , pre-tax restructuring charges of $ 1.2 million related to cost reduction initiatives in the united states and the closures in prior years of facilities in zhuhai , china and newburgh , new york and a pre-tax charge of $ 0.3 million for additional fees incurred in connection with the 2014 fiscal year-end audit , compared to $ 22.4 million for 2014 , including the non-cash pre-tax charges of $ 0.7 million associated with the modification of previously issued employee stock options , $ 0.5 million related to the closure of the facility in zhuhai , china and $ 0.3 million for a financial advisory services retention fee .
| results o f operations : fiscal year 2016 compared to fiscal year 2015 replace_table_token_3_th 26 net sales the company 's total net sales worldwide in 2016 decreased 10 % from 2015 primarily as a result of lower sales of the company 's printed circuit materials products in asia and north america , partially offset by higher sales of the company 's aerospace composite materials , parts and assemblies products . the lower sales in asia were primarily due to a slowdown in demand for the company 's products which are used by oems in the manufacture of equipment for the internet and telecommunications infrastructure in developing countries . the company 's higher sales in asia in 2015 were the result of a spike in demand for the company 's printed circuit materials products in asia caused by internet and telecommunications infrastructure build-out programs in developing countries . in addition , the oems which manufacture equipment for these programs rapidly increased their inventory levels in excess of program demands . the company 's total net sales of its printed circuit materials products were $ 106.7 million and $ 126.4 million in 2016 and 2015 , respectively , or 73 % and 78 % , respectively , of the company 's total net sales worldwide in such periods . the company 's total net sales of its aerospace composite materials , parts and assemblies products were $ 39.1 million and $ 35.6 million in 2016 and 2015 , respectively , or 27 % and 22 % , respectively , of the company 's total net sales worldwide in such periods . the company 's foreign sales were $ 70.6 million , or 48 % of the company 's total net sales worldwide , during 2016 compared to $ 86.7 million of sales , or 53 % of total net sales worldwide , during 2015. the decrease in 2016 was primarily due to the lower sales in asia for reasons described above .
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for other arrangements , the amount of revenue , based on contractual terms , is determinable when the sale of the applicable product has been completed upon delivery and transfer of custody . collectability is reasonably assured - collectability is evaluated on a customer-by-customer basis . new and existing customers are subject to a credit review process , which evaluates the customers ' financial position ( for example , credit 98 dcp midstream , lp notes to consolidated financial statements years ended december 31 , 2017 , 2016 and 2015 - ( continued ) metrics story_separator_special_tag the following discussion analyzes our financial condition and results of operations . you should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and notes included elsewhere in this annual report on form 10-k. overview we are a delaware limited partnership formed by dcp midstream , llc to own , operate , acquire and develop a diversified portfolio of complementary midstream energy assets . our operations are organized into two reportable segments : ( i ) gathering and processing and ( ii ) logistics and marketing . our gathering and processing segment consists of gathering , compressing , treating , and processing natural gas , producing and fractionating ngls , and recovering condensate . our logistics and marketing segment includes transporting , trading , marketing and storing natural gas and ngls , fractionating ngls and wholesale propane logistics . 50 general trends and outlook we anticipate our business will continue to be affected by the following key trends . our expectations are based on assumptions made by us and information currently available to us . to the extent our underlying assumptions about or interpretations of available information prove to be incorrect , our actual results may vary materially from our expected results . our business is impacted by commodity prices and volumes . we mitigate a portion of commodity price risk on an overall partnership basis by growing our fee based assets and by executing on our hedging program , in which we hedge commodity prices associated with a portion of our expected natural gas , ngl and condensate equity volumes in our gathering and processing segment . various factors impact both commodity prices and volumes , and as indicated in item 7a . `` quantitative and qualitative disclosures about market risk , '' we have sensitivities to certain cash and non-cash changes in commodity prices . drilling activity levels vary by geographic area ; we will continue to target our strategy in geographic areas where we expect producer drilling activity . in the long-term , our belief is that commodity prices will be at levels we believe will support growth in natural gas , condensate and ngl production . we expect future commodity prices will be influenced by the severity of winter and summer weather , the level of north american production and drilling activity by exploration and production companies and the balance of trade between imports and exports of liquid natural gas , ngls and crude oil . ngl prices are impacted by the demand from petrochemical and refining industries and export facilities . the petrochemical industry has been making significant investment in building and expanding facilities to convert chemical plants from a heavier oil-based feedstock to lighter ngl-based feedstocks , including ethane . we believe this will cause increased demand in the next year , which should provide support for the increasing supply of ethane . as these facilities commence operations , ethane prices could remain weak with supply in excess of demand . in addition , export facilities are being expanded and built , which provide support for the increasing supply of ngls . although there can be , and has been , volatility in ngl prices , longer term we believe there will be sufficient demand in ngls to support increasing supply . we believe our contract structure with our producers provides us with significant protection from credit risk since we generally hold the product , sell it and withhold our fees prior to remittance of payments to the producer . currently , our top 20 producers account for a majority of the total natural gas that we gather and process and of these top 20 producers , eight have investment grade credit ratings while the remainder do not . in addition to the u.s. financial markets , many businesses and investors continue to monitor global economic conditions . uncertainty abroad may contribute to volatility in domestic financial and commodity markets . we believe we are positioned to withstand current and future commodity price volatility as a result of the following : our growing fee-based business represents a significant portion of our margins . we have positive operating cash flow from our well-positioned and diversified assets . we have a well-defined and targeted hedging program . we manage our disciplined capital growth program with a significant focus on fee-based agreements and projects with long term volume outlooks . we believe we have a solid capital structure and balance sheet . we believe we have access to sufficient capital to fund our growth . during 2018 , our strategic objectives will continue to focus on maintaining stable distributable cash flows from our existing assets and executing on opportunities to sustain and ultimately grow our long-term distributable cash flows . we believe the key elements to stable distributable cash flows are the diversity of our asset portfolio , our fee-based business which represents a significant portion of our estimated margins , plus our hedged commodity position , the objective of which is to protect against downside risk in our distributable cash flows . we have engaged in a disciplined growth strategy in recent years focusing on our key areas of operations . our targeted strategy may take numerous forms such as organic build opportunities within our footprint , joint venture opportunities , and acquisitions . story_separator_special_tag our actual contract terms are based upon a variety of factors , including the commodity pricing environment at the time the contract is executed , natural gas quality , geographic location , customer requirements and competition from other midstream service providers . our gathering and processing contract mix and , accordingly , our exposure to natural gas , ngl and condensate prices , may change as a result of producer preferences , impacting our expansion in regions where certain types of contracts are more common as well as other market factors . we generate our revenues and our gross margin for our gathering and processing segment principally from contracts that contain a combination of fee based arrangements and percent-of-proceeds/liquids arrangements . our gathering and processing segment operating results are impacted by market conditions causing variability in natural gas , crude oil and ngl prices . the midstream natural gas industry is cyclical , with the operating results of companies in the industry significantly affected by drilling activity , which may be impacted by prevailing commodity prices . the number of active oil and gas drilling rigs in the united states has increased , from 563 on december 31 , 2016 to 882 on december 31 , 2017 ( source : ihs ) . although the prevailing price of residue natural gas has less short-term significance to our operating results than the price of ngls , in the long-term , the growth and sustainability of our business depends on commodity prices being at levels sufficient to provide incentives and capital for producers to explore for and produce natural gas . the prices of ngls , crude oil and natural gas can be extremely volatile for periods of time , and may not always have a close relationship . due to our hedging program , changes in the relationship of the price of ngls and crude oil may cause our commodity price exposure to vary , which we have attempted to capture in our commodity price sensitivities in item 7a in this 2017 form 10-k , “ quantitative and qualitative disclosures about market risk. ” our results may also be impacted as a result of non-cash lower of cost or market inventory or imbalance adjustments , which occur when the market value of commodities decline below our carrying value . we face strong competition in acquiring raw natural gas supplies . our competitors in obtaining additional gas supplies and in gathering and processing raw natural gas includes major integrated oil and gas companies , interstate and intrastate pipelines , and companies that gather , compress , treat , process , transport , store and or market natural gas . competition is often the greatest in geographic areas experiencing robust drilling by producers and during periods of high commodity prices for crude oil , natural gas and or ngls . competition is also increased in those geographic areas where our commercial contracts with our customers are shorter term and therefore must be renegotiated on a more frequent basis . logistics and marketing segment our logistics and marketing segment operating results are impacted by , among other things , the throughput volumes of the ngls we transport on our ngl pipelines and the volumes of ngls we fractionate and store . we transport , fractionate and store ngls primarily on a fee basis . throughput may be negatively impacted as a result of our customers operating their processing plants in ethane rejection mode , often as a result of low ethane prices relative to natural gas prices . factors that impact the supply and demand of ngls , as described above in our gathering and processing segment , may also impact the throughput and volume for our logistics and marketing segment . 53 these contractual arrangements may require our customers to commit a minimum level of volumes to our pipelines and facilities , thereby mitigating our exposure to volume risk . however , the results of operations for this business segment are generally dependent upon the volume of product transported , fractionated or stored and the level of fees charged to customers . we do not take title to the products transported on our ngl pipelines , fractionated in our fractionation facilities or stored in our storage facility ; rather , the customer retains title and the associated commodity price risk . the volumes of ngls transported on our pipelines are dependent on the level of production of ngls from processing plants connected to our ngl pipelines . when natural gas prices are high relative to ngl prices , it is less profitable to process natural gas because of the higher value of natural gas compared to the value of ngls and because of the increased cost of separating the ngls from the natural gas . as a result , we have experienced periods in the past , in which higher natural gas or lower ngl prices reduce the volume of ngls extracted at plants connected to our ngl pipelines and , in turn , lower the ngl throughput on our assets . our results of operations for our logistics and marketing segment are also impacted by increases and decreases in the volume , price and basis differentials of natural gas associated with our natural gas storage and pipeline assets , as well as our underlying derivatives associated with these assets . we manage commodity price risk related to our natural gas storage and pipeline assets through our commodity derivative program . the commercial activities related to our natural gas storage and pipeline assets primarily consist of the purchase and sale of gas and associated time spreads and basis spreads . a time spread transaction is executed by establishing a long gas position at one point in time and establishing an equal short gas position at a different point in time . time spread transactions allow us to lock in a margin supported by the injection , withdrawal , and storage capacity of our natural gas storage assets .
| results of operations consolidated overview the following table and discussion is a summary of our consolidated results of operations for the years ended december 31 , 2017 , 2016 and 2015 . the results of operations by segment are discussed in further detail following this consolidated overview discussion . replace_table_token_7_th * percentage change is not meaningful . 56 ( a ) operating revenues include the impact of trading and marketing gains ( losses ) , net . ( b ) earnings for discovery , sand hills , southern hills , front range , mont belvieu 1 and texas express include the amortization of the net difference between the carrying amount of the investments and the underlying equity of the entities . ( c ) gross margin consists of total operating revenues less purchases and related costs . segment gross margin for each segment consists of total operating revenues for that segment less purchases and related costs for that segment . please read “ reconciliation of non-gaap measures ” . ( d ) for entities not wholly-owned by us , includes our share , based on our ownership percentage , of the wellhead and throughput volumes and ngl production . year ended december 31 , 2017 vs. year ended december 31 , 2016 total operating revenues — total operating revenues increased $ 1,569 million in 2017 compared to 2016 primarily as a result of the following : $ 1,571 million increase for our logistics and marketing segment primarily due to increased commodity prices and favorable commodity derivative activity , partially offset by lower gas and ngl sales volumes and the sale of our northern louisiana system ; $ 977 million increase for our gathering and processing segment primarily due to higher commodity prices , higher gas and ngl sales volumes primarily related to our north region which impacts both sales and purchases , and higher transportation , processing and other , primarily related to fee based contract realignment efforts .
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our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under “ risk factors ” and elsewhere in this annual report . you should carefully read the “ risk factors ” section of this annual report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled “ cautionary note concerning forward-looking statements. ” all amounts in this report are in u.s. dollars , unless otherwise noted . overview we are a late-stage biopharmaceutical company focused on the discovery and development of novel anti-infectives . a significant focus of ours is on targeted immunotherapy using fully human monoclonal antibodies , or mabs , to treat life-threatening infections . mabs represent an innovative treatment approach that harnesses the human immune system to fight infections and are designed to overcome the deficiencies associated with current therapies , such as rise in drug resistance , short duration of response , limited tolerability , negative impact on the human microbiome , and lack of differentiation among the treatment alternatives . the majority of our product candidates are derived by employing our differentiated antibody discovery platforms . our proprietary product pipeline comprises fully human mabs targeting specific pathogens associated with life-threatening bacterial infections , primarily nosocomial pneumonia , and viral infections such as covid-19 . recently we announced the development of a novel antibody discovery and production platform technology called λpex . this technology complements and further extends the capabilities of mabigx® to quickly screen large number of antibody-producing b-cells from patients and generation of high mab-producing mammalian production cell line at a speed not previously attainable . as a result , we can significantly reduce time for antibody discovery and manufacturing compared to conventional approaches . this technology is being applied to the development of covid-19 mabs . we also announced initiation of research and development activities of our monoclonal antibody programs for covid-19 called ar-712 and ar-701 . in october 2020 and february 2021 , we announced the development of a highly neutralizing monoclonal antibody cocktail ( ar-712 ) , discovered from convalescent covid-19 patients , that successfully eliminated all detectable sars-cov-2 virus in infected animals at substantially lower doses than parenterally administered ( injected ) covid-19 mabs . the cocktail broadly bind and neutralize sar-cov-2 virus and the mutant ‘ e484k ' variant that is associated with the uk , south africa , brazil , and japan strains . the potency of ar-712 and its direct delivery to the lungs by inhaled administration may facilitate broader treatment coverage and dose sparing not achievable by parenteral administration . a clinical phase 1/2 study is expected to be launched in the second half of 2021. our lead product candidate , ar-301 has exhibited promising preclinical data and clinical data from a phase 1/2a clinical study in patients . ar-301 targets the alpha toxin produced by gram-positive bacteria staphylococcus aureus , or s. aureus , a common pathogen associated with hap and vap . in contrast to other programs targeting s. aureus toxins , we are developing ar-301 as a treatment of pneumonia , rather than prevention of s. aureus colonized patients from progression to pneumonia . in january 2019 , we initiated a phase 3 pivotal trial evaluating ar-301 for the treatment of hap and vap . the on-going covid-19 pandemic has caused an impact on patient enrollment globally and the rate of clinical site activation . pending on the rate of resolution of the on-going covid-19 pandemic , we provisionally expect to report an interim futility analysis in the second half of 2021. currently enrollment completion and top-line data are projected to occur in the first half of 2022 . 84 to complement and diversify our portfolio of targeted mabs , we are developing a broad spectrum small molecule non-antibiotic anti-infective agent gallium citrate ( ar-501 ) . ar-501 is being developed in collaboration with the cystic fibrosis foundation ( “ cff ” ) as a chronic inhaled therapy to treat lung infections in cystic fibrosis patients . in 2018 , ar-501 was granted orphan drug , fast track and qualified infectious disease product ( “ qidp ” ) designations by the food and drug administration ( “ fda ” ) . during the third quarter of 2019 , the european medicines agency ( “ ema ” ) granted the program orphan drug designation . we initiated a phase 1/2a clinical trial in december 2018 of the inhalable formulation of gallium citrate , which is being evaluated for the treatment of chronic lung infections associated with cystic fibrosis . in june 2020 , we announced positive results from the phase 1 portion of our phase 1/2a clinical trial of ar-501 in which healthy subjects were enrolled . the safety monitoring committee ( “ smc ' ) and data safety monitoring board ( “ dsmb ” ) from the cystic fibrosis foundation supported that the study proceed at all dose levels to the phase 2a portion of the phase 1/2a trial in adult subjects with cystic fibrosis ( “ cf ” ) . the on-going covid-19 pandemic has caused an impact on the rate of clinical site activation . we provisionally expect to complete enrollment of the phase 2a portion with cystic fibrosis subjects in the second half of 2021 with top-line data available shortly afterward . in september 2020 , we announced that we reached an agreement with the fda to simplify our ar-501 phase 2 trial design for the treatment of chronic lung infections associated with cf . we proposed , and the fda agreed , to streamline ar-501 's forthcoming phase 2a clinical trial in cf patients , by removing the single ascending dose ( “ sad ” ) portion of the study and only conducting a multiple ascending dose ( “ mad ” ) regimen . story_separator_special_tag in september 2019 , we entered into a license , development and commercialization agreement ( the “ license agreement ” ) with serum amr products ( “ samr ” ) . pursuant to the license agreement , we received upfront payments totaling $ 15 million , of which $ 5 million was received in july 2019 through the option agreement referred to above , and may receive milestone payments and royalty-based payments from samr if certain milestones and sales levels as defined in the license agreement are met . given the equity investment by sibv was negotiated in conjunction with the option agreement , which resulted in the execution of the license agreement , all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based on their fair value . we allocated the proceeds received from the sale of the restricted common stock and upfront payment from the license agreement , net of issuance and contract costs , of approximately $ 22.5 million accordingly : we recorded approximately $ 5.0 million , which represented the fair value of the restricted common stock issued of $ 5.4 million , net of $ 441,000 of issuance costs , to stockholders ' equity within our consolidated balance sheet ; 86 we recorded approximately $ 19.6 million to deferred revenue based on the $ 15 million from upfront payments under the license agreement and approximately $ 4.6 million from the equity allocation ; and we capitalized approximately $ 2.1 million to contract costs , which consists of approximately $ 376,000 issuance costs from the equity allocation and approximately $ 1.7 million in other direct costs to obtain the license agreement . in accordance with asc 606 , we determined that no performance obligations were satisfied through december 31 , 2020 , and therefore , no revenue related to the license agreement was recognized for the years ended december 31 , 2020 and 2019. critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported expenses during the reported periods . we evaluate these estimates and judgments on an ongoing basis . such estimates include those related to the evaluation of our ability to continue as a going concern , our best estimate of standalone selling price of revenue deliverables , useful live of long lived assets , classification of deferred revenue , income taxes , assumptions used in the black scholes merton ( “ bsm ” ) model to calculate the fair value of stock based compensation , deferred tax asset valuation allowances , and preclinical study and clinical trial accruals . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . 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 critical accounting policies are primarily revenue recognition and research and development expenses and related accruals . we believe the significant accounting policies used in the preparation of our consolidated financial statements are as follows : revenue recognition we recognize revenue based on accounting standards codification ( “ asc ” ) 606 , revenue from contracts with customers ( “ asc 606 ” ) , which 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 . to determine revenue recognition for arrangements that we determine are within the scope of asc 606 , 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 at a point in time , or over time , as the entity satisfies performance obligations . we only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract , determine those that 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 . as part of the accounting for customer arrangements , we must use judgment to determine : a ) the number of performance obligations based on the determination under step ( ii ) above ; b ) the transaction 87 price under step ( iii ) above ; and c ) the standalone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step ( iv ) above .
| 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 ( in thousands ) : replace_table_token_3_th grant revenue . grant revenue remained fairly constant at approximately $ 1.0 million for both years ended december 31 , 2020 and 2019 related to the recognition of revenue for milestones achieved under the award from the cff during 2020 and 2019. research and development expenses . research and development expenses decreased by approximately $ 7.1 million from $ 24.1 million for year ended december 31 , 2019 to $ 17.0 million for the year ended december 31 , 2020 due primarily to : a decrease of approximately $ 5.4 million in spending on clinical trial activities and drug manufacturing expenses for the phase 2 study of our ar-105 program that was terminated during 2019 ; a decrease of approximately $ 1.2 million in drug manufacturing expenses for the phase 3 study of our ar-301 program ; a decrease of approximately $ 400,000 in spending on other research and development activities ; 90 a decrease of approximately $ 200,000 in personnel , consulting and other related costs ; and a decrease of approximately $ 200,000 in spending on clinical trial activities for the phase 1/2a study of our ar-501 program because the phase 1 portion of the study ended in the second quarter of 2020 . these decreases were partially offset by : an increase of approximately $ 300,000 in spending on research and development activities for our covid-19 programs . general and administrative expenses .
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please see also the “ special note regarding forward-looking statements ” in part i above . we do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this annual report on form 10-k. all share amounts presented in this item 7 give effect to the 1-for-4 reverse stock split of our outstanding shares of common stock that occurred on april 8 , 2015. introduction this management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which management has prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate such estimates and judgments , including those described in greater detail below . we base our estimates on historical experience and on various other factors that management believes are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . business overview we are a research and clinical-stage biomaterials and biotechnology company with a focus on treatment of spinal cord injuries , or scis . our mission is to redefine the life of the sci patient , and we seek to develop treatment options intended to provide meaningful improvement in patient outcomes following sci . our approach to treating acute scis is based on our investigational neuro-spinal scaffold implant , a bioresorbable polymer scaffold that is designed for implantation at the site of injury within a spinal cord and is intended to treat acute sci . the neuro-spinal scaffold implant incorporates intellectual property licensed under an exclusive , worldwide license from boston children 's hospital and the massachusetts institute of technology . we also plan to evaluate other technologies and therapeutics that may be complementary to our development of the neuro-spinal scaffold implant or offer the potential to bring us closer to our goal of redefining the life of the sci patient . overall , we expect our research and development expenses to be substantial and to increase for the foreseeable future as we continue the development and clinical investigation of our current and future products . however , expenditures on research and development programs are subject to many uncertainties , including whether we develop our products with a partner or independently , or whether we acquire products from third parties . at this time , due to the uncertainties and inherent risks involved in our business , we can not estimate in a meaningful way the duration of , or the costs to complete , our research and development programs or whether , when or to what extent we will generate revenues or cash inflows from the commercialization and sale of any of our products . while we are currently focused on advancing our neuro-spinal scaffold implant , our future research and development expenses will depend on the determinations we make as to the scientific and clinical prospects of each product candidate , as well as our ongoing assessment of regulatory requirements and each product 's commercial potential . in addition , we may make acquisitions of businesses , technologies or intellectual property rights that we believe would be necessary , useful or complementary to our current business . any investment made in a potential acquisition could affect our results of operations and reduce our limited capital resources , and any issuance of equity securities in connection with a potential acquisition could be substantially dilutive to our stockholders . 43 there can be no assurance that we will be able to successfully develop or acquire any product , or that we will be able to recover our development or acquisition costs , whether upon commercialization of a developed product or otherwise . we can not provide assurance that any of our programs under development or any acquired technologies or products will result in products that can be marketed or marketed profitably . if our development‑stage programs or any acquired products or technologies do not result in commercially viable products , our results of operations could be materially adversely affected . we were incorporated on april 2 , 2003 , under the name of design source , inc. on october 26 , 2010 , we acquired the business of invivo therapeutics corporation , which was founded in 2005 , and continued the existing business operations of invivo therapeutics corporation as our wholly‑owned subsidiary . critical accounting policies and estimates our consolidated financial statements , which appear in item 8 of this annual report on form 10‑k , have been prepared in accordance with accounting principles generally accepted in the united states , which require that our management make certain assumptions and estimates and , in connection therewith , adopt certain accounting policies . our significant accounting policies are set forth in note 2 , “ significant accounting policies ” , in the notes to consolidated financial statements in item 8 of this annual report on form 10-k. of those policies , we believe that the policies discussed below may involve the highest degree of judgment and may be the most critical to an accurate reflection of our financial condition and results of operations . stock‑based compensation our stock options are granted with an exercise price set at the fair market value of our common stock on the date of grant . our stock options generally expire ten years from the date of grant and vest upon terms determined by our board of directors . story_separator_special_tag as a result of the adoption , the deferred tax assets associated with certain net operating losses increased , which was offset by a corresponding increase in the valuation allowance and therefore the adoption of the tax-related guidance in this standard did not have an impact on our consolidated financial statements for the period ended december 31 , 2017. in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) . the guidance in this asu supersedes the leasing guidance in topic 840 , leases . under the new guidance , lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance leases or operating leases , with classification affecting the pattern of expense recognition in the statement of operations . the new standard is effective for annual reporting periods beginning after december 15 , 2018 , including interim reporting periods within each annual reporting period . we are currently evaluating the impact of the adoption of this asu on the financial statements . in august 2016 , the fasb issued asu no . 2016-15 , classification of certain cash receipts and cash payments ( “ asu 2016-15 ” ) to address how certain cash receipts and cash payments are presented and classified in the statement of cash flows in an effort to reduce existing diversity in practice . the update includes eight specific cash flow issues and provides guidance on the appropriate cash flow presentation for each . asu 2016-15 is effective for annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within each annual reporting period . we do not expect the adoption of this guidance to have a material impact on the financial statements . in november 2016 , the fasb issued asu no . 2016-18 , statement of cash flows ( topic 230 ) : restricted cash to clarify how entities should present restricted cash and restricted cash equivalents in the statement of cash flows . under this new update , entities are required to show the changes in the total of cash , cash equivalents , restricted cash , and restricted cash equivalents in the statement of cash flows . this guidance will be applied retrospectively and is effective for annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within each annual reporting period . we do not expect the adoption of this guidance to have a material impact on the financial statements . in may 2017 , the fasb issued asu no . 2017-09 , compensation – stock compensation ( topic 718 ) : scope of modification accounting ( “ asu 2017-09 ” ) to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification . under this new guidance , modification accounting is required if the fair value , vesting conditions , or classification of the award changes as a result of the change in terms or conditions . asu 2017-09 is effective for annual reporting periods beginning after december 15 , 2017 , including interim reporting periods within each annual reporting period . we do not expect the adoption of this guidance to have a material impact on the financial statements . 46 in july 2017 , the fasb issued asu no . 2017-11 , part i. accounting for certain financial instruments with down round features and part ii . replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a scope exception ( “ asu 2017-11 ” ) . part i of this guidance applies to entities that issue financial instruments such as warrants , convertible debt or convertible preferred stock that contain down round features . part ii of this guidance replaces the indefinite deferrals for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities . asu 2017-11 is effective for annual reporting periods beginning after december 15 , 2018 , including interim reporting periods within each annual reporting period . we have concluded that the adoption of this asu will not have a material impact on the financial statements . i n august 2017 , the fasb issued asu no . 2017-12 , derivatives and hedging ( topic 815 ) , which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results , in order to better align an entity 's risk management activities and financial reporting for hedging relationships . the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements . fasb asu no . 2017-12 is effective for annual reporting periods beginning after december 15 , 2018 , including interim periods within those annual reporting periods , with early adoption permitted . we are currently evaluating the impact of the adoption of this asu on the financial statements . in may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) to provide updated guidance on revenue recognition . asu 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services . in doing so , companies may need to use more judgment and make more estimates than under today 's guidance . these may include identifying performance obligations in the contract , estimating the amount of variable consideration to include in the transaction price , and allocating the transaction price to each separate performance obligation .
| results of operations comparison of the years ended december 31 , 2017 and 2016 ( in thousands , except share and per share amounts ) research and development expenses research and development expenses decreased by $ 1,474 to $ 11,083 for the year ended december 31 , 2017 from $ 12,557 for the year ended december 31 , 2016. this decrease is primarily attributable to a decrease in compensation related expenses of $ 1,629 largely as a result of the strategic restructuring in 2017 , a decrease in contract services and laboratory supplies and intellectual property costs of $ 394 and $ 112 respectively as a result of our focused strategy , a decrease of $ 147 in facilities allocation charges partially offset by an increase of $ 715 in consulting and professional costs and an increase of $ 239 in clinical trial costs d ue to additional patient enrollment in the inspire study and the opening of additional clinical trial sites . 47 general and administrative expenses general and administrative expenses increased by $ 2,004 to $ 13,510 for the year ended december 31 , 2017 from $ 11,506 for the year ended december 31 , 2016. this increase in general and administrative expenses is attributable to increases in salaries related expenses including severance of $ 1,072 , an increase of $ 492 in consulting and professional costs , an increase of $ 459 in facilities allocation charges and an increase of $ 376 in legal costs partially offset by a decrease in share-based compensation and recruiting expenses of $ 303 and $ 219 respectively .
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our data is pooled among our clients and offers deep insights into consumer intent and purchasing habits . to drive sales for our clients , we activate our data assets through proprietary machine-learning algorithms to engage consumers in real time through the pricing and delivery of highly relevant digital advertisements , across devices and environments . by pricing our offering on a cost-per-click and measuring our value based on post-click sales , we make the return on investment transparent and easy to measure for our clients . our clients include some of the largest and most sophisticated commerce companies in the world , along with world-class brand manufacturers . we partner with them to capture activity on their websites and or mobile applications , which we define as digital properties , and optimize the performance of their advertisements based on that activity and other data . demonstrating the depth and scale of our data , we collected data on over $ 615 billion in online sales transactions 1 on our clients ' digital properties in the year ended december 31 , 2017 , whether or not a consumer saw or clicked on an advertisement displayed by criteo . based on this data and our other assets , we delivered targeted advertisements that generated over 10 billion clicks 1 in the year ended december 31 , 2017. based on these clicks , our clients generated approximately $ 29 billion in post-click sales 1 during this period . a post-click sale is defined as a purchase made by a user from one of our clients ' digital properties within a certain period of time following the user clicking on an advertisement we delivered for that client . this period of time varies by client , but is a maximum of 30 days . we believe post-click sales are a key performance indicator that our clients generally use to measure the effectiveness of our offering in driving sales and the return on their marketing investment . as of december 31 , 2017 , we served more than 18,000 clients and , in each of the last three years , our average client retention rate , as measured on a quarterly basis , was approximately 90 % 1 .we serve a wide range of clients and our revenue is not concentrated within any single client or group of clients . in 2015 , 2016 and 2017 , our largest client represented 1.9 % , 2.0 % and 1.9 % of our revenue , respectively , and in 2017 , our largest 10 clients represented 11.2 % of our revenue in the aggregate . there is no group of customers under common control or customers that are affiliates of each other constituting an aggregate amount equal to 10 % or more of our consolidated revenues , the loss of which would have a material adverse effect on the company . our commerce marketing product portfolio is currently comprised of four products : criteo dynamic retargeting , criteo customer acquisition beta , criteo audience match beta and criteo sponsored products . in the third quarter of 2017 , we decided to discontinue our criteo predictive search offering , based on client and country-specific circumstances . all products leverage the same technology in the criteo engine , which is comprised of three key components : product recommendation , predictive bidding and kinetic design . we operate in 98 countries through a network of 31 offices located in europe , middle east , africa ( emea ) , the americas and asia-pacific . as a result of our significant international operations , our revenue from outside of france , our home country , accounted for 93.5 % of our revenue for year ended december 31 , 2017 . _ 1 excluding criteo sponsored products . 70 the company 's foreign currency risk exposure to the british pound , the japanese yen , the brazilian real and the u.s dollar against the euro ( the euro still remains the group 's functional currency ) is described in note b liquidity and capital resources to our management 's discussion and analysis included elsewhere in this form 10-k. our financial results include : revenue of $ 1,323.2 million , $ 1,799.1 million and $ 2,296.7 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively ; revenue excluding traffic acquisition costs , which we refer to as revenue ex-tac , which is a non-u.s. gaap financial measure , of $ 534.0 million , $ 730.2 million and $ 941.1 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively ; net income of $ 62.3 million , $ 87.3 million and $ 96.7 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively ; and adjusted ebitda , which is a non-u.s. gaap financial measure , of $ 143.4 million , $ 224.6 million and $ 309.6 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively . please see footnotes 3 and 5 to the other financial and operating data table in “ item 6. selected financial data ” in this form 10-k for a reconciliation of revenue ex-tac to revenue , adjusted ebitda to net income and adjusted net income to net income , the most directly comparable financial measures calculated and presented in accordance with u.s. gaap . we are focused on maximizing revenue ex-tac . we believe this focus builds sustainable long-term value for our business and fortifies a number of our competitive strengths , including a highly liquid marketplace for display advertising . as part of this focus , we seek to maximize our percentage of overall marketing spend in the display advertising market over the long-term . in addition , this focus enriches liquidity for both advertisers and publishers resulting in more effective advertising for clients , better monetization for publishers and more relevant advertisements for consumers . we believe our results of operations reflect this focus . story_separator_special_tag for our criteo dynamic retargeting , criteo customer acquisition beta and criteo audience match beta products , we purchase inventory programmatically from our direct publisher partners , through standard terms and conditions for the purchase of display advertising inventory . pursuant to such arrangements , we purchase impressions on a cpm basis for users that criteo recognizes on the publishers ' network . such arrangements are cancellable upon short notice and without penalty . as a general rule , our agreements with publishers do not contain spend commitments . we may only enter in commitments to purchase a defined volume of impressions if such commitments are specifically subject to corresponding performance commitments from the publisher . we may require our publishers to deliver higher volumes of impressions , with our commitment to buy being linked to specified performance commitments from the publisher . we may also require our publishers to call us first for the advertising serving , thereby granting us privileged access to qualified digital display advertising inventory , and we may sign more exclusive deals with publishers . over the past few years , real-time automated buying platforms and bidding exchanges have gained significant traction in the display advertising market , resulting in a significant increase in the supply of inventory available through such platforms . as part of this expansion , we have integrated our buying technology with the leading advertising exchanges , developed our own comprehensive inventory management platform , and more recently deployed our own header bidding technology with large publishers , that we call criteo direct bidder . we believe the combination of our extensive direct publisher relationships and access to leading advertising exchanges enhances the breadth and depth of our accessible advertising inventory and results in deep liquidity for us . we believe that this contributes to increasing the strength of our offering with our clients . for criteo sponsored products , we pay for the inventory of publisher partners based on a revenue share , effectively paying the publishers a portion of the click-based revenue generated by potential customers clicking on the sponsored products advertisements displaying the products of our brand clients . for a discussion of the trends we expect to see in traffic acquisition costs , see the section entitled `` —highlights and trends—revenue ex-tac '' in item 7.d—trend information below . other cost of revenue . other cost of revenue includes expenses related to third-party hosting fees , depreciation of data center equipment and data purchased from third parties that we leverage in our offerings . we intend to continue to invest additional resources in increasing the capacity of our hosting services infrastructure , and as we enter new markets , we may make additional investments in the acquisition of relevant third-party data . the company does not build or operate its own data centers and none of its research and development personnel is dedicated to revenue generating activities . as a result , we do not include the costs of such personnel in other cost of revenue . 73 operating expenses operating expenses consist of research and development , sales and operations , and general and administrative expenses . salaries , bonuses , equity awards compensation , pension benefits and other personnel-related costs are the most significant components of each of these expense categories . we grew from 1,300 employees at january 1 , 2015 to 2,764 employees at december 31 , 2017 , and we expect to continue to hire a significant number of new employees in order to support our anticipated revenue growth . we include equity awards compensation expense in connection with grants of share options , warrants , and restricted share units ( `` rsus '' ) in the applicable operating expense category based on the respective equity award recipient 's function ( research and development , sales and operations , general and administrative ) . research and development expense . research and development expense consists primarily of personnel-related costs for our employees working in the engine , platform , site reliability engineering , scalability , infrastructure , engineering program management , product , analytics and other teams , including salaries , bonuses , equity awards compensation and other personnel related costs . our research and development function was supplemented in january 2013 to include a dedicated product organization following the appointment of our chief product officer . also included are non-personnel costs such as subcontracting , consulting and professional fees to third-party development resources , allocated overhead and depreciation and amortization costs . these expenses are partially offset by the french research tax credit that is conditional upon the level of our expenditures in research and development . for additional discussion of the french research tax credit , see the discussion below titled “ —provision for income taxes. ” our research and development efforts are focused on enhancing the performance of our solution and improving the efficiency of the services we deliver to our clients and publisher partners . all development costs , principally headcount-related costs , are expensed as management determines that technological feasibility is reached , shortly before the release of the developed products or features . as a result , the development costs incurred after the establishment of technological feasibility and before the release of those products or features are not material and , accordingly , are expensed as incurred . the number of employees in research and development functions grew from 250 at january 1 , 2015 to 701 at december 31 , 2017 . we expect research and development expenses to continue to increase in absolute dollars but remain fairly constant as a percentage of our revenue . we believe our continued investment in research and development to be critical to maintaining and improving our technology within the criteo commerce marketing ecosystem , our quality of service and our competitive position . sales and operations expense .
| results of operations for the years ended december 31 , 2015 , 2016 and 2017 revenue replace_table_token_11_th ( * ) growth at constant currency excludes the impact of foreign currency fluctuations and is computed by applying the average exchange rates for the prior year to the following year figures . 2017 compared to 2016 revenue for 2017 increased $ 497.5 million , or 28 % ( or 27 % on a constant currency basis ) to $ 2,296.7 million , compared to 2016 . revenue from net new clients contributed 29.3 % to the global year-over-year revenue growth while revenue from existing clients contributed 70.7 % to the global year-over-year revenue growth . this increase in revenue was primarily driven by continued technology innovation , a broader and improved access to quality publisher inventory , and the addition of clients across regions , client categories and products . improved technology , better access to inventory through criteo direct bidder , our proprietary header bidding technology , and the launch of our criteo customer acquisition beta and criteo audience match beta products in the fourth quarter of 2017 , helped generate more revenue per client , in particular from existing clients . our ability to drive a large portion of our business from clients that have uncapped budgets continued to be a key driver in growing our revenue per existing client . the year-over-year increase was the result of our rapid growth across all geographies . our revenue in the americas region increased 36 % ( or 35 % on a constant currency basis ) to $ 990.4 million for 2017 compared to 2016 .
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in addition , this item provides information about our business segments and how the results of those segments impact our financial condition and results of operation as a whole . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > depreciation and amortization expense of approximately $ 90 million overhead expense ( selling and administrative , and research and development expenses ) in the range of $ 125 million to $ 130 million interest expense of approximately $ 37 million ; capital expenditures in the range of $ 100 million to $ 110 million an effective tax rate of approximately 40 % cash flow from operations in the range of $ 130 million to $ 160 million including the cash rationalization charges our outlook could be significantly affected by , among other things , factors described under `` item 1a - risk factors '' and `` item 1a - forward looking statements '' in this report . * note on ebitda : ebitda is a non-gaap financial measure that we currently calculate using gaap amounts from the consolidated financial statements . we believe that ebitda measures are generally accepted as providing useful information regarding a company 's ability to incur and service debt . we also believe that ebitda measures provide useful information about the productivity and cash generation potential of its ongoing businesses . management uses ebitda measures as well as other financial measures in connection with its decision-making activities . ebitda measures should not be considered in isolation or as a substitute for net income ( loss ) , cash flows from operations or other consolidated income or cash flow data prepared in accordance gaap . our method for calculating ebitda measures may not be comparable to methods used by other companies and is not the same as the method for calculating ebitda measures under our senior secured revolving facility . 43 see below for a reconciliation of 2014 targeted ebitda to targeted net income attributable to graftech international ltd. , the most directly comparable financial measure calculated and reported in accordance with gaap : full year target 2014 ebitda $ 150,000 - $ 180,000 adjustments depreciation and amortization $ ( 90,000 ) rationalization related depreciation ( 28,000 ) rationalizations — rationalizations - other related charges ( 6,000 ) mark to market adjustment — operating income 26,000 - 56,000 other ( expense ) income , net ( 3,000 ) interest expense ( 37,000 ) interest income — income taxes 8,000 - ( 10,000 ) net income $ ( 6,000 ) - $ 6,000 financing transactions on november 20 , 2012 , the company issued $ 300 million principal amount of 6.375 % senior notes due 2020. these senior notes are the company 's senior unsecured obligations and rank pari passu with all of the company 's existing and future senior unsecured indebtedness . the senior notes are guaranteed on a senior unsecured basis by each of the company 's existing and future subsidiaries that guarantee certain other indebtedness of the company or another guarantor . the senior notes bear interest at a rate of 6.375 % per year , payable semi-annually in arrears on may 15 and november 15 of each year . the senior notes mature on november 15 , 2020. the company is entitled to redeem some or all of the senior notes at any time on or after november 15 , 2016 , at the redemption prices set forth in the indenture . in addition , prior to november 15 , 2016 , the company may redeem some or all of the senior notes at a price equal to 100 % of the principal amount thereof , plus accrued and unpaid interest , if any , plus a “ make whole ” premium determined as set forth in the indenture . the company is also entitled to redeem up to 35 % of the aggregate principal amount of the senior notes before november 15 , 2015 with the net proceeds from certain equity offerings at a redemption price of 106.375 % of the principal amount plus accrued and unpaid interest , if any . if , prior to maturity , a change in control ( as defined in the indenture ) of the company occurs and thereafter certain downgrades of the ratings of the senior notes as specified in the indenture occur , the company will be required to offer to repurchase any or all of the senior notes at a repurchase price equal to 101 % of the aggregate principal amount of the senior notes , plus any accrued and unpaid interest . the senior notes also contain covenants that , among other things , limit the ability of the company and certain of its subsidiaries to : ( i ) create liens or use assets as security in other transactions ; ( ii ) engage in certain sale/leaseback transactions ; and ( iii ) merge , consolidate or sell , transfer , lease or dispose of substantially all of their assets . the senior notes also contains customary events of default , including ( i ) failure to pay principal or interest on the senior notes when due and payable , ( ii ) failure to comply with covenants or agreements in the indenture or the senior notes which failures are not cured or waived as provided in the indenture , ( iii ) failure to pay indebtedness of the company , any subsidiary guarantor or significant subsidiary ( as defined in the indenture ) within any applicable grace period after maturity or acceleration and the total amount of such indebtedness unpaid or accelerated exceeds $ 50.0 million , ( iv ) certain events of bankruptcy , insolvency , or reorganization , ( v ) failure to pay any judgment or decree for an amount in excess of $ 50.0 million against the company , any subsidiary guarantor or any significant subsidiary that is not discharged , waived or stayed as provided in the indenture , ( vi ) cessation of any subsidiary guarantee to be in full force and effect or denial or disaffirmance story_separator_special_tag sales of these products to buyers outside the u.s. accounted for about 73 % in 2011 , 70 % in 2012 , and 75 % in 2013. in 2013 , three of our ten largest customers were based in the europe , and one each in the u.s. , korea , japan , brazil , russia , egypt and india , however , all are multi-national operations . in 2013 , eight of our ten largest customers were purchasers of our industrial materials products . no single customer or group of affiliated customers accounted for more than 10 % of our net sales in 2013. results of operations and segment review 2013. the slow rates of global economic growth experienced in 2012 continued throughout 2013. the year began with the imf cautiously estimating growth at a rate of 3.5 % , which was adjusted downward three times throughout the year before a modest final increase to 3.0 % . the world steel association noted that steel production , excluding china , was essentially flat compared to 2012. this slow economic growth and stagnation in steel production year over year exerted significant downward pressure on prices for our industrial materials products during the year , which negatively impacted our profitability in 2013. due to this difficult environment , we announced global initiatives to position our industrial materials segment to significantly reduce its cost basis and improve our competitive position . 45 as part of this initiative , we will close our two highest cost graphite electrode plants , which are located in brazil and south africa , as well as our machine shop in russia . these initiatives also included reductions in corporate overhead . our engineered solutions segment continued to see sales growth throughout 2013 , due primarily to further market penetration in sales of our advanced consumer electronics products . engineered solutions contributed over 20 % of total company sales during the year and achieved the highest net sales for the segment in company history . 2012. while there was cautious optimism for the world economy coming into 2012 , the global outlook began to deteriorate during the first quarter , with subsequent reductions to global gdp estimates by the imf throughout 2012 , as a result of the slower than expected economic recovery and continued uncertainty in the european markets . according to the world steel association and other published reports , global steel production , excluding china , declined 0.4 percent in 2012. steel production in the european union decreased 4.6 percent during the same period . as a result , our industrial materials segment saw a decline in sales of 9 % , despite increased pricing for graphite electrodes and needle coke products . our engineered solutions segment saw a continuation of the decline in the solar markets that began in 2011. this decline was more than offset , however , by growth in our advanced consumer electronics products line which , along with the incremental revenue from the micron research and fmi acquisitions made in 2011 , helped propel this segment to achieve the highest net sales to date in our company 's history . 2011 . total steel production in 2011 peaked mid-year while the latter half of the year saw significant slowdowns . the world steel association reported fourth quarter 2011 total world steel production declined approximately 5 percent versus the third quarter of 2011 , with europe accounting for much of this slowdown . beginning in the third quarter of 2011 , there was a significant drop off in solar production which negatively impacted our engineered solutions segment . the tables presented in our year-over-year comparisons summarize our consolidated statements of income and illustrate key financial indicators used to assess the consolidated financial results . financial information is presented for the years ended december 31 , 2011 , 2012 , and 2013 . results of operations for 2013 as compared to 2012 the tables presented in our period-over-period comparisons summarize our consolidated statements of income and illustrate key financial indicators used to assess the consolidated financial results . financial information is presented for the year ended december 31 , 2012 and 2013 . throughout our md & a , changes that are less than 5 % or less than $ 1.0 million , may be deemed not meaningful and excluded from the discussion . replace_table_token_6_th 46 net sales , by operating segment for the year ended december 31 , 2012 and 2013 were : replace_table_token_7_th an analysis of the components of change in net sales for industrial materials and engineered solutions is set forth in the following table : volume price/mix currency net change industrial materials 2 % ( 13 ) % — % ( 11 ) % engineered solutions 11 % 5 % — % 16 % net sales . net sales for our industrial materials segment de creased to $ 909.4 million in 2013 compared to net sales of $ 1,025.6 million in 2012 . graphite electrode volumes increased in 2013 , however , this increase was more than offset by a deterioration in the selling price of electrodes throughout 2013. the weighted average selling price , excluding currency impacts , of electrodes in 2013 decreased approximately 14 % compared to the 2012. we also experienced third party needle coke volume declines 2013 compared to the same period of 2012 , as we sourced more needle coke internally . additionally , our needle coke business experienced third-party price declines in 2013. unfavorable foreign currency adjustments impacted net sales by $ 2.2 million in 2013 , compared to the same period of 2012. net sales for our engineered solutions segment in creased to $ 257.2 million in 2013 , compared to net sales of $ 222.7 million in 2012 . this increase was primarily driven by continued growth in sales of our advanced consumer electronics products and a more favorable product mix , as we continue to penetrate high-growth end markets with attractive margin profiles .
| executive summary in february 2011 and october 2011 , we acquired micron research and fmi , respectively . their results of operations are included in our md & a analysis for 2011 from their respective acquisition dates , compared to a full year of operations for 2012 and 2013. the slow rates of global economic growth experienced in 2012 continued throughout 2013. the year began with the imf cautiously estimating growth at a rate of 3.5 % , which was adjusted downward three times throughout the year before a modest final increase to 3.0 % . the world steel association noted that steel production , excluding china , was essentially flat compared to 2012. this slow economic growth and stagnation in steel production year over year exerted significant downward pressure on prices for our industrial materials products during the year , which negatively impacted our profitability in 2013. due to this difficult environment , we announced global initiatives to position our industrial materials segment to significantly reduce its cost basis and improve our competitive position . as part of this initiative , we will close our two highest cost graphite electrode plants , which are located in brazil and south africa , as well as our machine shop in russia . these initiatives also included reductions in corporate overhead . our engineered solutions segment continued to see sales growth throughout 2013 , due primarily to further market penetration in sales of our advanced consumer electronics products . engineered solutions contributed over 20 % of total company sales during the year . we have seven major product categories : graphite electrodes , refractory products , needle coke products , advanced graphite materials , advanced composite materials , advanced electronics technologies and advanced materials . reportable segments . our businesses are reported in the following segments : industrial materials , which consists of graphite electrodes , refractory products and needle coke products .
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consequently , a lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures ( includes sales , use , value added , and some excise taxes and excludes real estate taxes ) . asu 2019-01 , leases ( topic 842 ) , codification improvements . there are three codification updates to topic 842 covered by this asu : issue 1 provides guidance on how to compute fair value of leased items for lessors who are non-dealers or manufacturers ; issue 2 relates to cash flow presentation for lessors of sales-type and direct financing leases ; and issue 3 clarifies that certain transition disclosures will only be required in annual disclosures . under the new leasing guidance , contract consideration shall be allocated to its lease components ( such as the lease story_separator_special_tag financial condition and results of operations . overview as of december 31 , 2019 , there were 186 properties , which we own or have an ownership interest in , within our core portfolio and funds . our core portfolio consists of those properties either 100 % owned , or partially owned through joint venture interests by the operating partnership , or subsidiaries thereof , not including those properties owned through our funds . these properties primarily consist of street and urban retail , and suburban shopping centers . see item 2. properties for a summary of our wholly-owned and partially-owned retail properties and their physical occupancies at december 31 , 2019. the majority of our operating income is derived from rental revenues from operating properties , including expense recoveries from tenants , offset by operating and overhead expenses . our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to shareholders while also creating the potential for capital appreciation to enhance investor returns . we focus on the following fundamentals to achieve this objective : own and operate a core portfolio of high-quality retail properties located primarily in high-barrier-to-entry , densely-populated metropolitan areas and create value through accretive development and re-tenanting activities coupled with the acquisition of high-quality assets that have the long-term potential to outperform the asset class as part of our core asset recycling and acquisition initiative . generate additional external growth through an opportunistic yet disciplined acquisition program within our funds . we target transactions with high inherent opportunity for the creation of additional value through : ◦ value-add investments in street retail properties , located in established and “ next generation ” submarkets , with re-tenanting or repositioning opportunities , ◦ opportunistic acquisitions of well-located real-estate anchored by distressed retailers , and ◦ other opportunistic acquisitions which may include high-yield acquisitions and purchases of distressed debt . some of these investments historically have also included , and may in the future include , joint ventures with private equity investors for the purpose of making investments in operating retailers with significant embedded value in their real estate assets . maintain a strong and flexible balance sheet through conservative financial practices while ensuring access to sufficient capital to fund future growth . 37 significant developments during the year ended december 31 , 2019 investments during the year ended december 31 , 2019 , within our core portfolio we invested in twelve properties aggregating $ 185.9 million , inclusive of transaction costs , as follows : on january 24 , 2019 , our unconsolidated renaissance portfolio venture acquired fund iii 's 3104 m street property located in washington , d.c. for $ 10.7 million ( note 4 ) for which our share was $ 2.1 million as discussed further below . on march 15 , march 27 , may 29 , july 30 and november 8 , 2019 , we acquired five retail condominiums located in the soho section of new york city for a total of $ 87.0 million referred to as the “ soho acquisitions ” with an aggregate purchase price of approximately $ 122.0 million ( note 2 ) . on may 2 , 2019 , we entered into a ground lease ( note 11 ) on a development property in washington , d.c. referred to as “ 1238 wisconsin avenue. ” on september 11 , 2019 , we acquired two buildings in chicago , illinois , referred to as “ 849 and 912 w. armitage ” for a total of $ 7.8 million ( note 2 ) . on october 25 , 2019 , we acquired a retail building in los angeles , california , referred to as “ 8436-8452 melrose place ” for $ 48.7 million ( note 2 ) . on december 9 , 2019 , we acquired a master lease position on a building in the soho section of new york city , referred to as “ 565 broadway ” for $ 28.8 million ( note 11 ) . on december 11 , 2019 , we acquired a building in chicago , illinois , referred to as “ 907 w. armitage ” for $ 2.9 million ( note 2 ) . during the year ended december 31 , 2019 , within our fund portfolio we invested in eight properties aggregating $ 328.5 million as follows : on march 19 , 2019 , fund v 's unconsolidated venture ( note 4 ) acquired a suburban shopping center in riverdale , utah for $ 48.5 million , referred to as “ family center at riverdale , ” of which fund v 's share was $ 43.7 million . story_separator_special_tag these increases were partially offset by $ 4.8 million more interest capitalized in 2019. other income for the funds increased $ 6.6 million for the year ended december 31 , 2019 compared to the prior year due to $ 5.0 million from the new market tax credit transaction at fund ii 's city point investment ( note 7 ) and $ 1.6 million from an incentive fee earned from fund iii 's storage post venture . net loss ( income ) attributable to noncontrolling interests for the funds increased $ 14.9 million for the year ended december 31 , 2019 compared to the prior year based on the noncontrolling interests ' share of the variances discussed above . ( income ) loss attributable to noncontrolling interests in the funds includes asset management fees earned by the company of $ 17.5 million and $ 18.0 million for the years ended december 31 , 2019 and 2018 , respectively . structured financing the results of operations for our structured financing segment are depicted in the table above under the headings labeled “ sf. ” interest income for the structured financing portfolio decreased $ 5.2 million for the year ended december 31 , 2019 compared to the prior year primarily due to the conversion of a portion of two notes receivable into increased ownership in the underlying real estate ( note 4 ) during 2018 along with the payoff of a note made to fund iv during 2019. unallocated the company does not allocate general and administrative expense and income taxes to its reportable segments . these unallocated amounts are depicted in the table above under the headings labeled “ total. ” unallocated general and administrative expense increased $ 1.1 million for the year ended december 31 , 2019 compared to the prior year period primarily due to internal leasing salaries no longer being capitalized in 2019. prior year periods discussions of 2017 items and comparisons between the year ended december 31 , 2018 and 2017 , respectively , that are not included in this report can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018 . 41 supplemental financial measures net property operating income the following discussion of net property operating income ( “ noi ” ) and rent spreads on new and renewal leases includes the activity from both our consolidated and our pro-rata share of unconsolidated properties within our core portfolio . our funds invest primarily in properties that typically require significant leasing and development . given that the funds are finite-life investment vehicles , these properties are sold following stabilization . for these reasons , we believe noi and rent spreads are not meaningful measures for our fund investments . noi represents property revenues less property expenses . we consider noi and rent spreads on new and renewal leases for our core portfolio to be appropriate supplemental disclosures of core portfolio operating performance due to their widespread acceptance and use within the reit investor and analyst communities . noi and rent spreads on new and renewal leases are presented to assist investors in analyzing our property performance , however , our method of calculating these may be different from methods used by other reits and , accordingly , may not be comparable to such other reits . a reconciliation of consolidated operating income to net operating income - core portfolio follows ( in thousands ) : replace_table_token_16_th ( a ) prior year amounts have been adjusted to include gains on disposition of properties , which have been reclassified to operating income effective january 1 , 2019 . ( b ) does not include the operating partnership 's share of noi from unconsolidated joint ventures within the funds . same-property noi includes core portfolio properties that we owned for both the current and prior periods presented , but excludes those properties which we acquired , sold or expected to sell , and developed during these periods . the following table summarizes same-property noi for our core portfolio ( in thousands ) : replace_table_token_17_th 42 rent spreads on core portfolio new and renewal leases the following table summarizes rent spreads on both a cash basis and straight-line basis for new and renewal leases based on comparable leases executed within our core portfolio for the year ended december 31 , 2019. cash basis represents a comparison of rent most recently paid on the previous lease as compared to the initial rent paid on the new lease . straight-line basis represents a comparison of rents as adjusted for contractual escalations , abated rent and lease incentives for the same comparable leases . replace_table_token_18_th ( a ) the average cost per square foot includes tenant improvement costs , leasing commissions and tenant allowances . funds from operations we consider funds from operations ( “ ffo ” ) as defined by the national association of real estate investment trusts ( “ nareit ” ) to be an appropriate supplemental disclosure of operating performance for an equity reit due to its widespread acceptance and use within the reit and analyst communities . ffo is presented to assist investors in analyzing our performance . it is helpful as it excludes various items included in net income that are not indicative of the operating performance , such as gains ( losses ) from sales of depreciated property , depreciation and amortization , and impairment of depreciable real estate . our method of calculating ffo may be different from methods used by other reits and , accordingly , may not be comparable to such other reits . ffo does not represent cash generated from operations as defined by generally accepted accounting principles ( “ gaap ” ) and is not indicative of cash available to fund all cash needs , including distributions . it should not be considered as an alternative to net income for the purpose of evaluating our performance or to cash flows as a measure of liquidity .
| results of operations see note 12 in the notes to consolidated financial statements for an overview of our three reportable segments . comparison of results for the year ended december 31 , 2019 to the year ended december 31 , 2018 the results of operations by reportable segment for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 are summarized in the table below ( in millions , totals may not add due to rounding ) : replace_table_token_15_th core portfolio the results of operations for our core portfolio segment are depicted in the table above under the headings labeled “ core. ” segment net income attributable to acadia for our core portfolio increased $ 20.1 million for the year ended december 31 , 2019 compared to the prior year as a result of the changes further described below . revenues for our core portfolio increased $ 6.4 million for the year ended december 31 , 2019 compared to the prior year due primarily to $ 5.8 million from the acceleration of amortization on a below-market lease related to a tenant that vacated in 2019 and $ 3.4 million related to core portfolio property acquisitions . these increases were offset by a $ 2.4 million decrease in 2019 due to the acceleration of amortization on below- market leases due to two tenants that vacated in 2018. property operating expenses , other operating and real estate taxes for our core portfolio increased $ 2.9 million for the year ended december 31 , 2019 compared to the prior year primarily due to $ 1.3 million from increased real estate tax expense at city center and $ 1.1 million from increased legal expenses in the portfolio in 2019. gain on disposition of properties for $ 16.8 million relates to the sale of pacesetter park in 2019 ( note 2 ) .
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if the tax benefit upon vesting is less than the expense previously recorded , the shortfall is recorded in stockholder 's equity . if the shortfall exceeds available windfall benefits in equity , they are recorded in our consolidated statements of comprehensive income and as an operating activity on our consolidated statements of cash flows . f-11 westwood holdings group , inc. and subsidiaries notes to consolidated financial statements — ( continued ) currency translation assets and liabilities of westwood international , our non-u.s. dollar functional currency subsidiary , are translated at exchange rates as of applicable reporting dates . revenues and expenses are translated at average exchange rates during the periods indicated . the gains and losses resulting from translating non-u.s. dollar functional currency into u.s. dollars are recorded through other comprehensive income . income taxes we file a united states federal income tax return as a consolidated group for westwood and its story_separator_special_tag you should read the following discussion and analysis in conjunction with “ selected financial data ” included in this report , as well as our consolidated financial statements and related notes thereto appearing elsewhere in this report . 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 investments in foreign companies ; our ability to develop and market new investment strategies successfully ; our ability to pursue and properly integrate acquired businesses ; litigation risks ; our ability to retain qualified personnel ; our relationships with current and potential customers ; our ability to properly address conflicts of interest ; our ability to maintain effective information systems ; our ability to maintain effective cyber security ; 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 , 2015 westwood management , westwood international and westwood trust collectively managed assets valued at approximately $ 20.8 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 fifteen 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 . story_separator_special_tag specifically , previously-reported aum as of december 31 , 2013 and december 31 , 2014 were overstated by $ 70.0 million and $ 82.6 million , respectively , and have been adjusted in the above table accordingly . the corrections to aum represent a 2 % adjustment to private wealth aum and less than a 1 % adjustment to total aum as previously reported as of each of such dates . ( 2 ) aum for 2015 , 2014 , and 2013 excludes approximately $ 336.8 million , $ 670.3 million , and $ 214.7 million of assets under advisement , respectively , related to model portfolios , for which we currently provide consulting advice but for which we do not have direct discretionary investment authority . during the fourth quarter of 2015 , approximately $ 330 million of assets related to our market neutral income strategy transitioned from aua to aum . our assets under management disclosure reflects management 's view of our three types of accounts : institutional , private wealth and mutual funds . 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 during 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_7_th ( 1 ) in the table above , we have revised the presentation of gross inflows and outflows for institutional , private wealth and mutual fund aum , as well as reclassified certain transactions for consistency . prior periods have been revised to reflect the changes in mutual fund presentation ; however , prior periods have not been revised for institutional and private wealth presentation , as management believes these changes are not significant . ( 2 ) due to an immaterial error relating to the aggregation of private wealth aum , aum was overstated , and aua was understated , for certain prior periods . adjustments to correct the immaterial error have been made in this report . specifically , previously-reported aum as of december 31 , 2014 were overstated by $ 82.6 million and has been adjusted in the above table accordingly . the corrections to aum represent a 2 % adjustment to private wealth aum and less than a 1 % adjustment to total aum as previously reported . ( 3 ) 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 . replace_table_token_8_th ( 1 ) in the table above , we have revised the presentation of gross inflows and outflows for institutional , private wealth and mutual fund aum , as well as reclassified certain transactions for consistency . prior periods have been revised to reflect the changes in mutual fund presentation ; however , prior periods have not been revised for institutional and private wealth presentation , as management believes these changes are not significant . ( 2 ) due to an immaterial error relating to the aggregation of private wealth aum , aum was overstated , and aua was understated , for certain prior periods . adjustments to correct the immaterial error have been made in this report . specifically , previously-reported aum as of december 31 , 2013 and december 31 , 2014 were overstated by $ 70.0 million and $ 82.6 million , respectively , and have been adjusted in the above table accordingly . the corrections to aum represent a 2 % adjustment to private wealth aum and less than a 1 % adjustment to total aum as previously reported as of each of such dates . the increase in assets under management for the year ended december 31 , 2014 was primarily due to market appreciation of $ 1.3
| 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_10_th year ended december 31 , 2015 compared to year ended december 31 , 2014 total revenues . total revenues increased $ 17.7 million , or 16 % , to $ 130.9 million for fiscal 2015 compared with $ 113.2 million for fiscal 2014. the increase was attributable to a 12 % , or $ 10.8 million , increase in asset-based advisory fees and a 40 % , or $ 8.3 million , increase in trust fees . advisory-based fees increased as a result of higher average assets under management and higher average advisory fee rates in 2015 compared to 2014. the woodway acquisition contributed $ 7.7 million of the increase in trust fees . these increases were partially offset by a decrease in performance-based fees of $ 1.1 million . employee compensation and benefits . employee compensation and benefit costs increased $ 10.8 million , or 20 % , to $ 63.6 million in fiscal 2015 compared with $ 52.8 million in fiscal 2014. this increase was primarily due to increases of $ 3.8 million in salary expense and incentive compensation , primarily relating to additional hires at westwood holdings , westwood management and westwood trust , $ 3.5 million in restricted stock expense , including a $ 1.0 million non-cash charge related to acceleration of stock based compensation expense for a particular grant , and $ 3.1 million in compensation and benefits related to 27 woodway employees . these increases were partially offset by a decrease in the amortization of long-term incentive awards for westwood international employees . we had 168 full-time employees as of december 31 , 2015 compared to 130 at december 31 , 2014.
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we expect that our cost savings efforts will generate a decrease of approximately $ 15 million to $ 18 million in operating and corporate expenses on an annualized basis . critical accounting estimates the discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , equity , revenues and expenses , and related disclosures of contingent assets and liabilities . we base these estimates on our historical and current experience and on various other assumptions that management believes are reasonable under the circumstances . we evaluate the results of these estimates on an on-going basis . management 's estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements : investment in real estate and cost of real estate sales . costs associated with a specific real estate project are capitalized during the development period . we capitalize costs directly associated with development and construction of identified real estate projects . indirect costs that clearly relate to a specific project under development , such as internal costs of a regional project field office , are also capitalized . we capitalize interest ( up to total interest expense ) based on the amount of underlying expenditures and real estate taxes on real estate projects under development . if we determine not to complete a project , any previously capitalized costs are expensed in the period in which the determination is made . real estate inventory costs include land and common development costs ( such as roads , sewers and amenities ) , multi-family construction costs , capitalized property taxes , capitalized interest and certain indirect costs . construction costs for single-family homes are determined based upon actual costs incurred . a portion of real estate inventory costs and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project . these estimates are reevaluated at least annually and more frequently if warranted by market conditions or other factors , with any adjustments being allocated prospectively to the remaining units available for sale . 28 our new real estate investment strategy is focused on reducing future capital outlays and employing a risk adjusted investment return criteria for evaluating our properties and future investments in such properties . pursuant to this new strategy , we intend to significantly reduce planned future capital expenditures for infrastructure , amenities and master planned community development and reposition certain assets to encourage increased absorption of such properties in their respective markets . as part of this repositioning , we expect properties may be sold in bulk , in undeveloped or developed parcels , or at lower price points and over shorter time periods . the accounting estimate related to real estate impairment evaluation is susceptible to change due to the use of assumptions about future sales proceeds and future expenditures . for projects under development , an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management 's best estimates about future sales prices and planned holding periods . based on the company 's recently adopted risk-adjusted investment return criteria for evaluating the company 's projects under development or undeveloped , management 's assumptions used in the projection of undiscounted cash flows included : the projected pace of sales of homesites based on estimated market conditions and the company 's development plans ; estimated pricing and projected price appreciation over time , which can range from 0 to 10 % annually ; the amount and trajectory of price appreciation over the estimate selling period ; the length of the estimated development and selling periods , which can range from 4 to 13 years depending on the size of the development and the number of phases to be developed ; the amount of remaining development costs , including the extent of infrastructure or amenities included in such development costs ; holding costs to be incurred over the selling period ; for bulk land sales of undeveloped and developed parcels future pricing is based upon estimated developed lot pricing less estimated development costs and estimated developer profit at 20 % ; for commercial development property , future pricing is based on sales of comparable property in similar markets ; and assumptions regarding the intent and ability to hold individual investments in real estate over projected periods and related assumptions regarding available liquidity to fund continued development . for operating properties , an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties . some of the significant assumptions that are used to develop the undiscounted cash flows include : for investments in inns and rental condominium units , average occupancy and room rates , revenues from food and beverage and other amenity operations , operating expenses and capital expenditures , and eventual disposition of such properties as private residence vacation units or condominiums , based on current prices for similar units appreciated to the expected sale date ; for investments in commercial or retail property , future occupancy and rental rates and the amount of proceeds to be realized upon eventual disposition of such property at a terminal capitalization story_separator_special_tag rate ; and , for investments in golf courses , future rounds and greens fees , operating expenses and capital expenditures , and the amount of proceeds to be realized upon eventual disposition of such properties at a multiple of terminal year cash flows . 29 other properties that management does not intend to sell in the near term under current market conditions and has the ability to hold are evaluated for impairment based on management 's best estimate of the long-term use and eventual disposition of the property . the results of impairment analyses for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group . based on our recently adopted risk-adjusted investment return criteria , these future holding periods have been reduced to a maximum period of 13 years . fair value measurements . we follow the fair value provisions of asc 820 fair value measurements and disclosures ( asc 820 ) for our financial and non-financial assets and liabilities . asc 820 , among other things , defines fair value , establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis . asc 820 clarifies that fair value is an exit price , representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . as such , fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability . as a basis for considering such assumptions , asc 820 establishes a three-tier fair value hierarchy , which prioritizes the inputs used in measuring fair value as follows : level 1. observable inputs such as quoted prices in active markets ; level 2. inputs , other than the quoted prices in active markets , that are observable either directly or indirectly ; and level 3. unobservable inputs in which there is little or no market data , such as internally-developed valuation models which require the reporting entity to develop its own assumptions . our assets and liabilities utilizing level 2 and 3 inputs in fair value calculations and the associated underlying assumptions include the following : investment in real estate . our investments in real estate are carried at cost unless circumstances indicate that the carrying value of the assets may not be recoverable . if we determine that an impairment exists due to the inability to recover an asset 's carrying value , a provision for loss is recorded to the extent that the carrying value exceeds estimated fair value . if such assets were held for sale , the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell . for the assets described above , we use varying methods to determine fair value , such as ( i ) analyzing expected future cash flows , ( ii ) determining resale values by market , or ( iii ) applying a capitalization rate to net operating income using prevailing rates in a given market . fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate ( 10 % to 20 % ) , through appraisals of the underlying property , or a combination thereof . retained interest . we have recorded a retained interest with respect to the monetization of certain installment notes through the use of qualified special purpose entities , which is recorded in other assets . the retained interest is an estimate based on the present value of cash flows to be received over the life of the installment notes . we recognize interest income over the life of the retained interest using the effective yield method with discount rates ranging from 2 % -7 % . this income adjustment is being recorded as an offset to loss on monetization of notes over the life of the installment notes . in addition , fair value may be adjusted at each reporting date when , based on management 's assessment of current information and events , there is a favorable or adverse change in estimated cash flows from cash flows previously projected . pension asset . our cash balance defined-benefit pension plan holds a royalty investment for which there is no quoted market price . fair value of the royalty investment is estimated based on the present value of future cash flows , using management 's best estimate of key assumptions , including discount rates . standby guarantee liability . on october 21 , 2009 , we entered into a strategic alliance agreement with southwest airlines to facilitate the commencement of low-fare air service in may 2010 to the new northwest florida beaches international airport in northwest florida . we have agreed to reimburse southwest airlines if it incurs losses on its service at the new airport during the first three years of service . the agreement also provides that southwest 's 30 profits from the air service during the term of the agreement will be shared with us up to the maximum amount of our break-even payments . we measured the standby guarantee liability at fair value based upon a discounted cash flow analysis based on our best estimates of future cash flows to be paid by us pursuant to the strategic alliance agreement . these cash flows were estimated using numerous estimates including future fuel costs , passenger load factors , air fares , seasonality and the timing of the commencement of service . the fair value of the liability could fluctuate up or down significantly as a result of changes in assumptions related to these estimates and could have a material impact on our operating results . pension plan . we sponsor a cash balance defined-benefit
| consolidated results the following table sets forth a comparison of our revenues and expenses for the three years ended december 31 , 2011 , 2010 and 2009. replace_table_token_9_th the decrease in real estate sales revenues for 2011 as compared with 2010 is primarily due to decreased sales in our rural land segment as a result of our planned reduction in large tract rural land sales , as well as weakened demand , partially offset by an increase of revenue in our residential segment . cost of real estate sales increased and gross margin on real estate sales decreased during 2011 compared to 2010 primarily as a result of the higher proportion of residential sales compared to rural land sales . residential real estate sales improved yet continued to remain weak in 2011 , primarily , we believe due to oversupply , depressed prices in the florida real estate markets , poor economic conditions and the residual uncertainty about the gulf coast region arising from the deepwater horizon incident . the decrease in real estate sales revenues for 2010 as compared with 2009 is primarily due to a decrease in sales in our residential real estate segment , partially offset by an increase in revenue in our rural land segment . revenues in 2009 included the sale of non-strategic assets . cost of real estate sales decreased during 2010 compared to 2009 primarily as a result of cost of sales related to the 2009 sale of non-strategic assets . gross margin on real estate sales increased during 2010 compared to 2009 due to the relative mix of rural land sales . residential real estate sales were weak in 2010 , primarily as a result oversupply , depressed prices in the florida real estate markets , poor economic conditions and the impact of the deepwater horizon incident in the gulf of mexico .
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all forward-looking statements involve risks and uncertainties , including , but not limited to those listed in item 1a of this annual report . actual results may differ materially from those discussed in , or implied by , the forward-looking statements . the forward-looking statements speak only as of the date of this report and we assume no duty to update them . overview during 2013 , we continued to transition our business to focus on sales of value-added products and technologies in diversified growth markets while moving away from the low margin , commoditized pos market . to that end , we saw a significant increase in sales from our new food safety and nutritional labeling terminal , the ithaca® 9700 food safety terminal , which has been well received by our customers . we have numerous field tests and trials that are currently ongoing at several restaurant chains and while these trials areprogressing , we expect further sales growth from the ithaca® 9700 food safety terminal in 2014. additionally , during 2013 we installed epicentral at an additional six casinos and experienced significant revenue growth from these installations as a result . casinos that have installed the system can now measure its success through various industry metrics , such as increased carded play and the results our casino customers have experienced has been very positive . because these casinos have allowed us to share such metrics with other potential customers , we expect our epicentral sales to continue to ramp during 2014. during 2012 , we developed and launched two new printers for the oil and gas exploration market which we believe represents a worldwide growth opportunity for us . our printrex® 980 printer , the fastest color office printer designed specifically for high-volume printing of oil and gas logging reports in the office has already won orders and has the opportunity to drive significant recurring consumable revenue based on proprietary inkjet cartridges , inkjet print heads and other items that these printers consume as our customers use the printer . our printrex® 920 , a thermal truck-mounted printer designed for the rugged and demanding exploration and production market , prints color logging reports at the well site , has also begun to win orders , and utilizes proprietary color thermal paper which represents another lucrative recurring consumable revenue stream for us . although we began to see revenue contributions from both the printrex 920 and 980 during 2013 , the sales cycle is taking longer than we anticipated as the printers must be integrated into the many oil and gas explorations systems around the world . however , we continue to receive positive responses from the industry to our new color thermal printing technology which would replace the black and white printing of logging reports done today for drilling , casing and wire-line analysis and believe sales will slowly ramp in 2014. we also continued to focus on increasing our overall gross margin and leveraging such increase to our operating income primarily by focusing our sales effort on our new , higher margin products in addition to our continual effort of reducing costs of our foreign-sourced printers . despite lower sales volume of 12 % in 2013 , we increased our gross margin to 41.7 % which was a record high for us . also , while our total printer and terminal shipments decreased 23 % to approximately 153,000 in 2013 , the average selling price of printers sold during the year increased by 7 % . 11 during 2013 , our total net sales decreased 12 % to approximately $ 60,141,000. see the table below for a breakdown of our sales by market : replace_table_token_4_th sales of our food safety , banking and pos products increased 19 % in 2013 compared to 2012. during 2013 , our newly developed ithaca® 9700 food safety terminal provided significant revenue contributions . we currently have over 100 customers trialing the ithaca 9700 and we expect this product to be a significant contributor to our revenue growth over the next few years . in the banking market , we focus mainly on supplying printers for use in bank teller stations at banks and financial institutions primarily in the u.s. opportunities in the banking market are project oriented and , as a result , our banking printer sales can fluctuate significantly year-to-year . during 2013 , our banking printer sales decreased 61 % primarily due to sales from a large order for our ithaca® 280 thermal receipt printer to a new banking customer that occurred in 2012 and did not repeat in 2013. in the pos market , we focus primarily on supplying printers that print receipts or linerless labels for customers in the restaurant , hospitality and specialty retail markets . sales of our pos printers decreased 13 % in 2013 primarily driven by lower domestic and international sales of our legacy pos printers as we continue to decrease our focus on this commoditized market . however , sales of pos printers to mcdonald 's continued to grow in 2013 with the first year of volume sales of our new ithaca 9000 and we expect to continue to pursue more business from mcdonald 's for both this printer , and the ithaca 9700 food safety terminal during 2014. sales of our casino and gaming products decreased 6 % in 2013 compared to 2012. in our casino and gaming market , our focus lies primarily in supplying printers for use in slot machines at casinos and racetracks , as well as in other electronic gaming devices that print tickets or receipts , worldwide . story_separator_special_tag we also sell replacement parts , consumables , and other repair services ( sometimes pursuant to multi-year product maintenance contracts ) , which are not included in the original printer sale and are ordered by the customer as needed . we recognize revenue pursuant to the guidance within accounting standards codification ( “ asc ” ) 605 , “ revenue recognition ” ( asc 605 ) . specifically , revenue is recognized when evidence of an arrangement exists , delivery ( based on shipping terms which are generally fob shipping point ) has occurred , the selling price is fixed and determinable , and collectability is reasonably assured . we recognize revenue from the sale of printers and terminals to our distributors and resellers on a sell-in basis and on substantially the same terms as we recognize revenue from all our other customers . we provide for an estimate of product returns and price protection based on historical experience at the time of revenue recognition . our software solution , epicentral tm , enables casino operators to create promotional coupons and marketing messages and to print them in real-time at the slot machine . revenue arrangements for epicentral tm include multiple deliverables and as a result such arrangements are accounted for in accordance with both asc 605-25 , “ multiple-element arrangements ” and asc 985-605 , “ software. ” epicentral tm is primarily comprised of both a software component , which is licensed , and a hardware component , which can either be leased or sold to end users , and both components are integrated to deliver the system 's full functionality . under leasing arrangements , revenue is generally recognized ratably over the lease term , excluding revenue allocated to installation , which is recognized upon completion . in an arrangement where the hardware is purchased , revenue , inclusive of software license fees , is generally recognized upon installation and formal acceptance by the customer . for epicentral tm and other multiple deliverable arrangements , we consider whether the deliverables in an arrangement are within the scope of existing higher-level gaap and apply such literature to the extent that it provides guidance regarding whether to separate multiple-deliverable arrangements and how to allocate value among those separate units of accounting . we also determine whether revenue arrangements consist of more than one unit of accounting at inception of the arrangement and recognize revenue as each item in the arrangement is delivered . we allocate arrangement consideration to the separate units of accounting based on the relative fair value for all units of accounting in the arrangement , except where amounts allocable to the delivered units is limited to that which is contingent upon the delivery of additional deliverables or meeting other specified performance conditions . revenue related to extended warranty and product maintenance contracts is recognized pursuant to asc 605-20-25 , “ separately priced extended warranty and product maintenance contracts. ” pursuant to this guidance , revenue related to separately priced product maintenance contracts is deferred and recognized over the term of the maintenance period . we record deferred revenue for advance payments received from customers for maintenance contracts . our customers have the right to return products that do not function properly within a limited time after delivery . we monitor and track product returns and record a provision for the estimated future returns based on historical experience . returns have historically been within expectations and the provisions established , but we can not guarantee that we will continue to experience return rates consistent with historical patterns . we offer some of our customers price protection as an incentive to carry inventory of our product . these price protection plans provide that if we lower prices , we will credit them for the price decrease on inventory they hold . our customers typically carry limited amounts of inventory , and we infrequently lower prices on current products . as a result , the amounts paid under these plans have not been material . however , we can not guarantee that this minimal level will continue . we charge our customers for shipping and handling services . the amounts billed to customers are recorded as revenue when the product ships . any costs incurred related to these services are included in cost of sales . accounts receivable – we have standardized credit granting and review policies and procedures for all customer accounts , including : credit reviews of all new customer accounts ; ongoing credit evaluations of current customers ; credit limits and payment terms based on available credit information ; and adjustments to credit limits based upon payment history and the customer 's current creditworthiness . we also provide an estimate of doubtful accounts based on historical experience and specific customer collection issues . our allowance for doubtful accounts as of december 31 , 2013 was approximately $ 63,000 , or less than 1.0 % of outstanding accounts receivable , which we feel is appropriate considering the overall quality of our accounts receivable . while credit losses have historically been within expectations and the reserves established , we can not guarantee that our credit loss experience will continue to be consistent with historical experience . inventories – our inventories are stated at the lower of cost ( principally standard cost , which approximates actual cost on a first-in , first-out basis ) or market . we review market value based on historical usage and estimates of future demand . assumptions are reviewed at least quarterly and adjustments are made , as necessary , to reflect changing market conditions . based on these reviews , inventory write-downs are recorded , as necessary , to reflect estimated obsolescence , excess quantities and market value . should circumstances change and we determine that additional inventory is subject to obsolescence , additional write-downs of inventory could result in a charge to income . goodwill and intangible assets – we acquire businesses in purchase transactions that result in the recognition of goodwill and intangible assets .
| general and administrative . general and administrative information is summarized below ( in thousands , except percentages ) : replace_table_token_13_th general and administrative expenses primarily include salaries and payroll related expenses for our executive , accounting , human resource , business development and information technology staff , expenses for our corporate headquarters , professional and legal expenses , telecommunication expenses , and other expenses related to being a publicly-traded company . general and administrative expenses decreased $ 1,245,000 , or 16 % , due primarily to a reduction in the accrued contingent consideration liability to be paid in connection with the acquisition of printrex of $ 900,000 ( as discussed in more detail in note 3 to the consolidated financial statements ) in addition to lower incentive compensation-related expenses for executive and administrative employees . these decreases were partially offset by higher recruitment fees of $ 160,000 due to the additional sales and engineering staff as previously discussed , as compared to 2012. we expect general and administrative expenses in 2014 to be relatively consistent with 2013 , after excluding the $ 900,000 reduction in the printrex accrued contingent consideration liability . legal fees associated with lawsuit . legal fee information is summarized below ( in thousands , except percentages ) : replace_table_token_14_th as disclosed in note 11 to the consolidated financial statements , in june 2012 , avery dennison corporation ( “ ad ” ) filed a civil complaint against the company . in connection with this lawsuit , we incurred legal fees and other related expenses of $ 476,000 and $ 1,533,000 in 2013 and 2012 , respectively . as a result of ad 's actions , we may incur additional legal fees related to this lawsuit in 2014 and beyond , although we can not predict the timing and extent of such legal fees . business consolidation and restructuring .
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as of december story_separator_special_tag you should read the following summary together with the more detailed business information and consolidated financial statements and related notes that appear elsewhere in this annual report on form 10-k and in the documents that we incorporate by reference into this annual report on form 10-k. this annual report on form 10-k may contain certain “ forward-looking ” information within the meaning of the private securities litigation reform act of 1995. this information involves risks and uncertainties . our actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in “ risk factors. ” overview we are an information technology and management consulting firm serving forbes global 2000® and other large enterprise companies with a primary focus on the united states . we help clients gain competitive advantage by using technology to : make their businesses more responsive to market opportunities ; strengthen relationships with customers , suppliers , and partners ; improve productivity ; and reduce information technology costs . our digital experience , business optimization and industry solutions enable these benefits by developing , integrating , automating , and extending business processes , technology infrastructure and software applications end-to-end within an organization and with key partners , suppliers , and customers . our solutions include analytics , custom applications , management consulting , commerce , content management , business integration , customer relationship management , portals and collaboration , platform implementations , and business process management , among others . our solutions enable our clients to operate a real-time enterprise that dynamically adapts business processes and the systems that support them to meet the changing demands of an increasingly global , internet-driven , and competitive marketplace . 15 services revenues services revenues are derived from professional services that include developing , implementing , integrating , automating and extending business processes , technology infrastructure , and software applications . most of our projects are performed on a time and materials basis , while a portion of our revenues is derived from projects performed on a fixed fee basis . fixed fee engagements represented approximately 8 % of our services revenues for the year ended december 31 , 2017 compared to 11 % for each of the years ended december 31 , 2016 and 2015. the decrease in fixed fee revenues is primarily attributable to an organic decrease in fixed fee engagements overall . for time and material projects , revenues are recognized and billed by multiplying the number of hours our professionals expend in the performance of the project by the established billing rates . for fixed fee projects , revenues are generally recognized using an input method based on the ratio of hours expended to total estimated hours . amounts invoiced and collected in excess of revenues recognized are classified as deferred revenues . in conjunction with services provided , we occasionally receive referral fees under partner programs . these referral fees are recognized when earned and recorded within services revenues . on most projects , we are also reimbursed for out-of-pocket expenses including travel and other project-related expenses . these reimbursements are included as a component of revenues . the aggregate amount of reimbursed expenses will fluctuate depending on the location of our clients , the total number of our projects that require travel , and whether our arrangements with our clients provide for the reimbursement of such expenses . software and hardware revenues software and hardware revenues are derived from sales of third-party and internally developed software and hardware . revenues from sales of third-party software and hardware are generally recorded on a gross basis provided that we act as a principal in the transaction . revenues from sales of third-party software-as-a-service arrangements where we are not the primary obligor are recorded on a net basis . software and hardware revenues are expected to fluctuate depending on our clients ' demand for these products . if we enter into contracts for the sale of services and software or hardware , management evaluates whether each element should be accounted for separately by considering the following criteria : ( 1 ) whether the deliverables have value to the client on a stand-alone basis ; and ( 2 ) whether delivery or performance of the undelivered item or items is considered probable and substantially in our control ( only if the arrangement includes a general right of return related to the delivered item ) . further , for sales of software and services , management also evaluates whether the services are essential to the functionality of the software and whether there is fair value evidence for each deliverable . if management concludes that the separation criteria are met , then it accounts for each deliverable in the transaction separately , based on the relevant revenue recognition policies . generally , all deliverables of our multiple element arrangements meet these criteria and are accounted for separately , with the arrangement consideration allocated among the deliverables using vendor specific objective evidence of the selling price . as a result , we generally recognize software and hardware sales upon delivery to the customer and services consistent with the policies described herein . further , delivery of software and hardware sales , when sold contemporaneously with services , can generally occur at varying times depending on the specific client project arrangement . delivery of services generally occurs over a period of time consistent with the timeline as outlined in the client contract . there are no significant cancellation or termination-type provisions for our software and hardware sales . contracts for our professional services provide for a general right , to the client or us , to cancel or terminate the contract within a given period of time ( generally 10 to 30 days ' notice is required ) . the client is responsible for any time and expenses incurred up to the date of cancellation or termination of the contract . story_separator_special_tag revenue recognition standard adopted january 1 , 2018 in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers , which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers . asu no . 2014-09 replaced most existing revenue recognition guidance in u.s. gaap . in 2015 , the fasb deferred the effective date of asu no . 2014-09 by one year . in 2016 , the fasb issued asu no . 2016-08 , principal versus agent considerations , asu no . 2016-10 , identifying performance obligations and licensing , asu no . 2016-12 , narrow-scope improvements and practical expedients and asu no . 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers , all of which further amended asu no . 2014-09. the company adopted the standard on january 1 , 2018 using the modified retrospective method , which requires a cumulative-effect adjustment to the opening balance of retained earnings within stockholders ' equity , as will be fully presented in the company 's quarterly report on form 10-q for the three months ended march 31 , 2018. the company has determined that the most significant impact upon adoption is to third-party software and hardware revenue , which has primarily been recorded on a gross basis as the principal in the transaction through december 31 , 2017 and will be presented on a net basis as the agent as of january 1 , 2018. had the company historically presented third-party software and hardware revenues on a net basis , software and hardware revenues would have been $ 5.3 million , $ 6.4 million , and $ 5.5 million for the years ended december 31 , 2017 , 2016 , and 2015 , respectively . as the company adopted asu no . 2014-09 using the modified retrospective method , the gross versus net presentation will not impact the historical presentation , but will impact the 2018 presentation . additionally , as the agent , revenue from multi-year sales of third-party software and support will be recognized upfront as the performance obligation is fulfilled , rather than annually as invoiced to the customer . the impact from this timing change is expected to be immaterial . variable consideration related to service contracts , such as volume discounts and holdbacks , may be recognized earlier under the new standard , and the company is currently evaluating the impact of this change on contracts that are open as of december 31 , 2017. the adoption of asu no . 2014-09 and its amendments will also result in additional disclosures around the nature and timing of performance obligations , contract costs , and deferred revenue , as well as significant judgments and practical expedients used by the company . results of operations the following table summarizes our results of operations as a percentage of total revenues : replace_table_token_4_th 17 year ended december 31 , 2017 compared to year ended december 31 , 2016 revenues . total revenues decreased less than 1 % to $ 485.3 million for the year ended december 31 , 2017 from $ 487.0 million for the year ended december 31 , 2016. financial results explanation for increases ( decreases ) over prior year period ( in thousands ) ( in thousands ) for the year ended december 31 , 2017 for the year ended december 31 , 2016 total increase ( decrease ) over prior year period increase attributable to acquired companies decrease attributable to base business services revenues $ 434,253 $ 418,589 $ 15,664 $ 33,607 $ ( 17,943 ) software and hardware revenues 38,642 49,954 ( 11,312 ) - ( 11,312 ) reimbursable expenses 12,366 18,439 ( 6,073 ) 440 ( 6,513 ) total revenues $ 485,261 $ 486,982 $ ( 1,721 ) $ 34,047 $ ( 35,768 ) services revenues increased 4 % to $ 434.3 million for the year ended december 31 , 2017 from $ 418.6 million for the year ended december 31 , 2016. the increase in services revenues was primarily due to acquisitions . services revenues attributable to our base business decreased $ 17.9 million while services revenues attributable to acquired companies was $ 33.6 million , resulting in a total increase of $ 15.7 million . software and hardware revenues decreased 23 % to $ 38.6 million for the year ended december 31 , 2017 from $ 50.0 million for the year ended december 31 , 2016 primarily due to a decrease in initial and renewal software license sales . reimbursable expenses decreased 33 % to $ 12.4 million for the year ended december 31 , 2017 from $ 18.4 million for the year ended december 31 , 2016 primarily as a result of a higher mix of projects performed in our offices and lower media buy expenses passed through to customers of $ 2.6 million . we do not realize any profit on reimbursable expenses . cost of revenues ( exclusive of depreciation and amortization , discussed separately below ) . cost of revenues decreased 4 % to $ 323.7 million for the year ended december 31 , 2017 from $ 335.7 million for the year ended december 31 , 2016. the decrease in cost of revenues is primarily related to software and hardware costs which decreased 24 % to $ 33.3 million for the year ended december 31 , 2017 from $ 43.6 million for the year ended december 31 , 2016 , as a result of the decrease in software license sales . software and hardware costs as a percentage of software and hardware revenues was 86.2 % for the year ended december 31 , 2017 and 87.2 % for the year ended december 31 , 2016 .
| financial results explanation for increases ( decreases ) over prior year period ( in thousands ) ( in thousands ) for the year ended december 31 , 2016 for the year ended december 31 , 2015 total increase over prior year period increase attributable to acquired companies decrease attributable to base business services revenues $ 418,589 $ 411,469 $ 7,120 $ 16,405 $ ( 9,285 ) software and hardware revenues 49,954 46,622 3,332 4,226 ( 894 ) reimbursable expenses 18,439 15,530 2,909 4,427 ( 1,518 ) total revenues $ 486,982 $ 473,621 $ 13,361 $ 25,058 $ ( 11,697 ) services revenues increased 2 % to $ 418.6 million for the year ended december 31 , 2016 from $ 411.5 million for the year ended december 31 , 2015. the increase in services revenues was primarily due to acquisitions . services revenues attributable to our base business decreased $ 9.3 million while services revenues attributable to acquired companies was $ 16.4 million , resulting in a total increase of $ 7.1 million . software and hardware revenues increased 7 % to $ 50.0 million for the year ended december 31 , 2016 from $ 46.6 million for the year ended december 31 , 2015 primarily due to acquisitions . reimbursable expenses increased 19 % to $ 18.4 million for the year ended december 31 , 2016 from $ 15.5 million for the year ended december 31 , 2015. the increase in reimbursable expenses is primarily due to the acquisition of enlighten in which media buy expenses are passed through to customers . we do not realize any profit on reimbursable expenses . cost of revenues ( exclusive of depreciation and amortization , discussed separately below ) .
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our latest stage drug candidate , glembatumumab vedotin ( also referred to as cdx-011 ) is a targeted antibody-drug conjugate in a randomized , phase 2b study for the treatment of triple negative breast cancer and a phase 2 study for the treatment of metastatic melanoma . varlilumab ( also referred to as cdx-1127 ) is an immune modulating antibody that is designed to enhance a patient 's immune response against cancer . we established proof of principal in a phase 1 study with varlilumab , which supported the initiation of several combination studies in various indications . we also have a number of earlier stage drug candidates in clinical development , including cdx-1401 , a targeted immunotherapeutic aimed at antigen presenting cells , or apcs , for cancer indications ; cdx-301 , an immune cell mobilizing agent and dendritic cell growth factor ; and cdx-014 , an antibody-drug conjugate targeting renal and ovarian cancers . in november 2016 , we completed the acquisition of kolltan pharmaceuticals , inc. ( kolltan ) , a privately held company focused on the discovery and development of novel , antibody-based drugs targeting receptor tyrosine kinases ( rtks ) . this acquisition added the following drug candidates to our clinical pipeline : cdx-0158 ( formerly ktn0158 ) , a humanized monoclonal antibody ( mab ) currently in a phase 1 dose escalation study in refractory gastrointestinal stromal tumors ( gist ) and other kit positive tumors ; and , cdx-3379 ( formerly ktn3379 ; medi3379 ) , a human monoclonal antibody which recently completed a phase 1b study in patients with solid tumors . we also acquired the tam program , a broad antibody discovery effort to generate antibodies that modulate the tam family of rtks , comprised of tyro3 , axl and mertk , which are expressed on tumor-infiltrating macrophages , dendritic cells and some tumors . our drug candidates address market opportunities for which we believe current cancer therapies are inadequate or non-existent . we are building a fully integrated , commercial-stage biopharmaceutical company that develops important therapies for patients with unmet medical needs . our program assets provide us with the strategic options to either retain full economic rights to our innovative therapies or seek favorable economic terms through advantageous commercial partnerships . this approach allows us to maximize the overall value of our technology and product portfolio while best ensuring the expeditious development of each individual product . the following table reflects celldex-sponsored clinical studies that we are actively pursuing at this time . all programs are currently fully-owned by celldex . replace_table_token_9_th * checkpoint inhibitor * * bms collaboration 62 we also routinely work with external parties , such as government agencies , to collaboratively advance our drug candidates . the following pipeline reflects clinical trials of our drug candidates being actively pursued by outside organizations . in addition to the studies listed below , we also have an investigator initiated research ( iir ) program with seven studies ongoing with our drug candidates and additional studies currently under consideration . product ( generic ) indication/field status sponsor glembatumumab vedotin uveal melanoma phase 2 nci ( crada ) glembatumumab vedotin squamous cell lung cancer phase 2 precog , llc cdx-1401/cdx-301 multiple solid tumors phase 2 citn the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a drug candidate . it is not unusual for the clinical development of these types of drug candidates to each take five years or more , and for total development costs to exceed $ 100 million for each drug candidate . we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines : clinical phase estimated completion period phase 1 1 - 2 years phase 2 1 - 5 years phase 3 1 - 5 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol , including , among others , the following : the number of patients that ultimately participate in the trial ; the duration of patient follow-up that seems appropriate in view of results ; the number of clinical sites included in the trials ; the length of time required to enroll suitable patient subjects ; and the efficacy and safety profile of the drug candidate . we test potential drug candidates in numerous preclinical studies for safety , toxicology and immunogenicity . we may then conduct multiple clinical trials for each drug candidate . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain drug candidates in order to focus our resources on more promising drug candidates . an element of our business strategy is to pursue the research and development of a broad portfolio of drug candidates . this is intended to allow us to diversify the risks associated with our research and development expenditures . to the extent we are unable to maintain a broad range of drug candidates , our dependence on the success of one or a few drug candidates increases . regulatory approval is required before we can market our drug candidates as therapeutic products . in order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval , the regulatory agency must conclude that our clinical data is safe and effective . historically , the results from preclinical testing and early clinical trials ( through phase 2 ) have often not been predictive of results obtained in later clinical trials . a number of new drugs and biologics have shown promising results in early clinical trials , but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals . story_separator_special_tag the tumor samples from most patients showed evidence of stromal and or tumor cell expression of gpnmb . the subsequent emerge study was a randomized , multi-center phase 2b study of glembatumumab vedotin in 124 patients with heavily pre-treated , advanced , gpnmb-positive breast cancer . results from emerge were published in the journal of clinical oncology in april 2015. patients were randomized ( 2:1 ) to receive either glembatumumab vedotin or single-agent investigator 's choice chemotherapy . patients randomized to receive investigator 's choice were allowed to cross over to receive glembatumumab vedotin following disease progression . activity endpoints included response rate , pfs and overall survival ( os ) . the final study results , as shown below , suggested that glembatumumab vedotin induced significant response rates compared to currently available therapies in patient subsets with advanced , refractory breast cancers with high gpnmb expression ( expression in at least 25 % of tumor cells ) and in patients with triple negative breast cancer . the os and pfs of patients treated with glembatumumab vedotin were also observed to be greatest in patients with high gpnmb expression and , in particular , in patients with triple negative breast cancer who also had high gpnmb expression . 65 emerge : overall response rate and disease control data ( intent-to-treat population ) replace_table_token_11_th tumor response assessed by recist 1.1 , inclusive of response observed at a single time point . emerge : progression free survival ( pfs ) and overall survival ( os ) data replace_table_token_12_th in december 2013 , we initiated metric , a randomized , controlled phase 2b study of glembatumumab vedotin in patients with triple negative breast cancer that over-expresses gpnmb . clinical trial study sites are open to enrollment across the u.s. , canada , australia and the european union . the metric protocol was amended in late 2014 based on feedback from clinical investigators conducting the study that the eligibility criteria for study entry were limiting their ability to enroll patients they felt were clinically appropriate . in addition , we had spoken to country-specific members of the european medicines agency , or ema , and believed an opportunity existed to expand the study into the eu . the amendment expanded patient entry criteria to position it for the possibility of full marketing approval with global regulators , including the ema , and to support improved enrollment in the study . the primary endpoint of the study is pfs as pfs is an established endpoint for full approval registration studies in this patient population in both the u.s. and the eu . the sample size ( n=300 ) and the secondary endpoint of os remained unchanged . since implementation of these changes , both the fda and central european regulatory authorities have reviewed the protocol design , and we believe the metric study could potentially support marketing approval in both the u.s. and europe dependent upon data results and review . based on consistent improvements in enrollment trends to the metric study over the last several months , we anticipate that study enrollment will be completed by the end of september 2017. efforts to ensure delivery of manufactured drug that is ready for commercialization and a companion diagnostic , including partnering with a diagnostic company , are underway . treatment of metastatic melanoma : the phase 1/2 open-label , multi-center , dose escalation study evaluated the safety , tolerability and pharmacokinetics of glembatumumab vedotin in 117 patients with unresectable stage iii or iv melanoma who had failed no more than one prior line of cytotoxic therapy . the mtd and resulting phase 2 dose was determined to be 1.88 mg/kg administered intravenously once every three weeks . the study achieved its primary activity objective with an overall response rate ( orr ) in the phase 2 cohort of 15 % ( 5/34 ) . median pfs was 3.3 months for patients treated with the phase 2 dose . glembatumumab vedotin was generally well tolerated , with the most frequent treatment-related adverse events being rash , fatigue , alopecia , pruritus , diarrhea and nausea . 66 the development of rash , which may be associated with the presence of gpnmb in the skin , also seemed to correlate with greater pfs . in december 2014 , we initiated a single arm , single-agent , open-label phase 2 study of glembatumumab vedotin in patients with unresectable stage iii or iv melanoma ( n=60 ) and enrollment has been completed . in may 2016 , we amended the protocol to add a second cohort of patients to a glembatumumab vedotin and varlilumab combination arm to assess the potential clinical benefit of the combination and to explore varlilumab 's potential biologic and immunologic effect when combined with an adc . in november 2016 , we amended the protocol again to add a third cohort of patients evaluating glembatumumab vedotin in combination with an approved checkpoint inhibitor ( i.e. , nivolumab or pembrolizumab ) following progression on the checkpoint inhibitor alone . both additional cohorts are open to enrollment . the primary endpoint for each cohort is orr . secondary endpoints include analyses of pfs , duration of response , os , retrospective investigation of whether the anti-cancer activity of glembatumumab vedotin is dependent upon the degree of gpnmb expression in tumor tissue and safety of both the monotherapy and combination regimens . we presented data from the single-agent cohort at the european society for medical oncology ( esmo ) congress in october 2016. the cohort enrolled 62 evaluable patients with unresectable stage iii ( n=1 ; 2 % ) or stage iv ( n=61 ; 98 % ) melanoma . all patients had progressed after checkpoint inhibitor therapy , and almost all patients had received both ipilimumab ( n=58 ; 94 % ) and anti-pd-1/anti-pdl-1 ( n=58 ; 94 % ) therapy . twelve patients presented with braf mutation , and eleven had prior treatment with braf or braf/mek targeted agents .
| results of operations year ended december 31 , 2016 compared with year ended december 31 , 2015 replace_table_token_13_th net loss the $ 1.3 million increase in net loss for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily the result of an increase in research and development expenses and general and administrative expenses , offset by an increase in investment and other income and revenue . revenue the $ 0.7 million increase in product development and licensing agreements revenue for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily related to our bms agreement . in may 2014 , we entered into a clinical trial collaboration with bms whereby bms made a one-time payment to us of $ 5.0 million which we are recognizing as revenue along with bms 's 50 % share of the clinical trial cost over our estimated performance period of five years . the $ 0.6 million increase in contracts and grants revenue for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was primarily related to an increase in grant revenue of $ 1.2 million , partially offset by a decrease of $ 0.7 million in revenue from our rockefeller university agreement pursuant to which we perform research and development services for rockefeller . 77 research and development expense research and development expenses consist primarily of ( i ) personnel expenses , ( ii ) laboratory supply expenses relating to the development of our technology , ( iii ) facility expenses , ( iv ) license fees and ( v ) product development expenses associated with our drug candidates as follows : replace_table_token_14_th personnel expenses primarily include salary , benefits , stock-based compensation and payroll taxes .
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39 summarized results of operations for our gateway facility are as follows for the years ended december 31 , 2011 , 2010 and 2009 : replace_table_token_9_th the major classes of assets and liabilities of the discontinued operation in the consolidated balance sheet are as follows as of december 31 , 2010. there were none as of december 31 , 2011 : replace_table_token_10_th note 5 property and equipment property and equipment consists of the following as of december 31 : replace_table_token_11_th as a result of impairing the long-lived assets of our nashville facility during 2011 , the value of that facility is based solely on owned real estate . depreciation expense was $ 4,588,000 , $ 5,825,000 and $ 5,872,000 for the years ended december 31 , 2011 , 2010 and 2009 , respectively . note 6 accrued liabilities accrued liabilities consist of the following as of december 31 : replace_table_token_12_th 40 note 7 long-term debt at december 31 , 2011 , dover motorsports , inc. and its wholly owned subsidiaries dover international speedway , inc. and nashville speedway , usa , inc. , as co-borrowers , had story_separator_special_tag the following discussion is based upon and should be read together with the consolidated financial statements and notes thereto included elsewhere in this document . we classify our revenues as admissions , event-related , broadcasting and other . admissions includes ticket sales for all our events . event-related revenue includes amounts received from sponsorship fees ; luxury suite rentals ; hospitality tent rentals and catering ; concessions and souvenir sales and vendor commissions for the right to sell concessions and souvenirs at our facilities ; sales of programs ; track rentals and other event-related revenues . broadcasting revenue includes rights fees obtained for television and radio broadcasts of events held at our speedways and ancillary media rights fees . revenues pertaining to specific events are deferred until the event is held . concession revenue from concession stand sales and sales of souvenirs are recorded at the time of sale . revenues and related expenses from barter transactions in which we receive advertising or other goods or services in exchange for sponsorships of motorsports events are recorded at fair value . barter transactions accounted for $ 598,000 , $ 626,000 and $ 779,000 of total revenues for the years ended december 31 , 2011 , 2010 and 2009 , respectively . expenses that are not directly related to a specific event are recorded as incurred . expenses that specifically relate to an event are deferred until the event is held , at which time they are expensed . these expenses include prize and point fund monies and sanction fees paid to various sanctioning bodies , including nascar , marketing , cost of goods sold for merchandise and souvenirs , and other expenses associated with the promotion of our racing events . story_separator_special_tag face= '' times new roman '' size= '' 2 '' style= '' font-size:10.0pt ; font-style : italic ; '' > year ended december 31 , 2010 vs. year ended december 31 , 2009 admissions revenue was $ 16,363,000 in 2010 as compared to $ 21,690,000 in 2009. the $ 5,327,000 decrease was primarily related to lower admissions revenue at our nascar event weekends at dover international speedway , fewer events promoted in 2010 and to a lesser extent lower admissions at the other events we promoted during 2010. we believe the decrease in attendance was attributable primarily to the general downturn in economic conditions , including 15 those affecting disposable consumer income and corporate budgets such as employment , business conditions , interest rates and taxation rates . we believe that adverse economic trends , particularly credit availability , the decline in consumer confidence and the rise in unemployment have increasingly contributed to the decrease in attendance . we promoted ten events during 2010 and twelve during 2009. in 2009 , we promoted a nascar nationwide series event and a national hot rod association ( nhra ) event at our memphis facility that did not recur in 2010 since that facility closed during the fourth quarter of 2009. additionally , revenue associated with our special and weekly events at our memphis facility did not recur in 2010. event-related revenue was $ 11,594,000 in 2010 as compared to $ 14,519,000 in 2009. the $ 2,925,000 decrease was primarily related to lower hospitality and luxury suite rentals , as well as lower concessions and souvenir sales as a result of the lower attendance and the aforementioned economic conditions . additionally , revenue associated with the events at our memphis facility did not recur . broadcasting revenue remained consistent at $ 26,872,000 in 2010 as compared to $ 26,911,000 in 2009. operating and marketing expenses were $ 34,286,000 in 2010 as compared to $ 42,423,000 in 2009. the decrease was primarily related to cost savings from the closing of our memphis facility during the fourth quarter of 2009 , cost cutting measures that reduced operating expenses at most major events promoted during 2010 and lower costs associated with the decline in event-related revenue . general and administrative expenses were $ 9,786,000 in 2010 and $ 10,308,000 in 2009. the decrease was primarily related to the closing of our memphis facility during the fourth quarter of 2009. this decrease was partially offset by the expensing of costs relating to a proposed merger with dover downs gaming & entertainment , inc. ( a company related through common ownership ) . the merger agreement was terminated in october 2010. we closed our memphis motorsports park facility in october 2009 and executed an agreement to sell it in december 2010. the real estate sale closed on january 31 , 2011. after closing costs and including the proceeds from the separate sale of all personal property at the facility , our net proceeds were approximately $ 2,000,000 , all of which was used to pay down indebtedness of the memphis facility . story_separator_special_tag we completed the sale of our memphis facility in january 2011 which resulted in additional net proceeds of $ 1,875,000. the decrease in our restricted cash accounts was $ 5,333,000 in 2010. on july 21 , 2010 , we redeemed all of the outstanding swida bonds and the remaining restricted cash was subsequently returned to us by the trustee . net cash used in financing activities was $ 9,523,000 in 2011 as compared to $ 6,418,000 in 2010. we had net repayments on our outstanding line of credit of $ 9,040,000 in 2011 as compared to $ 2,800,000 in 2010. repayments of our outstanding swida bonds were $ 2,986,000 in 2010. we incurred $ 167,000 of premiums and fees associated with the aforementioned swida bond redemption in 2010. on july 29 , 2009 , our board of directors voted to suspend the declaration of regular quarterly cash dividends on all classes of our common stock . dividends are prohibited by our credit facility . at december 31 , 2011 , dover motorsports , inc. and its wholly owned subsidiaries dover international speedway , inc. and nashville speedway , usa , inc. , as co-borrowers , had a $ 65,000,000 secured credit agreement with a bank group . there was $ 29,160,000 outstanding under the credit facility at december 31 , 2011 , at an interest rate of approximately 3 % . the maximum borrowing limit under the facility reduces to $ 60,000,000 as of march 31 , 2012 and $ 55,000,000 as of march 31 , 2013 and the facility expires april 12 , 2014. the credit facility provides for seasonal funding needs , capital improvements , letter of credit requirements and other general corporate purposes . interest is based upon libor plus a margin that varies between 200 and 325 basis points depending on the leverage ratio ( 275 basis points at december 31 , 2011 ) . the terms of the credit facility contain certain covenants including minimum interest coverage and maximum funded debt to earnings before interest , taxes , depreciation and amortization . material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements . we expect to be in compliance with the financial covenants , and all other covenants , for all measurement periods during the next twelve months . in addition , the credit agreement includes a material adverse change clause , prohibits the payment of dividends by us and provides the lenders with a first lien on all of our assets . the credit facility also provides that if we default under any other loan agreement , that would be a default under this facility . at december 31 , 2011 , we were in compliance with the terms of the credit facility . after consideration of stand-by letters of credit outstanding , the remaining maximum borrowings available pursuant to the credit facility were $ 15,200,000 at december 31 , 2011 ; however , in order to maintain compliance with the required quarterly debt covenant calculations as of december 31 , 2011 $ 9,671,000 could have been borrowed as of that date . on august 3 , 2011 , we announced that nashville superspeedway had notified nascar that it will not seek 2012 sanction agreements for its two nationwide series and two camping world truck series events . we continue to use the track for nascar team testing and are currently evaluating all of our options for the facility . we incurred a non-cash impairment charge of $ 15,687,000 and severance costs of approximately $ 150,000 in the third quarter of 2011 as a result of this event ( see note 3 impairment charges of the consolidated financial statements included elsewhere in this document for further discussion ) . additionally , since the facility will no longer generate sales taxes from these events we have estimated that a portion of the debt service may not be covered by the sales taxes and incremental property taxes ( applicable taxes ) . as a result , we recorded a $ 2,250,000 provision for contingent obligation reflecting the present value of the estimated portion of the wilson county bonds debt service that may not be covered by applicable taxes from the facility ( see note 13 commitments and contingencies of the consolidated financial statements included elsewhere in this document for further discussion ) . an increase in interest rates would result in an increase in the portion of debt service not covered by applicable taxes and therefore an increase in our liability . in november 2010 , we announced the closing of our gateway facility . the gateway facility was located on approximately 290 acres of land in madison , illinois and the racetrack was primarily on leased property . we had long-term leases for approximately 150 acres with four landlords . in february 2011 , three of the four landlords agreed to terminate the land leases in exchange for 18.5 acres of owned real estate and our agreement to abandon all improvements and certain personal property ( including the racetrack ) on the leased land . as a result , we recorded an expense for facility exit costs of $ 324,000 at december 31 , 2010 primarily to record a liability for the value of the real property we conveyed to the landlords in connection with terminating the leases . in december 2011 , the one remaining land lease was terminated . we continue to own approximately 120 acres of undeveloped land near the gateway facility . 18 we closed our memphis motorsports park facility in october 2009 and executed an agreement to sell it in december 2010. the real estate sale closed on january 31 , 2011. after closing costs and including the proceeds from the separate sale of all personal property at the facility in december 2010 , our net proceeds were approximately $ 2,000,000 , all of which was used to pay down indebtedness of the memphis facility .
| results of operations year ended december 31 , 2011 vs. year ended december 31 , 2010 admissions revenue was $ 13,633,000 in 2011 as compared to $ 16,363,000 in 2010. we promoted ten events during 2011 and 2010. the $ 2,730,000 decrease was primarily related to lower admissions revenue at our nascar event weekends at dover international speedway . we believe the decrease in attendance at our dover weekends was attributable primarily to the general downturn in economic conditions , including those affecting disposable consumer income and corporate budgets such as employment and business conditions . we believe that adverse economic trends , particularly credit availability , the decline in consumer confidence , continued high unemployment and high gas prices have contributed to the decrease in attendance . event-related revenue was $ 10,309,000 in 2011 as compared to $ 11,594,000 in 2010. the $ 1,285,000 decrease was primarily related to lower luxury suite rentals , hospitality tent rentals , catering revenues , expo space revenues and concessions and souvenir sales at our nascar event weekends at dover international speedway as a result of the lower attendance and the aforementioned economic conditions . broadcasting revenue increased to $ 27,778,000 in 2011 from $ 26,872,000 in 2010 due to a contracted increase for the individual major motorsports events we promoted during 2011. operating and marketing expenses were $ 31,926,000 in 2011 as compared to $ 34,286,000 in 2010. the decrease was primarily due to cost cutting measures and reduced operating expenses resulting from the lower attendance at our nascar event weekends at dover international speedway . we concluded in the third quarter of 2011 that it was necessary for us to review the carrying value of the long-lived assets of our nashville facility for impairment .
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overview and outlook microsoft is a technology leader focused on helping people and businesses throughout the world realize their full potential . we create technology that transforms the way people work , play and communicate across a wide range of computing devices . we generate revenue by developing , licensing , and supporting a wide range of software products and services , by designing and selling hardware , and by delivering relevant online advertising to a global customer audience . our most significant expenses are related to compensating employees , designing , manufacturing , marketing and selling our products and services , and income taxes . 22 part ii item 7 industry trends our industry is dynamic and highly competitive , with frequent changes in both technologies and business models . each industry shift is an opportunity to conceive new products , new technologies , or new ideas which can further transform the industry and our business . at microsoft , we push the boundaries of what is possible through a broad set of research and technology innovations that seek to anticipate the changing demands of customers , industry trends , and competitive forces . key opportunities and investments based on our assessment of key technology trends and our broad focus on long-term research and development of new products and services , we see significant opportunities to drive future growth . smart connected devices the price per unit of processing , storage , and networks continues to decline while at the same time devices increase in capability . this ongoing trend is increasing the capabilities of pcs , mobile , and other devices powered by rich software platforms and applications . at the same time , the information and services people use increasingly span multiple devices . user experiences will be transformed by the adoption of cloud computing when brought together with the richness of smart , connected devices . microsoft is delivering experiences that seamlessly connect pcs and mobile and other devices through the cloud . we are devoting significant resources to consumer cloud offerings like bing , windows live , and xbox live . our software and hardware platform investments can be seen in products like kinect , windows , windows azure , windows phone , windows server , and xbox . cloud computing transforming the data center and information technology cloud-based solutions provide customers with software , services and content over the internet by way of shared computing resources located in centralized data centers . computing is undergoing a long-term shift from client/server to the cloud , a shift similar in importance and impact to the transition from mainframe to client/server . the shift to the cloud is driven by three important economies of scale : larger data centers can deploy computational resources at significantly lower cost than smaller ones ; larger data centers include diverse customer , geographic , and application demand patterns which improve the utilization of computing , storage , and network resources ; and multi-tenancy lowers application maintenance labor costs for large public clouds . as a result of the improved economics , the cloud offers unique levels of elasticity and agility that will enable new solutions and applications . for businesses of all sizes , the cloud creates the opportunity to focus more on innovation while leaving non-differentiating activities to reliable and cost-effective providers . for most businesses , the first step in achieving cloud economics is the adoption of virtualization in their data center . we are devoting significant resources to developing cloud infrastructure , platforms , and applications including offerings such as microsoft dynamics online , microsoft sql azure , office 365 , windows azure , windows intune , and windows server . entertainment the evolution of hardware , software , services , and the cloud are enhancing the delivery and quality of unified entertainment experiences across many devices . these rich media experiences include games , movies , music , television , and social interactions with family , friends , and colleagues . at microsoft , our approach is to simplify and increase the accessibility of these entertainment experiences to broaden market penetration of our software and services . we invest significant resources in partnerships , content , windows phone , xbox , and xbox live . search over the last two decades , web content and social connections have increased dramatically as people spend more time online , while discoverability and accessibility has been transforming from direct navigation and document links . there is significant opportunity to deliver differentiated products that helps users make better decisions and 23 part ii item 7 complete tasks more simply when using pc , mobile , and other devices . our approach is to use machine learning to try to understand user intent , and differentiate our product by focusing on the integration of visual , social , and other elements which simplifies people 's interaction with the internet . we invest significant resources in bing , sharepoint , windows , and windows phone . communications and productivity personal and business productivity has been transformed by the ubiquity of computing and software tools . over the last decade , microsoft redefined software productivity beyond the rich office client on the pc . productivity scenarios now encompass unified communications , business intelligence , collaboration , content management , and relationship management , which are increasingly powered by server-side applications . these server applications can be hosted by the customer , a partner , or by microsoft in the cloud . there are significant opportunities to provide productivity and communication scenarios across pcs , mobile devices , and other devices that connect to services . we invest significant resources in dynamics , exchange , lync , office , office 365 , sharepoint , and windows live . economic conditions , challenges and risks as discussed above , our industry is dynamic and highly competitive . we must anticipate changes in technology and business models . story_separator_special_tag we evaluate mbd results based upon the nature of the end user in two primary parts : business revenue , which includes microsoft office system revenue generated through volume licensing agreements and microsoft dynamics revenue ; and consumer revenue , which includes revenue from retail packaged product sales and oem revenue . fiscal year 2011 compared with fiscal year 2010 mbd revenue increased primarily reflecting sales of the 2010 microsoft office system , the $ 254 million office deferral during fiscal year 2010 , and the subsequent recognition of the office deferral during fiscal year 2011. business revenue increased $ 2.0 billion or 13 % , reflecting licensing of the 2010 microsoft office system to transactional business customers , growth in multi-year volume licensing revenue , and a 10 % increase in microsoft dynamics revenue . consumer revenue increased $ 1.1 billion or 33 % , approximately half of which was attributable to the launch of office 2010 and half of which was attributable to the office deferral during fiscal year 2010 and subsequent recognition of the office deferral during fiscal year 2011. excluding the impact associated with the office deferral , consumer revenue increased $ 620 million or 17 % due to sales of the 2010 microsoft office system . mbd operating income increased due mainly to revenue growth , offset in part by higher operating expenses . cost of revenue increased $ 335 million or 26 % , primarily driven by higher online costs and services . sales and marketing expenses increased $ 97 million or 2 % , primarily driven by an increase in corporate and cross-platform marketing activities . research and development costs increased $ 79 million or 4 % , primarily as a result of capitalization of certain microsoft office system software development costs in the prior year . fiscal year 2010 compared with fiscal year 2009 mbd revenue decreased primarily as a result of the net deferral of $ 254 million of revenue related to the office 2010 deferral . consumer revenue decreased $ 142 million or 4 % , primarily due to the office 2010 deferral , offset in part by growth in the pc market and sales of the 2010 microsoft office system , which was launched during the fourth quarter of fiscal year 2010. business revenue decreased $ 39 million , primarily reflecting a decline in licensing of the 2007 microsoft office system to transactional business customers , offset in part by growth in multi-year volume licensing agreement revenue and licensing of the 2010 microsoft office system to transactional business customers . microsoft dynamics revenue was flat . mbd operating income increased due mainly to decreased operating expenses , offset in part by decreased revenue . sales and marketing expenses decreased $ 203 million or 5 % , primarily driven by a decrease in corporate marketing activities . research and development expenses decreased $ 202 million or 9 % , primarily as a result of capitalization of certain microsoft office system software development costs and lower headcount-related expenses . general and administrative expenses decreased $ 50 million or 17 % primarily due to expenses in the prior year associated with the acquisition of fast search & transfer asa ( fast ) and lower headcount-related expenses . these decreases were offset in part by a $ 135 million or 12 % increase in cost of revenue , primarily driven by increased traffic acquisition costs and increased costs of providing services . entertainment and devices division replace_table_token_8_th 29 part ii item 7 entertainment and devices division ( edd ) develops and markets products and services designed to entertain and connect people . edd offerings include the xbox 360 entertainment platform ( which includes the xbox 360 gaming and entertainment console , kinect for xbox 360 , xbox 360 video games , xbox live , and xbox 360 accessories ) , mediaroom ( our internet protocol television software ) , and windows phone . in november 2010 , we released kinect for xbox 360 and the latest version of windows phone . fiscal year 2011 compared with fiscal year 2010 edd revenue increased primarily reflecting higher xbox 360 platform revenue . xbox 360 platform revenue grew $ 2.7 billion or 48 % , led by increased volumes of xbox 360 consoles , sales of kinect sensors , and higher xbox live revenue . we shipped 13.7 million xbox 360 consoles during fiscal year 2011 , compared with 10.3 million xbox 360 consoles during fiscal year 2010. edd operating income increased primarily reflecting revenue growth , offset in part by higher cost of revenue . cost of revenue increased $ 1.8 billion or 49 % primarily reflecting higher volumes of xbox 360 consoles and kinect sensors sold , and increased royalty costs resulting from increased sales of xbox live digital content . research and development expenses increased $ 119 million or 12 % , primarily reflecting higher headcount-related costs . sales and marketing expenses grew $ 90 million or 12 % primarily reflecting increased xbox 360 platform marketing activities . fiscal year 2010 compared with fiscal year 2009 edd revenue decreased reflecting decreased revenue from xbox 360 platform and pc games . xbox 360 platform and pc game revenue decreased $ 12 million , primarily reflecting a reduction in xbox 360 consoles sold and revenue per console , offset in part by increased xbox live revenue . we shipped 10.3 million xbox 360 consoles during fiscal year 2010 , compared with 11.2 million xbox 360 consoles during fiscal year 2009. non-gaming revenue decreased $ 197 million or 25 % primarily reflecting decreased zune and windows phone revenue . edd operating income increased due to reduced operating expenses . cost of revenue decreased $ 496 million or 12 % , primarily due to lower xbox 360 console costs , offset in part by increased royalty costs resulting from increased xbox live digital marketplace third-party content sales and charges resulting from the discontinuation of the kin phone . sales and marketing costs decreased $ 75 million or 9 % , primarily due to decreased xbox 360 platform marketing activities .
| results of operations summary of results for fiscal years 2011 , 2010 , and 2009 replace_table_token_3_th fiscal year 2011 compared with fiscal year 2010 revenue increased primarily due to strong sales of the xbox 360 entertainment platform , the 2010 microsoft office system , and server and tools products , offset in part by lower windows revenue . revenue also increased due to the $ 254 million office deferral in fiscal year 2010 and the subsequent recognition of the office deferral during fiscal year 2011. changes in foreign currency exchange rates had an insignificant impact on revenue . operating income increased reflecting the change in revenue , offset in part by higher operating expenses . key changes in operating expenses were : cost of revenue increased $ 3.2 billion or 26 % , due to higher costs associated with our online offerings , including traffic acquisition costs , and increased volumes of xbox 360 consoles and kinect sensors sold . sales and marketing expenses increased $ 726 million or 5 % , primarily reflecting increased advertising and marketing of the xbox 360 platform , windows phone , and windows and windows live , higher headcount-related expenses and increased fees paid to third party enterprise software advisors . research and development expenses increased $ 329 million or 4 % , due mainly to higher headcount-related expenses . general and administrative expenses increased $ 159 million or 4 % , due mainly to higher headcount-related expenses and new puerto rican excise taxes , partially offset by prior year transition expenses associated with the inception of the yahoo ! commercial agreement . diluted earnings per share increased reflecting higher revenue , repurchases of common stock , and lower income tax expense , offset in part by higher operating expenses . fiscal year 2010 compared with fiscal year 2009 revenue increased mainly due to strong sales of windows 7 , which was released during fiscal year 2010 , and pc market improvement .
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an analysis of our financial results comparing the year ended september 30 , 2016 ( “ fiscal 2016 ” ) to the year ended september 30 , 2015 ( “ fiscal 2015 ” ) . liquidity and capital resources . an analysis of changes in our cash flows and discussion of our financial condition and liquidity . contractual obligations . discussion of our contractual obligations as of september 30 , 2016. off-balance sheet arrangements . discussion of our off-balance sheet arrangements as of september 30 , 2016. critical accounting policies and estimates . this section provides a discussion of the significant estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included at “ part iv , item 15. exhibits , financial statement schedules. ” the following discussion contains a number of forward-looking statements that involve a number of risks and uncertainties . words such as `` anticipates , '' `` expects , '' `` intends , '' `` goals , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' `` continues , '' `` may , '' `` will , '' `` should , '' and variations of such words and similar expressions are intended to identify such forward-looking statements . such statements are based on our current expectations and could be affected by the risk and uncertainties described in “ part i , item 1a . risk factors. ” our actual results may differ materially . overview alj regional holdings , inc. ( “ alj , ” or “ we ” ) is a holding company that operates faneuil , inc. , or faneuil , floors-n-more , llc , dba carpets n ' more , or carpets , and phoenix color corp. , or phoenix . with several members of senior management and our board of directors coming from long careers in the professional service industry , alj is focused on acquiring and operating exceptional customer service-based businesses . during fiscal 2016 , each of our subsidiaries either secured or extended long-term contracts with significant customers to provide additional products and services . our increased sales efforts have provided large contract wins for faneuil and carpets . faneuil won a new health benefit exchange contract and a commercial utility contract , which is projected to offset the conclusion of a contract with one of its largest customers , while carpets significantly expanded its existing contract with one of the largest builders in las vegas . we continue to see our business evolve as we execute our strategy of buying attractively-valued companies , such as our july 18 , 2016 acquisition of color optics ( “ color optics acquisition ” ) , a leading printing and packaging solutions enterprise servicing the beauty , fragrance , cosmetic and consumer-packaged goods markets . in analyzing the financial impact of any potential acquisition , we focus on earnings , operating margin , cash flow and return on invested capital targets . we hire successful and experienced management teams to run each of our operating companies and incentivize them to drive higher profits . we are focused on increasing our revenues at each of our operating subsidiaries by investing in sales and marketing and expanding into new products and markets , evaluating and executing on tuck-in acquisitions , while continually examining our cost structures to drive higher profits . on may 11 , 2016 , our stock began trading on the nasdaq market under the ticker symbol “ aljj. ” we believe our investment , which included approximately $ 1.0 million in expenses , of which $ 0.7 million are non-recurring , to uplist our stock will provide greater liquidity for our investors and allow us to better leverage our stock for future acquisitions . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > alj selling , general and administrative expense for fiscal 2016 was $ 3.9 million , an increase of $ 0.7 million , or approximately 20.7 % , compared to selling , general and administrative expense of $ 3.2 million for fiscal 2015. the increase was primarily attributable to legal and accounting fees totaling $ 1.2 million to support our periodic filings with the sec , which became a requirement in fiscal 2016 as part of our uplisting process from the otcbb to nasdaq . of the $ 1.2 million increase , $ 0.7 million was non-recurring fees . this increase was partially offset by a $ 0.5 million decrease to non-cash stock-based compensation expense . we expect legal and accounting fees to increase approximately $ 0.5 million per year as we comply with the ongoing reporting requirements of a public company . 29 depreciation and amortization replace_table_token_13_th faneuil depreciation and amortization faneuil depreciation and amortization expense for fiscal 2016 was $ 6.2 million , an increase of $ 0.6 million , or 10.4 % , compared to $ 5.6 million for fiscal 2015. faneuil experiences increases in depreciation and amortization expenses as new customers are onboarded . carpets depreciation and amortization carpets depreciation and amortization expense for fiscal 2016 was $ 0.6 million , and decrease of $ 0.1 million or 9.1 % , compared to $ 0.7 million for fiscal 2015. although depreciation and amortization decreased , carpets expects to experience an increase in depreciation and amortization expense as new automation machinery for its granite and stone facility is acquired . phoenix depreciation and amortization phoenix depreciation and amortization expense for fiscal 2016 was $ 2.5 million , an increase of $ 2.1 million , or 597.2 % compared to $ 0.4 million for fiscal 2015. the majority of the increase was a result of the timing of the phoenix acquisition . story_separator_special_tag of the $ 5.3 million cash used , which was attributable to the change in other assets , $ 1.8 million is temporary and relates to equipment deposits that will be financed using capital leases once the equipment is completed and ready for use . cash provided by operations of $ 11.4 million during fiscal 2015 was the result of our $ 12.3 million net income and $ 2.7 million of net non-cash expenses , partially offset by $ 3.6 million net cash used by changes in operating assets and liabilities . the most significant components of net non-cash expenses were depreciation and amortization of $ 7.2 million and stock-based compensation of 31 $ 1.5 million , par tially offset by the benefit we received from deferred income taxes of $ 7.3 million . the most significant components of changes in operating assets and liabilities included accounts receivable of $ 1.8 million , prepaid expenses and other current assets of $ 1.9 million , and deferred revenue and customer deposits of $ 1.8 million , which used cash , and other assets of $ 2.1 million , which provided cash . investing activities during fiscal 2016 , our investing activities used $ 9.2 million of cash , attributable to the color optics acquisition , which totaled $ 6.6 million , purchases of equipment , software and leasehold improvements , which totaled $ 3.7 million , partially offset by $ 1.0 million of proceeds from the sale of assets . during fiscal 2015 , we used $ 95.3 million of cash to purchase phoenix for $ 88.3 million and capital equipment of $ 7.1 million . financing activities during fiscal 2016 , our financing activities used $ 6.2 million of cash , primarily to pay term loan payments of $ 11.1 million , of which $ 3.0 million was non-mandatory , and $ 2.1 million to repurchase alj common stock , partially offset by an increase to our term loan of $ 10.0 million ( see further discussion at contractual obliations below ) . during fiscal 2015 , our financing activities provided $ 78.9 million of cash as a result of entering a $ 105.0 million term loan ( see further discussion at contractual obligations below ) and $ 1.7 million from the sale of alj common stock , partially offset by debt payments of $ 23.0 million , $ 3.8 million of debt issuance costs associated with the new term loan , and $ 1.2 million to repurchase our common stock . contractual obligations the following table summarizes our significant contractual obligations at september 30 , 2016 , and the effect such obligations are expected to have on our liquidity and cash flows in future periods ( in thousands ) : replace_table_token_15_th ( 1 ) during august 2015 , alj entered into a financing agreement ( “ agreement ” ) with cerberus business finance , llc ( “ cerberus ” ) , to borrow $ 105 million in a term loan ( “ cerberus term loan ” ) and have available up to $ 30.0 million in a revolver ( “ cerberus/pnc revolver ” and together with the cerberus term loan , the “ cerberus debt ” ) . the proceeds were used to fund the acquisition of phoenix , to refinance the outstanding debt of alj , faneuil and carpets , and to provide working capital facilities to all three of alj 's subsidiaries and alj . during the year ended september 30 , 2016 , the cerberus term loan accrued interest at an annual interest rate of 7.5 % . interest payments are due in arrears on the first day of each month . quarterly principal payments of approximately $ 2.0 million are due on the last day of each fiscal quarter . annual principal payments equal to 75 % of alj 's excess cash flow , as defined in the agreement , were due beginning september 30 , 2016. the annual payment due on september 30 , 2016 for the year ended september 30 , 2016 of $ 2.3 million is included with the $ 10.9 million reported as term loan payable due in less than one year . a final balloon payment is due on the maturity date of august 14 , 2020. there is a prepayment penalty equal to 3 % , 2 % and 1 % of any amounts prepaid within the first , second and third years of the loan , respectively . alj may make payments against the loan with no penalty up to $ 7.0 million . during the year ended september 30 , 2016 , the cerberus/pnc revolver accrued interest on the outstanding balance at an annual interest rate of 7.5 % . interest payments are due in arrears on the first day of each month . alj has the option to prepay ( and re-borrow ) the outstanding balance of the cerberus/pnc revolver , without penalty . each subsidiary has the ability to borrow under the revolver ( up to $ 30.0 million in the aggregate for all subsidiaries combined ) but limited to 85 % of eligible receivables . the cerberus/pnc revolver carries an unused fee of 0.5 % . additionally , the cerberus/pnc revolver provides for a sublimit 32 for letters of credit up to $ 15.0 million . faneuil h ad a $ 2.2 million letter of credit under the agreement as of september 30 , 2016. the cerberus/pnc revolver matures august 14 , 2020. the cerberus debt is secured by substantially all of our assets . the cerberus debt includes affirmative and negative financial covenants restricting our ability to incur debt , grant liens , initiate certain investments , declare dividends and dispose of assets . the cerberus debt also requires us to comply with certain borrowing base requirements . as of september 30 , 2016 , alj was in compliance with all debt covenants and had unused borrowing capacity of $ 19.2 million .
| results of operations our financial statements reflect the operations of faneuil and carpets throughout all periods presented , phoenix from august 9 , 2015 , and color optics from july 18 , 2016. results of operations are impacted by the timing of the acquisition of phoenix on august 9 , 2015 ( “ phoenix acquisition ” ) as fiscal 2015 only includes 53 days of phoenix activity compared to 365 days in fiscal 2016 . 26 the following table sets forth certain consolidated condensed statements of income data as a percentage of net revenue for each period as follows ( in thousands , except per share amounts ) : replace_table_token_9_th ( 1 ) percentage is calculated as segment revenue divided by consolidated revenue . ( 2 ) percentage is calculated as a percentage of the respective segment revenue . ( 3 ) includes depreciation expense of $ 4.0 million and $ 0.5 million during fiscal 2016 and fiscal 2015 , respectively . ( 4 ) primarily amortization of intangible assets . total depreciation and amortization for phoenix including depreciation expense captured in cost of revenue was $ 6.4 million . ( 5 ) percentage is calculated as a percentage of consolidated revenue . 27 net revenues replace_table_token_10_th faneuil net revenue faneuil net revenue for fiscal 2016 was $ 131.8 million , a decrease of $ 17.8 million , or 11.9 % , compared to net revenue of $ 149.6 million for fiscal 2015. the decrease in net revenue was mainly attributable a reduction in revenue of $ 16.0 million from customer contracts that concluded in fiscal 2016 and a shorter open enrollment periods for customers in the healthcare industry which resulted in a $ 5.4 million reduction in revenue . these decreases were partially offset by a $ 6.6 million increase in revenue from new customer contracts entered into in fiscal 2016. the remaining decrease was a result of normal fluctuations with existing contracts .
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syb & t , chartered in 1904 , is a state-chartered non-member financial institution that provides services in the louisville , kentucky , indianapolis , indiana and cincinnati , ohio msas through 42 full service banking center locations . management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying footnotes presented in part ii item 8 “ financial statements and supplementary data . ” this report contains forward-looking statements under the private securities litigation reform act that involve risks and uncertainties . these forward-looking statements may be identified by the use of words such as “ expect ” , “ anticipate ” , “ plan ” , “ foresee ” , “ believe ” or other words with similar meaning . although bancorp believes assumptions underlying forward-looking statements contained herein are reasonable , any of these assumptions could be inaccurate . factors that could cause actual results to differ from results discussed in forward-looking statements include , but are not limited to : economic conditions both generally and more specifically in markets in which bancorp and its subsidiary operate ; competition for bancorp 's customers from other providers of financial services ; government legislation and regulation which change from time to time and over which bancorp has no control ; changes in interest rates ; material unforeseen changes in liquidity , deterioration in the real estate market , results of operations or financial condition of bancorp 's customers ; or other risks detailed in bancorp 's filings with the sec and part i item 1a “ risk factors , ” all of which are difficult to predict and many of which are beyond the control of bancorp . acquisition of king bancorp , inc. and its subsidiary king southern bank ( “ ksb ” ) on may 1 , 2019 , bancorp completed its acquisition of ksb for $ 28 million in cash . the acquisition expands bancorp 's market area into nearby nelson county , kentucky , while expanding the customer base in louisville , kentucky . at may 1 , 2019 , ksb reported approximately $ 192 million in total assets , approximately $ 164 million in loans , and approximately $ 126 million in deposits . as a result of the acquisition , goodwill totaling $ 12 million was recorded during the second quarter of 2019 , with nominal recast adjustments posted during the third and fourth quarters . as a result of the completion of the acquisition , bancorp incurred pre-tax transaction charges totaling $ 1.3 million during the second quarter of 2019. net income from the ksb acquisition was accretive to bancorp 's overall operating results for the third and fourth quarters of 2019. in connection with the acquisition , bancorp became the 100 % successor owner of king bancorp statutory trust i ( “ kbst ” ) , an unconsolidated finance subsidiary . as permitted under the terms of kbst 's governing documents , bancorp redeemed the tps at the par amount of approximately $ 4 million on june 17 , 2019. issued but not yet effective accoun ting standards updates for disclosure regarding the impact to bancorp 's financial statements of issued-but-not-yet-effective asus , see the footnote titled “ basis of presentation and summary of significant accounting policies ” of part ii item 8 “ financial statements and supplementary data . ” 18 critical accounting policies and estimates bancorp 's consolidated financial statements and accompanying footnotes have been prepared in accordance with gaap . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods . management continually evaluates its accounting policies and estimates that it uses to prepare the consolidated financial statements . in general , management 's estimates and assumptions are based on historical experience , accounting and regulatory guidance , and information obtained from independent third-party professionals . actual results may differ from those estimates made by management . critical accounting policies are those that management believes are the most important to the portrayal of bancorp 's financial condition and operating results and require management to make estimates that are difficult , subjective and complex . 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 financial statements . these factors include , among other things , whether the estimates have a significant impact on the financial statements , the nature of the estimates , the ability to readily validate the estimates with other information including independent third parties or available pricing , sensitivity of the estimates to changes in economic conditions and whether alternative methods of accounting may be utilized under gaap . management has discussed each critical accounting policy and the methodology for the identification and determination of critical accounting policies with bancorp 's audit committee . allowance and provision – an allowance has been established to provide for probable losses on loans that may not be fully repaid . the allowance is increased by provisions charged to expense and decreased by charge-offs , net of recoveries . loans are typically charged off when management deems them uncollectible and after underlying collateral has been liquidated ; however , collection efforts may continue and future recoveries could occur . periodically , loans are partially charged off to the net realizable value based upon the evaluation of related underlying collateral , including bancorp 's expectation of resolution . the provision reflects an allowance methodology driven by risk ratings , historical losses , specific loss allocations , and qualitative factors . assumptions include many factors , such as changes in borrowers ' financial condition , which can change quickly , or historical loss ratios related to certain loan portfolios , which may or may not be indicative of future losses . story_separator_special_tag o treasury management fees continued to grow consistent with growth in the commercial deposit base . o lower long-term interest rates boosted mortgage banking income in 2019. o other non-interest income benefited from significant non-recurring swap fees collected , gain on sale of visa class b common stock and proceeds received from a life insurance policy . ● non-interest expenses increased $ 8.8 million , or 10 % , during 2019 based on the following : o ksb related deal costs , in addition to ongoing operational expenses tied to banking center expansion , incurred in 2019. o growth in full time equivalent employees in addition to higher production and performance based compensation attributable to record 2019 operating results drove the increase in compensation expense . o card processing expenses trended upward consistent with revenue growth . o employee benefit expense was elevated in 2019 consistent with higher 401 ( k ) match and increased fica expense . o additional community support expense was recorded , as the company increased its contribution to the bank 's foundation , established to support various community initiatives , due to outstanding 2019 results . o in contrast to the above increases , no fdic insurance expense was recorded for the third and fourth quarters of 2019 , as the national fdic reserve ratio reached 1.38 % , or the fdic 's targeted level , triggering the fdic to release credits to small institutions . ● bancorp 's efficiency ratio , calculated on a fte basis , for 2019 was 56.13 % compared with 55.92 % for the same period in 2018 . ● the etr decreased from 17.81 % for 2018 to 12.68 % for 2019 primarily due to two kentucky state tax law changes that occurred during the first half of 2019. total stockholder 's equity to total assets was 10.91 % as of december 31 , 2019 compared to 11.10 % at december 31 , 2018 and 10.30 % at december 31 , 2017. total equity increased $ 40 million in 2019 , as record net income of $ 66.1 million was offset by dividends declared of $ 24 million , stock repurchases totaling $ 9 million , changes in aoci and various stock based compensation . tce is a measure of a company 's capital which is useful in evaluating the quality and adequacy of capital . bancorp 's ratio of tce to total tangible assets was 10.55 % as of december 31 , 2019 , compared with 11.05 % at december 31 , 2018 , and 10.25 % at december 31 , 2017 , with the decline attributable to the second quarter 2019 ksb acquisition . see the section titled “ non-gaap financial measures ” for reconcilement of non-gaap to gaap measures . general highlights for the year ended december 31 , 2018 compared to december 31 , 2017 : ● record total revenue ( fte ) of $ 160.1 million exceeded 2017 by $ 11 million , or 8 % . ● the frb raised the fftr by 25 bps on four ( 4 ) separate occasions in 2018 with prime ending at 5.50 % . ● nim improved 19 bps to 3.83 % at december 31 , 2018 despite a highly competitive lending environment and increasing rates paid on deposits . ● net interest income increased $ 10.8 million , or 10 % , for 2018 . ● record loan production boosted the loan portfolio by $ 139 million , or 6 % . ● average loans increased $ 214 million , or 9 % , from december 31 , 2017 to december 31 , 2018. interest income on loans increased by $ 18.5 million , or 19 % equally due to strong organic loan production and the increase in interest rates . ● average deposits increased $ 86 million , or 3 % , from december 31 , 2017 to december 31 , 2018 . ● higher funding costs on deposits and borrowings and deposit growth during 2018 resulted in increased interest expense of $ 8.1 million . ● credit quality metrics improved further over historically solid levels . ● for the year ended december 31 , 2018 and 2017 , bancorp recorded provision of $ 2.7 million and $ 2.6 million . ● bancorp 's allowance to total loans at december 31 , 2018 and 2017 was 1.00 % and 1.03 % . ● non-interest income increased $ 847,000 , or 2 % , during 2018 based on the following : 21 o wm & t income increased $ 1.0 million , or 5 % , consistent with a rising stock market for most of 2018 and growth in client base . o debit and credit card revenue continued to benefit from increasing transaction volume . o offsetting the above increases , mortgage banking income declined 20 % consistent with the increase in long-term interest rates in 2018. o other non-interest income declined $ 432,000 consistent with the decline in swap fee income . ● non-interest expenses declined $ 911,000 , or 1 % , during 2018 based on the following : o the $ 5.9 million , or 83 % , decline in amortization of investments in tax credit partnerships drove the overall net decline in non-interest expenses for 2018 , as bancorp experienced reduced investment opportunities related to these investments during the year o compensation expense increased year over year based on the increase in full time equivalent employees , higher salaries and increased production and performance based compensation . o higher technology and communications expenses related to computer operation additions and improvements . o legal and professional fees were elevated in 2018 due to costs associated with the then pending ksb acquisition . ● bancorp 's efficiency ratio , calculated on a fte basis , for 2018 was 55.92 % compared with 60.61 % for the same period in 2017 .
| results of operations net interest income as is the case with most banks , bancorp 's primary revenue sources are net interest income and fee income from various financial services provided to customers . net interest income is the difference between interest income earned on loans , investment securities and other interest earning assets less interest expense on deposit accounts and other interest bearing liabilities . loan volume and interest rates earned on those loans are critical to overall profitability . similarly , deposit volume is crucial to funding loans and rates paid on deposits directly impact profitability . new business volume is influenced by economic factors including market interest rates , business spending , consumer confidence and competitive conditions within the marketplace . the discussion that follows is based on tax-equivalent interest data . comparative information regarding net interest income follows : replace_table_token_8_th nim and net interest spread calculations above exclude the sold portion of certain participation loans . these sold loans are on bancorp 's balance sheet as required by gaap because bancorp retains some form of effective control ; however , bancorp receives no interest income on the sold portion . these participation loans sold are excluded , because bancorp believes it provides a more accurate depiction of the performance of its loan portfolio . prime rate , the five year treasury note rate and the one month libor are included above to provide a general indication of the interest rate environment in which bancorp operated . approximately $ 1 billion , or 38 % , of bancorp 's loans are variable rate , of which 99 % are indexed to either prime or one month libor and generally reprice as those rates change . at inception , most of bancorp 's fixed rate loans are priced in relation to the five year treasury note .
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in addition , we are entitled to receive royalties based on a percentage of net sales of any products from the mir-221/222 program which , in the case of sales in the united states , will be in the middle of the 10 to 20 % range , and , in the case of sales outside of the united states , will range from the low end to the middle of the 10 to 20 % range , depending upon the volume of sales . if we exercise our option to co-promote a mir-221/222 product , we will continue to be eligible to receive royalties on net sales of each product in the united states at the same rate , unless we elect to share a portion of sanofi 's profits from sales of such product in the united states in lieu of royalties . in november 2018 , we entered into an amendment to the 2014 sanofi amendment with sanofi to modify the parties ' rights and obligations with respect to our mir-21 programs , including our rg-012 program ( the “ 2018 sanofi amendment ” ) . under the terms of the 2018 sanofi amendment , we have granted sanofi a worldwide , royalty-free , fee-bearing , exclusive license , with the right to grant sublicenses , under our know-how and patents to develop and commercialize mir-21 compounds and products for all indications , including alport syndrome . sanofi will control and will assume all responsibilities and obligations for developing and commercializing each of our mir-21 programs , including our obligations regarding the administration and expense of clinical trials and all other costs , including in-license royalties and other in-license payments , related to our mir-21 programs . under the terms of the 2018 sanofi amendment , we have assigned to sanofi certain agreements , product-specific patents and all materials directed to mir-21 or to any mir-21 compound or product and are required to provide reasonable technical assistance to sanofi for a period of 24 months after the date of the 2018 sanofi amendment . under the terms of the 2018 sanofi amendment , we are eligible to receive approximately $ 6.8 million in upfront payments for the license and for mir-21 program-related materials ( collectively , the “ upfront amendment payments ” ) . we are also eligible to receive up to $ 40.0 million in development milestone payments . in addition , sanofi has agreed to reimburse us for certain out-of-pocket transition activities and assume our upstream license royalty obligations . we and sanofi also agreed to a general release of claims against each other for any claims that arose at any time prior to the date of the 2018 sanofi amendment , or that thereafter could arise based on anything that occurred prior to the date of the 2018 sanofi amendment . as of december 31 , 2018 , we had received $ 2.5 million of the approximately $ 6.8 million in upfront amendment payments under the 2018 sanofi amendment . we determined the amount constituted a contract liability as of december 31 , 2018 under topic 606 , as the performance obligation conditions had not been satisfied as of that date . we completed the performance obligations under the 2018 sanofi amendment , received the remaining cash proceeds and recognized the $ 6.8 million of upfront amendment payments in 2019. as of december 31 , 2019 , the $ 40.0 million in development milestone payments ( variable 71 consideration ) are fully constrained and therefore , do not meet the criteria for revenue recognition . 6. property and equipment , net the following table summarizes our major classes of property and equipment ( in thousands ) : replace_table_token_13_th depreciation and amortization of property and equipment of $ 0.9 million and $ 2.3 million was recorded for the years ended december 31 , 2019 and 2018 , respectively . 7. intangible assets , net the following table summarizes our major classes of intangible assets ( in thousands ) : replace_table_token_14_th intangible asset amortization of less than $ 0.1 million was recorded for the year ended december 31 , 2019 , compared to $ 0.1 million for the year ended december 31 , 2018 . amortization of intangible assets over the next five years is expected to be less than $ 0.1 million per year . the weighted-average period over which the amortization remaining at december 31 , 2019 is expected to be recognized is approximately 14.9 years . 8. commitments and contingencies federal securities litigation on january 31 , 2017 , a putative class action complaint was filed by baran polat in the united states district court for the southern district of california ( “ district court ” ) against the company , its then-chief executive officer paul c. grint , and its then-chief operating officer joseph p. hagan ( currently the company 's chief executive officer story_separator_special_tag you should read the following discussion and analysis together with “ item 6. selected financial data ” and our financial statements and related notes included elsewhere in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” overview we are a clinical-stage biopharmaceutical company focused on discovering and developing first-in-class drugs targeting micro rnas to treat diseases with significant unmet medical need . we were formed in 2007 when alnylam and ionis contributed significant intellectual property , know-how and financial and human capital to pursue the development of drugs targeting micro rnas pursuant to a license and collaboration agreement . story_separator_special_tag we will need to raise additional capital and may seek additional collaborations in the future in order to advance our various programs . general and administrative expenses general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , legal , business development and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses and professional fees for auditing , tax and legal services , some of which are incurred as a result of being a publicly-traded company . 52 other income ( expense ) , net other income ( expense ) consists primarily of interest income and expense , and various income or expense items of a non-recurring nature . we earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents and marketable securities , such as interest-bearing bonds , for our short-term investments . interest expense is primarily attributable to interest charges associated with borrowings under our secured term loan . critical accounting policies and estimates the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities , and the revenues and expenses incurred during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in the notes to our financial statements appearing elsewhere in this annual report , we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . revenue recognition our revenues generally consist of upfront payments for licenses or options to obtain licenses in the future , milestone payments and payments for other research services under license and collaboration agreements . effective january 1 , 2018 , we adopted accounting standards update ( “ asu ” ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ topic 606 ” ) using the modified retrospective method which consisted of applying and recognizing the cumulative effect of topic 606 at the date of initial application . topic 606 supersedes the revenue recognition requirements in accounting standards codification ( “ asc ” ) topic 605 , revenue recognition ( “ topic 605 ” ) . all periods prior to the adoption date of topic 606 have not been restated to reflect the impact of the adoption of topic 606 , but are accounted for and presented under topic 605. the following paragraphs in this section describe our revenue recognition accounting polices under topic 606 upon adoption on january 1 , 2018. refer to note 1 to the financial statements included in our annual report on form 10-k for the year ended december 31 , 2017 for revenue recognition accounting policies under topic 605. we recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services . to determine revenue recognition for contracts with customers we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligation ( s ) in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligation ( s ) in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy the performance obligation ( s ) . at contract inception , we assess the goods or services promised within each contract , assess whether each promised good or service is distinct and identify those that are performance obligations . we 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 . collaborative arrangements we enter into collaborative arrangements with partners that typically include payment to us of one of more of the following : ( i ) license fees ; ( ii ) payments related to the achievement of developmental , regulatory , or commercial milestones ; and ( iii ) royalties on net sales of licensed products . where a portion of non-refundable up-front fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement , they are recorded as contract liabilities and recognized as revenue when ( or as ) the underlying performance obligation is satisfied . as part of the accounting for these arrangements , we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation ( s ) . the stand-alone selling price may include items such as forecasted revenues , development timelines , discount rates , and probabilities of technical and regulatory success . we evaluate each performance obligation to determine if it can be satisfied at a point in time , or over time . in addition , variable consideration must be evaluated to determine if it is constrained and , therefore , excluded from the transaction price .
| results of operations comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 ( in thousands ) : 54 replace_table_token_2_th revenue under collaborations our revenues are generated from ongoing collaborations , and generally consist of upfront payments for licenses or options to obtain licenses in the future , milestone payments and payments for other research services . revenue under collaborations was $ 6.8 million for the year ended december 31 , 2019 , compared to less than $ 0.1 million for the year ended december 31 , 2018. the increase was attributable to recognition of the upfront amendment payments under the 2018 sanofi amendment as revenue during the year ended december 31 , 2019. research and development expenses the following table summarizes the components of our research and development expenses for the periods indicated , together with year-over-year changes ( dollars in thousands ) : replace_table_token_3_th research and development expenses decreased by $ 21.6 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. the aggregate decrease was driven by a $ 10.3 million decrease in external development expenses , primarily attributable to the voluntary pause of the rgls4326 phase 1 mad clinical study in the third quarter of 2018 ( and subsequent fda partial clinical hold of the rgls4326 phase 1 mad clinical study in the third quarter of 2019 ) and commencement of the transfer of the rg-012 program to sanofi under the 2018 sanofi amendment in the fourth quarter of 2018. additionally , the decrease for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was attributable to a $ 9.1 million reduction in personnel and internal expenses , driven by a reduction in costs subsequent to our corporate restructuring in the third quarter of 2018. non-cash stock-based
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on may 29 , 2015 , a wholly owned subsidiary of the story_separator_special_tag the following discussion summarizes the financial position of argan , inc. and its subsidiaries as of january 31 , 2018 , and the results of their operations for the years ended january 31 , 2018 , 2017 and 2016 , and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in item 8 of this annual report on form 10-k ( the 2018 annual report ) . cautionary statement regarding forward looking statements the private securities litigation reform act of 1995 provides a safe harbor for certain forward-looking statements . we have made statements in this item 7 and elsewhere in this 2018 annual report that may constitute forward-looking statements. the words believe , expect , anticipate , plan , intend , foresee , should , would , could , or other similar expressions are intended to identify forward-looking statements . these forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us . there can be no assurance that future developments affecting us will be those that we anticipate . all comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions . our forward-looking statements , by their nature , involve significant risks and uncertainties ( some of which are beyond our control ) and assumptions . they are subject to change based upon various factors including , but not limited to , the risks and uncertainties described in item 1a of this 2018 annual report . should one or more of these risks or uncertainties materialize , or should any of our assumptions prove incorrect , actual results may vary in material respects from those projected in the forward-looking statements . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . business description argan is a holding company that conducts operations through its wholly owned subsidiaries , gps , apc , smc and trc . through gps and apc , which together provided 91 % , 87 % and 94 % of consolidated revenues for the years ended january 31 , 2018 , 2017 and 2016 , respectively , we provide a full range of engineering , procurement , construction , commissioning , operations management , maintenance , development , technical and consulting services to the power generation and renewable energy markets for a wide range of customers including independent power project owners , public utilities , power plant equipment suppliers and global energy plant construction firms . gps , including its consolidated joint ventures and variable interest entities ( vies ) , if any , and apc represent our power industry services reportable segment . through trc , the industrial fabrication and field services reportable segment provides on-site services that support maintenance turnarounds , shutdowns and emergency mobilizations for industrial plants primarily located in the southern region of the united states and that are based on its expertise in producing , delivering and installing fabricated steel components such as pressure vessels , heat exchangers and piping systems . through smc , now conducting business as smc infrastructure solutions , the telecommunications infrastructure services segment provides project management , construction , installation and maintenance services to commercial , local government and federal government customers primarily in the mid-atlantic region . at the holding company level , we intend to make additional acquisitions of and or investments in companies with significant potential for profitable growth . we may have more than one industrial focus . we expect that acquired companies will be held in separate subsidiaries that will be operated in a manner that best provides cash flows and value for our stockholders . story_separator_special_tag t > with the remaining four gps projects discussed above , plus one other , projected to be completed in the year ending january 31 , 2019 ( fiscal 2019 ) , and our project backlog reduced to $ 379 million as of january 31 , 2018 , we expect our revenues to decrease significantly in fiscal 2019 compared to fiscal 2018. we do expect to add new epc projects to our project backlog during fiscal 2019 as discussed below ; however , it takes time for us to ramp-up meaningful revenues associated with new epc projects due to the project life-cycles of gas-fired power plants . therefore , we expect fiscal 2019 to be a year where we transition from the final stages of our existing projects to the early stages of expected new projects . we are cautiously optimistic that the growth of our consolidated revenues will resume in fiscal 2020 and continue into the future as we are awarded new construction projects and they mature . execution on project backlog at january 31 , 2018 , our project backlog was $ 379 million . the following table summarizes our large power plant projects : replace_table_token_6_th ( 1 ) fntp represents the formal notice provided by the customer instructing us to commence the activities covered by the corresponding contract . ( 2 ) project values added to project backlog during fiscal 2018. our reported amount of project backlog at a point in time represents the total value of projects awarded as of that date less the amounts of revenues recognized to date on the corresponding contracts . although project backlog reflects business that we consider to be firm , cancellations or reductions may occur and may reduce project backlog and our expected future revenues . despite the new awards that are identified above , the total value of our project backlog has declined significantly during fiscal 2018 which principally reflects the amounts of revenues earned by gps due to its performance on the first four projects identified above . story_separator_special_tag if the development effort for this project remains on schedule , the development phase would be completed during calendar year 2019. income tax reform the act , which was signed into law on december 22 , 2017 , significantly changes tax law in the united states by , among other items , reducing the federal corporate income tax rate from a maximum of 35 % to 21 % ( effective january 1 , 2018 ) . at this time , we expect that our future effective tax rate will decrease meaningfully due to the act . however , certain modifications of the act will negatively impact our future effective tax rate , including the elimination of the domestic production activities deduction and the expansion of the limitation on the deductibility of certain executive compensation . the full effects of these changes will be reflected for the first time in income tax expense for the reporting periods included in the year ending january 31 , 2019. the effect of the federal income tax rate change on our deferred taxes , a favorable adjustment of approximately $ 0.8 million , was reflected in our consolidated financial statements as of january 31 , 2018. goodwill impairment revenues of trc declined during the year ended january 31 , 2018 and it reported operating losses for the year . in our current year third quarter financial filing on form 10-q , we alerted stockholders that we may be required to record an impairment loss related to the goodwill of trc in the fourth quarter of the current year up to an amount of $ 5.5 million subject to the completion of a full business valuation . trc 's management completed a reforecasting of its future financial results which provided essential data for the required annual goodwill assessment of trc as of november 1 , 2017. the forecast presents a less favorable outlook for trc than in the past . with the decreased results of fiscal 2018 and the less favorable outlook for trc , our full valuation , blending the results of income and market approaches , indicated that the carrying value of the business exceeded its fair value . as a result , trc recorded an impairment loss during fiscal 2018 of approximately $ 0.6 million . 28 market outlook the total annual amount of electricity generated by utility-scale facilities in the united states in each of the last 10 years has not surpassed the total amount generated in the peak power generation year of 2007. for calendar year 2017 , the total amount of electricity generation was approximately 97 % of the level for 2007. total electric power generation from all sources has decreased slightly over the past three years . power demand gains related to economic growth and population increases have been offset by the effects of private electricity generation and energy efficiency advances . however , the base-case outlook recently published by the u.s. energy information administration ( the eia ) forecasts an annual increase in power generation for 2018 and steady growth through 2050 with average annual increases of a bit less than 1 % per year . the share of total utility-scale electricity generation from natural gas in the united states fell from 34 % in 2016 to about 32 % in 2017 as a result of marginally higher natural gas prices and increased generation from renewables . coal 's generation share remained the same in 2017 as in 2016 , about 30 % . eia expects the share of total utility-scale electricity generation from natural gas-fired power plants in the united states to rise from 32 % in 2017 to 34 % in both 2018 and 2019. the generation share from coal in both 2018 and 2019 is forecast to average 29 % , down from 30 % in 2017. the nuclear share was 20 % in 2017 and is forecast to average 20 % in 2018 and 19 % in 2019. non-hydropower renewables ( i.e. , wind and solar ) provided slightly less than 10 % of electricity generation in 2017 and are expected to provide 10 % in 2018 and nearly 11 % in 2019. the generation share of hydropower was over 7 % in 2017 and is forecast to fall below 7 % in both 2018 and 2019. the eia also forecasts steady growth for natural gas-fired electricity generation through 2050 with average annual increases of 1.3 % per year . between 2011 and 2016 , nearly 60 gw of net coal-fired capacity was retired , partly as a result of new mercury and air-toxics standards . most of the retired plants were older , smaller , less efficient coal-fired power plants . however , announcements by electric utilities of the retirement of coal-fired power plants continue , citing the availability of cheap natural gas , existing environmental regulations and the significant costs of refurbishment and relicensing . eia forecasts that coal-fired generating capacity will decrease by another 65 gw by 2030 , even without adoption of the clean power plan . almost 5 gw of nuclear capacity has been retired over the last four to five years . the future of new nuclear power plant construction has been further clouded with the bankruptcy of westinghouse , one of the few major nuclear providers of fuel , services , technology , plant design and equipment . several utilities have made the decisions to either abandon construction or development of nuclear projects , leaving just one site under construction today ( the vogtle plant units 3 and 4 ) in the united states . the retirements of coal and nuclear plants typically result in the need for new capacity , and new natural gas-fired plants are relatively cheaper to build than coal , nuclear , or renewable plants , they are substantially more environmentally friendly than conventional coal-fired power plants , and they represent the most economical way to meet base loads and peak demands .
| overview fiscal 2018 was another year of growth for us . · revenues increased 32.3 % to $ 892.8 million for fiscal 2018 as compared to $ 675.0 million for the prior year . · our overall gross profit amount increased 1.8 % to $ 149.3 million for fiscal 2018 as compared to $ 146.7 million for the prior year . however , our overall gross profit percentage decreased to 16.7 % for fiscal 2018 as compared to 21.7 % for the prior year . · net income attributable to the stockholders of argan increased 2.4 % to $ 72.0 million for fiscal 2018 , or 8.1 % of consolidated revenues , as compared to $ 70.3 million for the prior year . 25 · ebitda ( 1 ) attributable to the stockholders of argan increased 5.0 % to $ 116.1 million for fiscal 2018 , or 13.0 % of consolidated revenues , as compared to $ 110.6 million for the prior year . · our international subsidiary , apc , has begun to capitalize on the opportunities foreseen when we acquired this business in fiscal 2016. during the current year , it was awarded two meaningful construction-type contracts related to power plants in the united kingdom with a combined contract value in excess of $ 110 million . · we declared and paid $ 1.00 per share in cash dividends during fiscal 2018. in addition , we announced our intent to declare and pay a regular quarterly cash dividend of $ 0.25 per share , starting in the first quarter ending april 30 , 2018 . · our tangible net worth ( 2 ) increased by 27.4 % to $ 316.6 million as of january 31 , 2018 from $ 248.5 million as of january 31 , 2017 . · our liquidity , or working capital ( 3 ) , increased by 27.2 % to $ 301.8 million as of january 31 , 2018 from $ 237.2 million as of january 31 , 2017 .
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until such time , if ever , as we can generate substantial product revenue , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances , and marketing , distribution or licensing arrangements with third parties . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of the company may be materially diluted , and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders . debt financing and preferred equity financing , if available , may involve agreements that include restrictive covenants that limit our ability to take specified actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise funds through collaborations , strategic alliances or marketing , distribution or licensing arrangements with third parties , we may have to relinquish valuable rights to technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings or other arrangements when needed , we may be required to delay , reduce or eliminate product development or future commercialization efforts , sell off assets , or grant rights to develop and market product candidates that we would otherwise prefer to develop and market . we believe our cash of $ 7.3 million at september 30 , 2020 will fund our projected operations into march 2021. warrant amendments and exercise in august 2020 , we agreed to reduce the exercise price of the series a warrants from $ 5.3976 to $ 3.19 per share in order to induce warrant holders to exercise their warrants for cash . in addition , each warrant holder agreed not to purchase any shares of common stock , other than pursuant to exercises of the series a warrants , until such time that no series a warrants are held by such holder . in august 2020 , the series a warrant holders exercised all of the 3,300,066 series a warrants resulting in net proceeds of $ 9.8 million . upon exercise of the series a warrants , the series a holders received an aggregate of 11,329,461 series c warrants . the series c warrants have an exercise price of $ 3.19 per share and are exercisable six months from the date of issuance and will expire on october 16 , 2025. in connection with the amendment to the series a warrants , the series b warrant agreements were modified such that they no longer provide for resets to the number of shares of common stock underlying the series b warrants and the series b warrant holders were issued an additional 2,284,800 series b warrants with an exercise price of $ 0.0001 per warrant . as of december 8 , 2020 , 42,373 series b warrants remain outstanding . gem we entered into a common stock purchase agreement with gem global yield fund llc scs ( “ gem ” ) on august 6 , 2019 ( the “ purchase agreement ” ) . the gem agreement was further amended on september 25 , 2019 by an amendment to common stock purchase agreement ( the “ 2019 gem amendment ” ) , and subsequently amended again on january 31 , 2020 ( the “ 2020 gem amendment ” and , together with the purchase agreement and the 2019 gem amendment , the “ gem agreement ” ) . at the closing of the merger , we assumed all obligations and rights under the gem agreement . pursuant to the gem agreement , gem agreed to purchase up to $ 20,000,000 of common stock ( the “ aggregate limit ” ) over a three-year period commencing on the date the purchase agreement was executed ( the “ investment period ” ) ; provided that during any period when our public float is less than $ 75,000,000 , the aggregate limit will instead be equal to one-third of the amount of our public float over any consecutive 12-month period . under the gem agreement , during the investment period , we may , by delivering a draw down notice ( as defined in the gem agreement ) direct gem to purchase shares of common stock in an amount up to 400 % of the average daily trading volume for the ten ( 10 ) trading days immediately preceding the date the draw down notice is delivered . gem is not obligated to purchase any shares of common stock which would result in gem beneficially owning , directly or indirectly , at the time of the proposed issuance , more than 4.99 % of the number of common shares issued and outstanding . gem will pay a purchase price per share equal to 90 % of the average market closing price of the common stock during the ten consecutive trading days commencing with the first trading day on which a draw down notice is delivered ( the “ draw down pricing period ” ) . gem represented to us , among other things , that it was an “ accredited investor ” ( as such term is defined in rule 501 ( a ) of regulation d under the securities act ) , and we will rely upon an exemption from registration contained in section 4 ( a ) ( 2 ) of the securities act and regulation d promulgated thereunder when issuing shares of its common stock under the gem agreement . in order to utilize the gem agreement , we will need to file a registration statement with the sec to register the shares of common stock to be issued to gem pursuant to the gem agreement . we have not yet filed such registration statement . the gem agreement contains customary representations , warranties story_separator_special_tag until such time , if ever , as we can generate substantial product revenue , we expect to finance our cash needs through a combination of equity offerings , debt financings , collaborations , strategic alliances , and marketing , distribution or licensing arrangements with third parties . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interest of the company may be materially diluted , and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders . debt financing and preferred equity financing , if available , may involve agreements that include restrictive covenants that limit our ability to take specified actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise funds through collaborations , strategic alliances or marketing , distribution or licensing arrangements with third parties , we may have to relinquish valuable rights to technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings or other arrangements when needed , we may be required to delay , reduce or eliminate product development or future commercialization efforts , sell off assets , or grant rights to develop and market product candidates that we would otherwise prefer to develop and market . we believe our cash of $ 7.3 million at september 30 , 2020 will fund our projected operations into march 2021. warrant amendments and exercise in august 2020 , we agreed to reduce the exercise price of the series a warrants from $ 5.3976 to $ 3.19 per share in order to induce warrant holders to exercise their warrants for cash . in addition , each warrant holder agreed not to purchase any shares of common stock , other than pursuant to exercises of the series a warrants , until such time that no series a warrants are held by such holder . in august 2020 , the series a warrant holders exercised all of the 3,300,066 series a warrants resulting in net proceeds of $ 9.8 million . upon exercise of the series a warrants , the series a holders received an aggregate of 11,329,461 series c warrants . the series c warrants have an exercise price of $ 3.19 per share and are exercisable six months from the date of issuance and will expire on october 16 , 2025. in connection with the amendment to the series a warrants , the series b warrant agreements were modified such that they no longer provide for resets to the number of shares of common stock underlying the series b warrants and the series b warrant holders were issued an additional 2,284,800 series b warrants with an exercise price of $ 0.0001 per warrant . as of december 8 , 2020 , 42,373 series b warrants remain outstanding . gem we entered into a common stock purchase agreement with gem global yield fund llc scs ( “ gem ” ) on august 6 , 2019 ( the “ purchase agreement ” ) . the gem agreement was further amended on september 25 , 2019 by an amendment to common stock purchase agreement ( the “ 2019 gem amendment ” ) , and subsequently amended again on january 31 , 2020 ( the “ 2020 gem amendment ” and , together with the purchase agreement and the 2019 gem amendment , the “ gem agreement ” ) . at the closing of the merger , we assumed all obligations and rights under the gem agreement . pursuant to the gem agreement , gem agreed to purchase up to $ 20,000,000 of common stock ( the “ aggregate limit ” ) over a three-year period commencing on the date the purchase agreement was executed ( the “ investment period ” ) ; provided that during any period when our public float is less than $ 75,000,000 , the aggregate limit will instead be equal to one-third of the amount of our public float over any consecutive 12-month period . under the gem agreement , during the investment period , we may , by delivering a draw down notice ( as defined in the gem agreement ) direct gem to purchase shares of common stock in an amount up to 400 % of the average daily trading volume for the ten ( 10 ) trading days immediately preceding the date the draw down notice is delivered . gem is not obligated to purchase any shares of common stock which would result in gem beneficially owning , directly or indirectly , at the time of the proposed issuance , more than 4.99 % of the number of common shares issued and outstanding . gem will pay a purchase price per share equal to 90 % of the average market closing price of the common stock during the ten consecutive trading days commencing with the first trading day on which a draw down notice is delivered ( the “ draw down pricing period ” ) . gem represented to us , among other things , that it was an “ accredited investor ” ( as such term is defined in rule 501 ( a ) of regulation d under the securities act ) , and we will rely upon an exemption from registration contained in section 4 ( a ) ( 2 ) of the securities act and regulation d promulgated thereunder when issuing shares of its common stock under the gem agreement . in order to utilize the gem agreement , we will need to file a registration statement with the sec to register the shares of common stock to be issued to gem pursuant to the gem agreement . we have not yet filed such registration statement . the gem agreement contains customary representations , warranties
| results of operations comparison of the years ended september 30 , 2020 and 2019 the following table summarizes the company 's results of operations for the years ended september 30 , 2020 and 2019 : replace_table_token_2_th research and development expenses research and development expenses were $ 9.9 million for the year ended september 30 , 2020 , compared to $ 2.2 million for the year ended september 30 , 2019. the increase of $ 7.7 million was primarily due to the development of the cell line for il12-fhab and il12-fhab-il15 manufacturing and increased costs for research and development activities due to the acquisition of relief , including an increase in payroll and share-based compensation expense as we expanded our operations . acquired in-process research and development in connection with the acquisition of relief , the intellectual property acquired related to atexakin alfa was immediately expensed since future development and regulatory approval is required . general and administrative expenses general and administrative expenses were $ 7.5 million for the year ended september 30 , 2020 , compared to $ 2.5 million for the year ended september 30 , 2019. the increase of $ 5.0 million was primarily due to an increase in professional fees and transaction related fees associated with the closing of the merger and operating as a public company , an increase in insurance expenses related to directors and officer 's insurance , and an increase in payroll and share-based compensation expense as we expanded our operations to support our research and development efforts . interest income ( expense ) interest expense was $ 0.2 million during the year ended september 2019 related to our interest bearing notes . - 81 - liquidity and capital resources since inception , we have not generated any revenue from any sources , including from product sales , and have incurred recurring losses and negative cash flows from operations .
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the net book value of intangible assets was $ 16.5 million as of december 31 , 2016 and was $ 1.0 million as of december 31 , 2015. the increase in intangible assets reflects the successful outcome of the lawsuit related to oxtellar xr in february 2016. there is an offsetting reduction in the amount carried as deferred legal fees , as described above . amortization expense on intangible assets was approximately $ 1.3 million , $ 0.2 million , and $ 0.2 million for the years ended story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto appearing elsewhere in this annual report on form 10-k. in addition to historical information , some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties . for example , statements regarding our expectations as to our plans and strategy for our business , future financial performance , expense levels and liquidity sources are forward-looking statements . our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors , including those set forth under the `` risk factors '' section and elsewhere in this report . overview we are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system ( cns ) diseases . in 2013 , we launched oxtellar xr ( extended-release oxcarbazepine ) and trokendi xr ( extended-release topiramate ) , our two novel treatments for epilepsy . since that time , we have significantly grown our net product sales . oxtellar xr and trokendi xr were the first once-daily extended release oxcarbazepine and topiramate products , indicated for patients with epilepsy launched in the u.s. market . net product sales from these products reached $ 210.1 million in 2016 representing significant growth compared to the $ 143.5 million in net product sales in 2015. we are continuing to expand our intellectual property portfolio to provide additional protection for our technologies , products , and product candidates . we currently have seven issued u.s. patents covering oxtellar xr and eight issued u.s. patents covering trokendi xr , with the patents expiring no earlier than 2027 for each product . data from intercontinental marketing services ( ims ) shows 136,145 prescriptions were filled for both drugs during the three months ended december 31 , 2016 , representing a 22.0 % increase over the 111,627 product prescriptions for the fourth quarter of 2015. product prescriptions for trokendi xr and oxtellar xr totaled 506,542 for the year ended 2016 , a 33.9 % increase over the 378,173 product prescriptions for the year ended 2015. we expect the number of prescriptions filled for oxtellar xr and trokendi xr to continue to increase in the future . net product sales for the year ended december 31 , 2016 totaled $ 210.1 million , an increase of 46.4 % over 2015. net product sales for the fourth quarter of 2016 were $ 61.1 million , compared to net product sales of $ 42.6 million for the same quarter last year , an increase of 43.4 % . operating income for the year ended december 31 , 2016 totaled $ 54.2 million compared to an operating income of $ 20.8 million in 2015 , an increase of $ 33.4 million or 160.6 % . we received several paragraph iv notice letters concerning oxtellar xr and trokendi xr from various third-parties , asserting that our patents are invalid , or that our patents are not infringed by their formulations , or both . in response to these paragraph iv notice letters , we initiated litigation against these third parties alleging infringement of our intellectual property rights . in october 2015 , we reached a settlement agreement with one of these generic drug makers , par pharmaceutical companies , inc. , concerning our trokendi xr patents . in 2016 , the u.s. district court and federal court of appeals ruled in our favor against actavis concerning oxtellar xr patents . in march 2017 , we signed settlement agreements with two other generic drug makers , actavis and zydus , concerning our trokendi xr patents . we intend to vigorously defend our intellectual property rights against twi concerning our oxtellar xr patents . we anticipate continuing to incur substantial amounts of legal fees 64 and related expenses for these cases as they progress . ( see part i , item 3legal proceedings for additional information . ) we are developing multiple product candidates in psychiatry to address large unmet medical needs and market opportunities . we are developing spn-810 ( molindone hydrochloride ) to treat impulsive aggression ( ia ) in patients who have attention deficit hyperactivity disorder ( adhd ) . there are currently no approved products indicated for the treatment of ia . we are also developing a novel non-stimulant product candidate spn-812 ( viloxazine hydrochloride ) to treat patients who have adhd . we initiated two phase iii clinical trials for spn-810 during the third quarter of 2015 and a phase iib clinical trial for spn-812 in the fourth quarter of 2015. we expect to continue recruiting in the two phase iii clinical trials for spn-810 during 2017. results for the phase iib clinical trial for spn-812 were announced in 2016. subsequent to holding an end of phase ii meeting with the fda , we plan to initiate phase iii clinical trials for spn-812 during the second half of 2017. we expect to incur significant research and development expenses related to the continued development of each of our product candidates , with a total cost of approximately $ 85 million to $ 90 million for each of the two programs , from 2017 through fda approval . story_separator_special_tag there was $ 0.8 million in revenue generated from achievement of milestones in the year ended december 31 , 2015. the company recognized $ 2.5 million in licensing revenue in 2014. this consisted primarily of the united therapeutics corporation milestone payment of $ 2.0 million under the license agreement with the company . cost of product sales . cost of product sales during the year ended december 31 , 2015 was $ 8.4 million as compared to $ 5.8 million for the year ended december 31 , 2014 , an increase of $ 2.6 million or 44.8 % . this increase was primarily due to sales increases . 69 research and development expense . r & d expenses during the year ended december 31 , 2015 were $ 29.1 million as compared to $ 19.6 million for the year ended december 31 , 2014 , an increase of $ 9.5 million , or 48.5 % . this increase was due to preclinical and clinical trials and manufacturing scale up activities for both of our product candidates , spn-810 and spn-812 . during 2015 , we initiated two phase iii trials for spn-810 and a phase iib trial for spn-812 . we expect r & d costs to increase significantly in 2017 and beyond , as we continue to advance these trials and the related development activities for both of these programs . selling , general and administrative expenses . our sg & a expenses were $ 89.1 million during the year ended december 31 , 2015 as compared to $ 72.6 million for the year ended december 31 , 2014 , an increase of $ 16.5 million , or 22.7 % . the increase in sg & a expenses is primarily due to the continued expansion of our sales and marketing efforts for both trokendi xr and oxtellar xr , including promotional material and grants . in addition , we expended effort in 2015 to prepare for the launch of the migraine indication for trokendi xr in 2016. interest income and other income , net . during the years ended december 31 , 2015 and 2014 , we recognized $ 0.7 million and $ 0.4 million , respectively , of interest income earned on our cash , cash equivalents , and marketable securities . interest expense . interest expense was $ 1.2 million during the year ended december 31 , 2015 as compared to $ 5.0 million for the year ended december 31 , 2014. the decrease of $ 3.8 million was primarily due to a decrease in the principal amount of our outstanding 7.5 % convertible senior secured notes due in 2019 ( the notes ) from $ 36.1 million at december 31 , 2014 to $ 8.5 million at december 31 , 2015. during the year ended december 31 , 2015 , $ 27.5 million of the notes and related accrued interest converted into 5.7 million shares of common stock . interest expensenon-recourse liability related to sale of future royalties . non-cash interest expense related to our royalty liability was $ 3.5 million during the year ended december 31 , 2015 as compared to $ 0.7 million for the year ended december 31 , 2014. the increase of $ 2.8 million for this non-cash expense item was primarily due to an increase in the expected royalties forecast related to orenitram and the annualization impact as the agreement was entered into in july 2014. changes in fair value of derivative liability . during the year ended december 31 , 2015 , we recognized a non-cash gain of $ 0.2 million related to a change in estimated fair value of the interest make-whole derivative liability related to our notes . this gain is attributable to the passage of time and because our stock price remains above the $ 5.30 conversion price . during the year ended december 31 , 2014 , we recognized a non-cash gain of $ 2.8 million related to a change in estimated fair value of the interest make-whole derivative liability related to our notes . this gain is primarily due to the passage of time . loss on extinguishment of debt . during the year ended december 31 , 2015 , we recognized a non-cash loss on extinguishment of debt of $ 2.3 million related to the conversion of $ 27.5 million of our notes . during the year ended december 31 , 2014 , we recognized a non-cash loss on extinguishment of debt of $ 2.6 million related to the conversion of $ 13.4 million of our notes . income tax . during the year ended december 31 , 2015 , we recorded $ 0.7 million of current tax expense related primarily to an increase in our reserve for an uncertain tax position for the alternative minimum tax . during the year ended december 31 , 2014 , we recorded $ 0.6 million of current tax expense related primarily to the establishment of a reserve for an uncertain tax position for the alternative minimum tax . net income ( loss ) . we realized net income of $ 14.0 million during the year ended december 31 , 2015 , compared to a net loss of $ 10.9 million during the year ended december 31 , 2014 , an increase of $ 24.9 million . this change was primarily due to the revenue generated from our two commercial products , oxtellar xr and trokendi xr , offset by increased expenses incurred in preparing for the late 70 stage studies for two product candidates and an increase in marketing expenditures associated with ongoing support of oxtellar xr and trokendi xr . liquidity and capital resources we believe our increasing levels of net product sales will be sufficient to finance our operations in 2017 and subsequent years , including the increased r & d expenses for our clinical trials .
| results of operations comparison of the year ended december 31 , 2016 and december 31 , 2015 replace_table_token_5_th net product sales . net product sales are based on gross revenue from shipments to distributors , less estimates for discounts , rebates , allowances , other sales deductions and returns . our net product sales of $ 210.1 million for the year ended december 31 , 2016 is comprised of $ 51.7 million of revenue from oxtellar xr and $ 158.4 million of revenue from trokendi xr . the increase in net product sales from 2016 to 2015 is primarily driven by increased prescriptions . our net product sales of $ 143.5 million for the year ended december 31 , 2015 were comprised of $ 33.2 million of revenue from oxtellar xr and $ 110.3 million of revenue from trokendi xr . royalty revenue . non-cash royalty revenue of $ 4.7 million and $ 3.0 million was generated during the years ended december 31 , 2016 and december 31 , 2015 , respectively , pursuant to an agreement with hc royalty . licensing revenue . total licensing revenue for the year ended december 31 , 2016 was $ 0.2 million and $ 0.9 million in 2015. there was $ 0.8 million in revenue generated from achievement of milestones in the year ended december 31 , 2015. cost of product sales . cost of product sales during the year ended december 31 , 2016 was $ 12.0 million , an increase of $ 3.6 million , or 42.9 % , as compared to $ 8.4 million for the year ended december 31 , 2015. the year over year increase is attributable primarily to increased net product sales . 67 research and development expense . research and development ( r & d ) expenses during the year ended december 31 , 2016 were $ 42.8 million as compared to $ 29.1 million for the year ended december 31 , 2015 , an increase of $ 13.7 million or 46.9 % .
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you should carefully read the sections entitled “ risk factors ” and “ special note regarding forward-looking statements ” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . overview we are pioneering a new way to treat the underlying causes of severe genetic diseases by precisely upregulating protein expression . we are developing novel antisense oligonucleotide ( “ aso ” ) , medicines that target ribonucleic acid ( “ rna ” ) , and modulate precursor-messenger rna , splicing to upregulate protein expression where needed and with appropriate specificity to near normal levels . we utilize our proprietary rna therapeutics platform , targeted augmentation of nuclear gene output ( “ tango ” ) , to design asos to upregulate the expression of protein by individual genes in a patient . our approach is designed to allow us to deliver in a highly precise , durable and controlled manner disease-modifying therapies to a wide range of relevant tissues , including the central nervous system , eye , kidney and liver . we were incorporated in june 2014. in july 2015 and april 2016 , we entered into worldwide license agreements with cold spring harbor laboratory ( “ cshl ” ) , and the university of southampton , respectively , with respect to certain licensed patents and applications relating to tango . tango exploits non-productive splicing events to effect targeted enhancement of protein expression . since our inception through june 21 , 2019 , our operations had been financed primarily from the sale of convertible notes payable and our convertible preferred stock . on june 21 , 2019 , we completed an initial public offering ( “ ipo ” ) , of our common stock and issued and sold 9,074,776 shares of common stock at a public offering price of $ 18.00 per share , which included 1,183,666 shares sold upon full exercise of the underwriters ' option to purchase additional shares of common stock resulting in net proceeds of $ 151.9 million after deducting underwriting discounts and commissions but before deducting offering costs of approximately $ 2.5 million . in july 2020 , we filed a universal shelf registration statement on form s-3 ( the “ registration statement ” ) with the sec . the registration statement was declared effective by the sec on july 20 , 2020 , and covers the offering , issuance and sale by us of up to a maximum aggregate offering price of $ 400,000,000 of our common stock , preferred stock , debt securities , warrants to purchase our common stock , preferred stock or debt securities , subscription rights to purchase our common stock , preferred stock or debt securities and or units consisting of some or all of these securities . on july 10 , 2020 , we entered into an “ at-the-market ” program and sales agreement with cantor fitzgerald & co. , or cantor , and stifel , nicolaus & company , incorporated , or stifel , under which we may , from time to time , offer and sell common stock having an aggregate offering value of up to $ 150.0 million , referred to as our “ at-the-market ” offering with cantor and stifel . as of december 31 , 2020 , no such shares of our common stock had been offered or sold pursuant to this “ at-the-market ” program with cantor and stifel . we may terminate this at-the-market program at any time , pursuant to its terms . on november 24 , 2020 , we completed an underwritten public offering , of our common stock and issued and sold 2,875,000 shares of common stock at a public offering price of $ 39.00 per share , which included 375,000 shares sold upon full exercise of the underwriters ' option to purchase additional shares of common stock resulting in net proceeds of $ 104.9 million after deducting underwriting discounts and commissions and estimated offering expenses . as of december 31 , 2020 and december 31 , 2019 , we had $ 287.5 million and $ 222.7 million , respectively , in cash , cash equivalents and restricted cash . since inception , we have had operating losses , the majority of which are attributable to research and development activities . our net losses were $ 52.3 million and $ 32.3 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 110.3 million and as of december 31 , 2019 , we had an accumulated deficit of $ 58.0 million . our primary use of cash is to fund operating expenses , which consist primarily of research and development expenditures , and to a lesser extent , general and administrative expenditures . cash used to fund operating expenses is impacted by the timing of when we pay these expenses , as reflected in the change in our outstanding accounts payable and accrued expenses . we expect to continue to incur net losses for the foreseeable future , and we expect our research and development expenses , general and administrative expenses , and capital expenditures will continue to increase . in particular , we expect our expenses and losses to increase as we continue our development of , and seek regulatory approvals for , our 81 product candidates , and begin to commercialize any approved products , as well as hire additional personnel , develop commercial infrastructure , pay fees to outside consultants , lawyers and accountants , and incur increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with nasdaq listing rules and securities and exchange commission ( “ sec ” ) requirements , insurance and investor relations costs . our net losses may fluctuate significantly from quarter-to-quarter and year-to-year , depending on the timing of our clinical trials and our expenditures on other research and development activities . story_separator_special_tag 82 the covid-19 pandemic has caused us to modify our business practices ( including but not limited to curtailing or modifying employee travel , moving to partial remote work , and cancelling physical participation in meetings , events and conferences ) and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees , patients and business partners . our office-based employees have been working from home since early march 2020 , while ensuring essential staffing levels in our operations remain in place , including maintaining key personnel in our laboratories . for additional information on the various risks posed by the covid-19 pandemic , please read item 1a . risk factors included in this report . program update dravet syndrome clinical program—stk-001 we designed our lead product candidate , stk-001 , to treat dravet syndrome , a severe and progressive genetic epilepsy . this program draws on a well-defined patient population based on routine genetic testing and learnings from drugs approved for the treatment of dravet syndrome to inform the clinical and regulatory pathways for stk-001 . we submitted an investigational new drug application ( “ ind ” ) for stk-001 to the u.s. food and drug administration ( the “ fda ” ) in late 2019. in august 2020 , we dosed the first patient with stk-001 in the single ascending dose portion of the monarch phase 1/2a study at the 10mg dose level . the monarch study is designed to evaluate single and multiple ascending dose levels of stk-001 in children and adolescents with dravet syndrome . patients are eligible for the trial if they are between the ages of 2 to 18 , have an established diagnosis of dravet syndrome and have evidence of a pathogenic genetic mutation in the scn1a gene . requiring an scn1a mutation ( of which more than 1,700 scn1a mutations have been identified ) for trial enrollment allows for a clear and definitive etiologic diagnosis , a more homogeneous patient population and tailored treatment based on a precision medicine approach . eligible patients will also have failed at least two epilepsy treatments in the past and currently be taking at least one antiepileptic drug . all medications and interventions will remain unchanged throughout the trial , which will allow for assessment of stk-001 with a variety of antiepileptic therapies . the primary objectives are the assessment of the safety and tolerability of stk-001 , as well as to characterize human pharmacokinetics . a secondary objective is to assess the efficacy as an adjunctive antiepileptic treatment with respect to the percentage change from baseline in convulsive seizure frequency over a 12-week treatment period . we are measuring non-seizure aspects of the disease , such as quality of life as secondary endpoints . these endpoints as well as other exploratory endpoints will be informed based on our two-year observational study ( butterfly ) . enrollment in butterfly is complete and the study is ongoing . butterfly is designed to evaluate seizure frequency and non-seizure comorbidities associated with the disease , including motor and speech impairment , intellectual and developmental disabilities , behavioral deficits and abnormal sleep patterns . data from the study will support clinical development plans for stk-001 . in march 2020 , we announced the fda had placed a partial clinical hold on doses of stk-001 above 20mg in the monarch study , pending additional preclinical testing to determine the safety profile of doses higher than the current no observed adverse effect level ( “ noael ” ) . when intrathecal doses above the noael were administered to non-human primates ( “ nhps ” ) adverse hind limb paresis was observed . this finding is known to occur following intrathecal delivery of asos to nhps and is not known to translate to the human experience . when extremely high dose levels were administered , acute convulsions were observed immediately following stk-001 administration . the dose levels were well above the range of corresponding human doses that would ever be administered in the clinic and were delivered in a formulation that was at a higher concentration than would be administered in the clinic . there is no apparent correlation of these acute adverse events with the mechanism of action of stk-001 . following interactions with the fda , in october 2020 , we announced that the fda agreed to allow us to add an additional higher dose level to the sad portion of the study such that a total of three dose levels will be evaluated : 10 mg , 20 mg , and 30mg . dosing above 30mg in this study remains on fda partial clinical hold . in addition , a multiple ascending dose ( “ mad ” ) portion was added to the monarch study based on preclinical repeat-dose toxicology data , which were reviewed by the fda . there were no adverse effects observed in the nhp repeat dose study . enrollment and dosing in the first two cohorts ( 10mg and 20mg ) of the single ascending dose portion of the study are now complete . enrollment and dosing of patients in the 30mg single ascending dose cohort is now underway . in february 83 2021 , the first patient in the mad portion of the study was dosed with stk-001 at the 20mg level . we expect to announce initial safety and pharmacokinetic data from the sad portion of the monarch study in the second half of 2021. in january 2021 , we initiated enrollment and dosing in our swallowtail open label extension ( ole ) study of stk-001 for children and adolescents with dravet syndrome . swallowtail is designed to evaluate the long-term safety and tolerability of repeated doses of stk-001 in patients with dravet syndrome who previously participated in studies of stk-001 . in this study , patients will initially be administered the same dose level they received in the previous study and will receive a maximum of three doses . one dose will be administered every four months .
| general and administrative expenses general and administrative expenses consist primarily of personnel costs , costs related to maintenance and filing of intellectual property , expenses for outside professional services , including legal , human resources , information technology , audit and accounting services , and facilities and other expenses . personnel costs consist of salaries , benefits and stock-based compensation expense . we expect our general and administrative expenses to increase over the next several years to support our continued research and development activities , manufacturing activities , increased costs of operating as a public company and the potential commercialization of our product candidates . these increases are anticipated to include increased costs related to the hiring of additional personnel , developing commercial infrastructure , fees to outside consultants , lawyers and accountants , and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with nasdaq listing rules and sec requirements , insurance and investor relations costs . other income ( expense ) the decrease in our other income ( expense ) for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019 principally reflects decreased interest income due to overall decreased market interest rates . 86 results of operations for the years ended december 31 , 20 20 and 201 9 the following table sets forth our results of operations : replace_table_token_3_th research and development expenses research and development expenses were $ 32.2 million for the year ended december 31 , 2020 as compared to $ 23.8 million for the year ended december 31 , 2019 , an increase of $ 8.4 million . the table below summarizes our research and development expenses : replace_table_token_4_th the increases in research and development expenses were primarily attributable to the increase of $ 7.4 million in personnel-related expenses , stock compensation expense and facilities costs resulting from increased growth in our research and development personnel .
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asu 2014-09 is effective for annual reporting periods beginning after december 15 story_separator_special_tag we are a bio-therapeutics company developing off-the-shelf allogeneic cell therapy products for the treatment of multiple ischemic and inflammatory conditions , with our lead indications focusing on cardiovascular , orthopedic , pulmonary , hematological , and women 's health diseases . our patented placenta expanded , or plx , cells are intended to function as a platform that releases a number of therapeutic proteins in response to various local and systemic inflammatory and ischemic signals that are generated by the patient 's own body . plx cells are grown using our proprietary three-dimensional , or 3d , micro environment technology which produces a product that requires no tissue matching prior to administration . we were incorporated as a nevada corporation in 2001. we have a wholly owned subsidiary in israel called pluristem ltd. we operate in one segment and our operations are focused on the research , development , clinical trials and manufacturing of cell therapeutics and related technologies . our strategy is to develop and produce cell therapy products for the treatment of multiple disorders using several routes of administration , such as intravenous and intramuscular injections . we plan to execute this strategy independently , using our own personnel , and through relationships with research and clinical institutions or in collaboration with other companies . we have built a facility that complies with current good manufacturing practice requirements , or gmps , and we are planning to have in-house production capacity to grow clinical grade plx cells in commercial quantities . 29 our focus is to make significant progress in our clinical pipeline and shorten the time to market of our first product , plx-pad , in europe and japan , in parallel to our clinical trials in the united states . we intend to leverage the new regulatory environments in europe and japan that now offer unique opportunities for accelerated paths to bring new products to the market . we believe that these new pathways create substantial opportunities for us and for the cell therapy industry as a whole . we will explore these accelerated pathways for several of our current clinical indications , such as critical limb ischemia , or cli , as well as for carefully selected hematologic indications which represent substantial unmet needs that we hope to address with our second product , plx-r18 . in may 2015 , we announced that the plx cell program in cli had been selected for the adaptive pathways pilot project of the european medicines agency , or ema . in addition , we reported that japan 's pharmaceuticals and medical devices agency , or pmda , approved the proposed quality and large-scale manufacturing methods for plx-pad for use in clinical trials in japan . in august 2015 , we announced that the pmda has cleared our plx-pad cells for use in clinical trials in japan . we plan to continue frequent discussions with these regulators in order to initiate clinical studies using the accelerated paths . our intention is to initiate the cli studies during calendar year 2016 with the aim of obtaining initial approval in calendar year 2018. we plan to continue developing multiple placenta-derived cell therapy products that we anticipate will lead to significant improvement in the lives of patients , and expect to demonstrate the real-world impact and value of our pipeline , technology platform and commercial-scale manufacturing capacity . we made progress in our phase ii intermittent claudication , or ic , trial , a randomized , double blind , placebo controlled , multinational clinical trial . we currently have active clinical sites in the united states , israel , germany and south korea . we also anticipate that united therapeutics corporation , or united , will complete an ongoing phase i clinical trial of plx-pad cells in pulmonary arterial hypertension in australia , which will potentially lay the groundwork for a phase ii clinical trial . we plan to initiate a phase i/ii incomplete engraftment study in the united states , and we are currently in discussions with the fda before submitting an ind application . currently , we plan to continue working in partnership with the nih in developing plx-r18 as a potential treatment for acute radiation syndrome , or ars . in the upcoming months , we expect to receive fda guidance on the additional animal studies that would be required to approve plx-r18 for use in ars under the animal rule regulatory pathway , which does not require human efficacy trials . we plan to evaluate in coming months the timing to initiate our advanced orthopedic indications , based on potential partnering interest as well as regulatory approvals for early access to the market . results of operations – year ended june 30 , 2015 compared to year ended june 30 , 2014 and year ended june 30 , 2014 compared to year ended june 30 , 2013. revenues revenues for each of the years ended june 30 , 2015 and june 30 , 2014 were $ 379,000. all such revenues were derived from the united agreement . revenues decreased by 44 % from $ 679,000 for the year ended june 30 , 2013 to $ 379,000 for the year ended june 30 , 2014. all such revenues were derived from the united agreement . the reduction from the year ended june 30 , 2013 to 2014 is due to a re-evaluation we did for the development period under the united agreement in light of the clinical hold . in june 2013 , we received notification from the fda that our united states phase ii ic study had been placed on clinical hold due to a serious allergic reaction in a case which required hospitalization . in september 2013 , the fda lifted the clinical hold . in june 2013 , following the clinical hold , we extended the development period for which we received funds from united from 6.5 years to 11.5 years . story_separator_special_tag the aggregate cash consideration received was $ 276,000. our cash and cash equivalents as of june 30 , 2014 amounted to $ 4,493,000. this is a decrease of $ 4,514,000 from the $ 9,007,000 reported as of june 30 , 2013. cash balances decreased in the year ended june 30 , 2014 for the reasons presented below : operating activities used cash of $ 19,121,000 in the year ended june 30 , 2014. cash used by operating activities in the year ended june 30 , 2014 primarily consisted of payments of salaries to our employees , and payments of fees to our consultants , suppliers , subcontractors , and professional services providers including the costs of clinical studies , offset by an ocs grant . investing activities provided cash of $ 1,983,000 in the year ended june 30 , 2014. the investing activities consisted primarily of withdrawal of $ 7,421,000 of short-term deposits and proceeds of $ 6,867,000 from the sale and redemption of marketable securities , offset by investing $ 10,851,000 in marketable securities and the purchase of property and equipment for $ 1,573,000. financing activities generated cash in the amount of $ 12,624,000 during the year ended june 30 , 2014. the financing activities are primarily attributable to net proceeds of $ 10,644,000 from issuing shares of our common stock under the atm agreement as described below , and from exercises of warrants by shareholders . from july 1 , 2013 through june 30 , 2014 , a total of 2,517,907 warrants were exercised via “ cashless ” exercise , resulting in the issuance of 1,469,584 shares of common stock to investors of the company . in addition , 1,432,584 warrants were exercised for cash and resulted in the issuance of 1,432,584 shares of common stock to investors of the company . the aggregate cash consideration received was $ 1,968,000. from july 1 , 2013 through june 30 , 2014 , a total of 65,000 warrants were exercised via a “ cashless ” exercise , resulting in the issuance of 36,970 shares of common stock to our consultants . 33 during the years that ended june 30 , 2015 , 2014 and 2013 we received approximately $ 4,405,000 , $ 3,243,000 and $ 1,452,000 , respectively , from the ocs towards our research and development expenses . according to the ocs grant terms , we are required to pay royalties at a rate of 3 % - 4 % on sales of products and services derived from technology developed using this and other ocs grants until 100 % of the dollar-linked grants amount plus interest are repaid . in the absence of such sales , no payment is required . during the year ended june 30 , 2015 , we paid royalties to the ocs in the aggregate amount of $ 12,000 in cash . the ocs may impose certain conditions on any arrangement under which the ocs permits the company to transfer technology or development out of israel or outsource manufacturing out of israel . while the grant is given to the company over a certain period of time ( usually a year ) , the requirements and restrictions under the israeli law for the encouragement of industrial research and development , 1984 continue and do not have a set expiration period , except for the royalties , which requirement to pay them expires after payment in full . in addition , the european authorities approved a research grant under the european commission 's seventh framework program ( fp7 ) in the amount of approximately 92,955 for a period of 5 years which began on january 1 , 2011. in december 2012 , we entered into the atm agreement with mlv & co. llc , or mlv , which provides that , upon the terms and subject to the conditions and limitations set forth in the atm agreement , we may elect , from time to time , to issue and sell shares of common stock having an aggregate offering price of up to $ 95 million through mlv as a sales agent . we are not obligated to make any sales of common stock under the atm agreement . during the year ended june 30 , 2014 , we issued 2,596,032 shares of common stock and raised approximately $ 10,644,000 , net of issuance expenses of $ 195,000 , under the atm agreement . on september 11 , 2014 , we notified mlv of the termination of the atm agreement . in february 2013 , mtm – scientific industries center haifa ltd. , or mtm , our landlord , participated by contributing an amount of nis 2,990,000 ( approximately $ 816,000 ) toward the cost of constructing our new facility . such participation is being made pursuant to our lease agreement with mtm , and is recognized by ratably deducting from our monthly rent payment over the rent period . we recognized participation of $ 85,000 in fiscal year 2015. in accordance with the cha agreement , in december , 2013 , we issued to cha 2,500,000 shares of our common stock in consideration for the issuance to us of 1,011,504 common shares of cha , which reflected total consideration of approximately $ 10,414,000 to each of us and cha . each of us and cha agreed not to sell the other party 's shares for at least one year . the parties also agreed to give an irrevocable proxy to the other party 's management with respect to the shares issued . during march 2015 , we sold a portion of the cha shares received in december 2013 , resulting in net proceeds of $ 5,717,000. the net gain was $ 282,000 and is presented as “ financial income , net ” . the remaining investment in cha shares is presented as “ marketable securities ” and classified as available-for-sale in accordance with asc 320 , “ investments - debt and equity securities ” .
| general and administrative general and administrative expenses decreased by 26 % from $ 8,676,000 for the year ended june 30 , 2014 to $ 6,460,000 for the year ended june 30 , 2015. this is primarily driven by a decrease in stock-based compensation expenses related to our directors and officers and attributable to the timing of the grant of restricted stock units , or rsus . general and administrative expenses increased by 54 % from $ 5,649,000 for the year ended june 30 , 2013 to $ 8,676,000 for the year ended june 30 , 2014. this is primarily driven by an increase in stock-based compensation expenses related to our employees and directors , due to timing of grants made to directors , and an increase in our salaries due to , among other things , an increase of 6 employees as compared to the average number of employees in the year ended june 2013. financial income , net financial income decreased from $ 918,000 for the year ended june 30 , 2014 to $ 590,000 for the year ended june 30 , 2015. this decrease is mainly attributable to an increase in exchange rates expenses , related to the strength of the u.s. dollar against the nis in the year ended june 30 , 2015. the exchange rates expenses ' increase was offset by an increase in gains related to our sale of our marketable securities and the sale of a portion of cha shares , as well as increase in gains from derivatives and fair value hedge derivatives . financial income decreased from $ 1,068,000 for the year ended june 30 , 2013 to $ 918,000 for the year ended june 30 , 2014. the decrease is mainly due to a decrease in gains from hedging instruments and interest income on deposits over fiscal 2014 , offset by an increase in our gain from marketable securities .
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we caution investors not to place substantial reliance on the forward-looking statements included in this report on form 10-k. these statements speak only as of the date of this report ( unless another date is indicated ) , and we undertake no obligation to update or revise the statements in light of future developments . the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document . all numbers are expressed in thousands unless otherwise stated . overview we are a leading provider of on-demand transaction management solutions . such transactions include device and service procurement , provisioning , activation , intelligent connectivity management and content synchronization that enable communications service providers ( csps ) , cable operators/multi-services operators ( msos ) , original equipment manufacturers ( oems ) with embedded connectivity ( e.g . smartphones , laptops , tablets and mobile internet devices , among others ) , e-tailers/retailers and other customers to accelerate and monetize their go-to-market strategies for connected devices . this includes automating subscriber activation , order management , upgrades , service provisioning and connectivity and content management from any channel ( e.g. , e-commerce , telesales , enterprise , indirect and other retail outlets , etc . ) to any communication service ( e.g. , wireless ( 2g , 3g , ( ev-do and hspa ) , 4g , ( lte and wimax ) ) , high speed access , local access , iptv , cable , satellite tv , etc . ) across any connected device type and content transfer . our solutions touch all aspects of connected devices on the mobile internet . our convergencenow® , convergencenow® plus +tm and interconnectnow tm platforms provide end-to-end seamless integration between customer-facing channels/applications , communication services , or devices and `` back-office '' infrastructure-related systems and processes . our customers rely on our solutions and technology to automate the process of activation and content management for their customer 's devices while delivering additional communication services . our platforms are designed to be flexible and scalable to enable multiple converged communication services to be managed across multiple distribution channels , including e-commerce , m-commerce , telesales , customer stores , indirect and other retail outlets , etc. , allowing us to meet the rapidly changing and converging services and connected devices offered by our customers . we enable our customers to acquire , retain and service subscribers quickly , reliably and cost-effectively by simplifying the processes associated with managing the customer experience for procuring , activating , connecting and synchronizing connected devices and services through the use of our platforms . the extensibility , scalability and relevance of our platforms enable new revenue streams for our customers through new subscriber acquisitions , sale of new devices , accessories and new value-added service offerings in the cloud , while optimizing their cost of operations and enhancing customer experience . 34 we currently have operations in north america , europe and asia . we market our solutions and services directly through our sales organizations in north america and europe . our industry-leading customers include tier 1 service providers such as at & t inc. , verizon wireless and vodafone , tier 1 cable operators/msos like cablevision , comcast , and time warner cable and large oems/e-tailers such as apple , dell , panasonic , sony and nokia . these customers utilize our platforms , technology and services to service both consumer and business customers , including over 300 of the fortune 500 companies . revenues we generate a substantial portion of our revenues on a per-transaction basis , most of which is derived from contracts that extend up to 60 months from execution . for the years ended december 31 , 2011 and 2010 , we derived approximately 77 % and 79 % , respectively , of our revenues from transactions processed and subscription arrangements . the remainder of our revenues was generated by professional services and licenses . historically , our revenues have been directly impacted by the number of transactions processed . in recent years , the fourth quarter has had the highest volume of transactions processed due to increased consumer activation activity during the holiday season . the future success of our business depends on the continued growth of consumer and business transactions and , as such , the volume of transactions that we process could fluctuate on a quarterly basis . see `` current trends affecting our results of operations '' for certain matters regarding future results of operations . all of our revenues are substantially recorded in the us dollar but as we continue to expand our footprint with international carriers and increase the extent of recording our international activities in local currencies we will become subject to currency translation risk that could affect our future net sales . we currently derive a significant portion of our revenues from one customer , at & t . for the year ended december 31 , 2011 , at & t accounted for approximately 51 % of our revenues , compared to 62 % for the year ended december 31 , 2010. our agreement with at & t was automatically renewed in 2011 through december of 2012 and will automatically renew each year unless either party notifies the other of its intention not to renew at least sixty days prior to the end of the then-current term . this agreement defines the work activities , transaction pricing , forecasting process , service level agreements and remedies associated with certain services performed by us for at & t 's ecommerce organization . the agreement provides for at & t to pay us ( i ) a monthly hosting fee , ( ii ) a fee based on the number of transactions processed through our technology platform , ( iii ) a fee based on manual processing services and ( iv ) fees for professional services rendered by us . a copy of this agreement has been previously filed with the securities & exchange commission . story_separator_special_tag our initiatives with at & t , verizon wireless , vodafone and other csps continue to grow along with our account presence with connected device oem 's . we are also exploring additional opportunities through merger and acquisition activities to support our customer , product and geographic diversification strategies . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the preparation of these financial statements in accordance with gaap requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during a fiscal period . the securities and exchange commission ( `` sec '' ) considers an accounting policy to be critical if it is important to a company 's financial condition and results of operations , and if it requires significant judgment and estimates on the part of management in its application . we have discussed the selection and development of the critical accounting policies with the audit committee of our board of directors , and the audit committee has reviewed our related disclosures in this report on form 10-k. although we believe that our judgments and estimates are appropriate , correct and reasonable under the circumstances , actual results may differ from those estimates . we believe the following to be our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that are uncertain . if actual results or events differ materially from those contemplated by us in making these estimates , our reported financial condition and results of operations for future periods could be materially affected . see `` risk factors '' for certain matters bearing risks on our future results of operations . revenue recognition and deferred revenue we provide services principally on a transactional basis or , at times , on a fixed fee basis and recognize the revenues as the services are performed or delivered as discussed below : transactional and subscription service arrangements : transaction and subscription revenues represented approximately 77 % , 79 % , and 83 % of our revenues for the years ended december 31 , 2011 , 2010 and 2009 , respectively . transaction and subscription revenues consist of revenues derived from the processing of transactions through our service platforms , providing enterprise portal management services on a subscription basis and maintenance agreements on software licenses . transaction service arrangements include services such as equipment orders , new account set-up and activation , number port requests , credit checks and inventory management . transaction revenues are principally based on a contractual price per transaction and are recognized based on the number of transactions processed during each reporting period . revenues are 37 recorded based on the total number of transactions processed at the applicable price established in the relevant contract . the total amount of revenues recognized is based primarily on the volume of transactions . subscription revenues are recorded on a straight-line basis over the life of the contract for subscription services and maintenance contracts . many of our contracts guarantee minimum volume transactions from the customer . in these instances , if the customer 's total transaction volume for the period is less than the contractual amount , we record revenues at the minimum guaranteed amount . at times , transaction revenues may also include billings to customers based on the number of individuals dedicated to processing transactions . set-up fees for transactional service arrangements are deferred and recognized on a straight-line basis over the life of the contract since these amounts would not have been paid by the customer without the related transactional service arrangement . revenues are presented net of discounts , which are volume level driven , or credits , which are performance driven , and are determined in the period in which the volume thresholds are met or the services are provided . professional service arrangements : professional service revenues represented approximately 22 % , 17 % , and 15 % of our revenues for the years ended december 31 , 2011 , 2010 and 2009 , respectively . professional services , when sold with non-software transactional service arrangements , are accounted for separately when these services have value to the customer on a standalone basis . professional services , when sold with software transactional service arrangements , are accounted for separately when these services have value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the professional services . when accounted for separately , professional service revenues are recognized on a monthly basis , as services are performed and all other elements of revenue recognition have been satisfied . in determining whether professional services can be accounted for separately from transaction service revenues , we consider the following factors for each professional services agreement : availability of the professional services from other vendors , whether objective and reliable evidence for fair value exists of the undelivered elements , the nature of the professional services , the timing of when the professional contract was signed in comparison to the transaction service start date and the contractual independence of the transactional service from the professional services . if a professional service arrangement were not to qualify for separate accounting , we would recognize the professional service revenues ratably over the remaining term of the transaction contract . software license arrangements : software license arrangements represented approximately 1 % , 4 % and 2 % of our revenues for the years ended december 31 , 2011 , 2010 and 2009 , respectively and primarily related to our network address book software , a component part of our convergencenow® plus +tm platform which we acquired from fusionone .
| results of operations year ended december 31 , 2011 , compared to the year ended december 31 , 2010 the following table presents an overview of our results of operations for the years ended december 31 , 2011 and 2010. replace_table_token_8_th * cost of services excludes depreciation and amortization which is shown separately . net revenues . net revenues increased by $ 63.1 million to $ 229.1 million in 2011 , compared to 2010. this increase was primarily due to increased transaction volumes and expansion into new programs from our top five customer relationships . transaction and subscription revenues recognized 42 for the years ended december 31 , 2011 and 2010 represented 77.0 % or $ 176.4 million and 78.5 % or $ 130.4 million of net revenues , respectively . net revenues related to at & t increased $ 14.3 million to $ 116.7 million for 2011 , compared to 2010. at & t represented 50.9 % and 61.7 % of our revenues for 2011 and 2010 , respectively . net revenues outside of at & t increased by $ 48.8 million to $ 112.4 million for 2011 , compared to 2010. net revenues outside of at & t represented 49.1 % and 38.3 % of our revenues in 2011 and 2010 , respectively . professional service revenues as a percentage of sales were 22.1 % or $ 50.5 million in 2011 , compared to 17.3 % or $ 28.7 million in 2010. the increase in professional services revenue is primarily due to the expansion of services due to new projects with existing customers . license revenues decreased $ 4.7 million to $ 2.2 million or 1.0 % of net revenues for 2011 , as compared to 2010. the decrease in license revenues is primarily due to an offerings shift to subscription pricing related to our network address book software , a component part of our convergencenow® plus +tm platform which we acquired from fusionone .
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we are a leading provider of outsourced sales teams that target healthcare providers , 19 pdi , inc. annual report on form 10-k ( continued ) offering a range of complementary sales support services designed to achieve our customers ' strategic and financial product objectives . in addition to outsourced sales teams in the united states , we also provide other promotional services including clinical educator services , digital communications and teledetailing . combined , our services offer customers a range of both personal and non-personal promotional options for the commercialization of their products throughout their lifecycles , from development through maturity . we provide innovative and flexible service offerings designed to drive our customers ' businesses forward and successfully respond to a continually changing market . our services provide a vital link between our customers and the medical community through the communication of product information to physicians and other healthcare professionals for use in the care of their patients . we provide these services through three reporting segments : sales services ; marketing services ; and product commercialization services . these segments are described in detail under the caption description of reporting segments below . our business depends in large part on demand from the pharmaceutical , biotechnology and healthcare industries for outsourced promotional services . in recent years , this demand has been impacted by certain industry-wide factors affecting pharmaceutical , biotechnology and healthcare companies , including , among other things , pressures on pricing and access , successful challenges to intellectual property rights ( including the introduction of competitive generic products ) , a strict regulatory environment , decreased pipeline productivity and a slow-down in the rate of approval of new products by the united states food and drug administration ( fda ) . additionally , a number of pharmaceutical companies have made changes to their commercial models by reducing the internal number of sales representatives . a significant portion of our revenue is derived from our sales force arrangements with large pharmaceutical companies , and we have therefore benefited from cost control measures implemented by these companies and their resultant increased reliance on outsourced promotional services . however , we are also experiencing fluctuations in revenue due to certain clients renewing with a smaller salesforce and the expiration of certain other contracts due to the timing of new business and the variable nature of our business . we believe that we will continue to experience a high degree of customer concentration and this trend may continue as a result of the continuing consolidation within the pharmaceutical industry . in december 2011 , we entered into an agreement to sell certain assets of our pharmakon business unit to informed in exchange for potential future royalty payments with a fair value of $ 0.4 million and a 1 % ownership interest in informed valued at $ 0.1 million . net of the aforementioned consideration , we recorded a charge of approximately $ 7.5 million . in the fourth quarter of 2012 , we wrote-off all of the assets related to the sale of pharmakon to informed as we believe that these assets have become impaired . see note 18 , discontinued operations , to the audited consolidated financial statements included in this form 10-k for additional details . in august 2011 , we announced the formation of our interpace biopharma business unit . interpace biopharma provides pharmaceutical , biotechnology , medical device and diagnostics clients with full-service product commercialization solutions . these services include full supply chain management , operations , sales , marketing , compliance , and regulatory/medical management . this unit currently has one contract , the revenue and expenses of which are included in the product commercialization services segment . in march 2011 , we announced the launch of a business unit within our sales services segment , engagece . engagece provides clinical educator services to our customers . the goal of clinical educators is to work with healthcare providers in the management of chronic diseases in order to optimize patient care and outcomes . we believe that the clinical educator services provided via engagece complements traditional sales force efforts and enhances our offerings . engagece operates autonomously from the other business units in the sales service segment . in november 2010 , we acquired 100 % of the membership interest in group dca , a privately held interactive digital communications company serving the pharmaceutical , biotechnology and healthcare industries . based in parsippany , new jersey , group dca leverages the strength of the internet , multimedia , tablet pcs , ipads , mobile devices , dimensional direct mail and its proprietary software , diagram , to deliver non-personal selling solutions via interactive communications exchanges that accommodate the schedules of healthcare providers . group dca 's proprietary software also yields meaningful response data that allows customers the opportunity to better understand the needs and opinions of their audiences and , in turn , the opportunity to market to their audiences more effectively . with the combination of pdi 's traditional outsourced promotional services and group dca 's online interactive engagements , hcp communications , sales rep digital selling tools , patient education , and other digital communications , we are better positioned to offer customers increased insight and greater engagement , resulting in integrated information and more impactful messages being delivered to healthcare providers across multiple communication channels . we paid cash ( net ) of approximately $ 23.9 million for group dca , of which $ 1.3 million was placed in escrow . story_separator_special_tag a portion of revenues earned under certain contracts may be risk-based . the risk-based metrics are based on contractually defined percentages of prescriptions written . revenue from risk-based metrics is recognized in the period which the metrics have been attained and when we are reasonably assured that payment will be made . many of our product detailing contracts also allow for additional periodic incentive fees to be earned if certain activity based performance benchmarks have been attained . revenue from incentive fees is recognized in the period earned if the performance benchmarks have been attained and when we are reasonably assured that payment will be made . many contracts also stipulate penalties if agreed upon performance benchmarks have not been met . revenue is recognized net of any potential penalties until the performance criteria relating to the penalties have been achieved . commission based revenue is recognized when performance is completed . our product detailing contracts are generally for terms of one to two years and may be renewed or extended . the majority of these contracts , however , are terminable by the customer for any reason upon 30 to 180 days ' notice . certain contracts provide for termination payments if the customer terminates the agreement without cause . typically , however , these penalties do not offset the revenue we could have earned under the contract or the costs we may incur as a result of its termination . we maintain continuing relationships with our sales services customers which may lead to multiple ongoing contracts between us and one customer . in situations where we enter into multiple contracts with one customer at or near the same time , we evaluate the various factors involved in negotiating the arrangements in order to determine if the contracts were negotiated as a package and should be accounted for as a single agreement . the loss or termination of a large pharmaceutical detailing contract or the loss of multiple contracts could have a material adverse effect on our financial condition or results of operations . historically , we have derived a significant portion of service revenue from a limited number of customers . concentration of business in the pharmaceutical industry is common and the industry continues to consolidate . as a result , we are likely to continue to experience significant customer concentration in future periods . for the year ended december 31 , 2012 , our three largest customers , who each individually represented 10 % or more of our sales services revenue , collectively accounted for approximately 52.5 % of our consolidated service revenue . for the year ended december 31 , 2011 , our three largest customers , who each individually represented 10 % or more of our sales services revenue , collectively accounted for approximately 72.4 % of our consolidated service revenue . see note 13 , significant customers , to our consolidated financial statements included in this annual report on form 10-k. cost of services consists primarily of the costs associated with executing product detailing programs , performance based contracts or other sales and marketing services identified in the contract and includes personnel costs and other direct costs , as well as the initial direct costs associated with staffing a product detailing program . personnel costs , which constitute the largest portion of cost of services , include all labor related costs , such as salaries , bonuses , fringe benefits and payroll taxes for the sales representatives , sales managers and professional staff that are directly responsible for executing a particular program . other direct costs include , but are not limited to , facility rental fees , travel expenses , sample expenses and other promotional expenses . initial direct program costs are the costs associated with initiating a product detailing program , such as recruiting and hiring and certain other direct incremental costs , excluding pass through costs that are billed to customers . other direct costs include , but are not limited to , facility rental fees , travel expenses , sample expenses and other promotional expenses . through march 31 , 2012 , we expensed these initial direct program costs as incurred , as these amounts were not material to our operating results . as a result of our recent contract signings and plans to enter into larger contracts in the future , requiring more material initial direct program costs , commencing april 1 , 2012 , we changed our policy for the recognition of such initial direct program costs . these costs are now being deferred and amortized to expense in proportion to the revenue recognized as driven by the terms of the underlying contract . this change in accounting was not applied retrospectively because the effect on prior periods was immaterial . 22 pdi , inc. annual report on form 10-k ( continued ) during the year ended december 31 , 2012 , we deferred $ 1.8 million of initial direct program costs and amortized $ 0.2 million into expense . all personnel costs and other direct costs , excluding initial direct program costs , are expensed as incurred . reimbursable out-of-pocket expenses include those relating to travel and other similar costs , for which we are reimbursed at cost by our customers . reimbursements received for out-of-pocket expenses incurred are characterized as revenue and an identical amount is included as cost of services in the consolidated statements of operations . for the years ended december 31 , 2012 and 2011 , reimbursable out-of-pocket expenses were $ 19.9 million and $ 24.8 million , respectively . training costs include the costs of training the sales representatives and managers on a particular product detailing program so that they are qualified to properly perform the services specified in the related contract . for the majority of our contracts , training costs are reimbursable out-of-pocket expenses . marketing services revenue under marketing service contracts are primarily based on a series of deliverable services associated with the design and execution of interactive digital promotional programs .
| consolidated results of operations the following table sets forth for the periods indicated below selected statement of operations data as a percentage of revenue . the trends illustrated in this table may not be indicative of future operating results . replace_table_token_1_th results of continuing operations for the year ended december 31 , 2012 compared to the year ended december 31 , 2011 replace_table_token_2_th 27 pdi , inc. annual report on form 10-k ( continued ) operations overview we operate in three business segments : sales services ; marketing services ; and pc services . in 2012 , results from continuing operations in our pc services segment improved significantly relative to 2011 ; however , this improvement was more than offset by declines in both our sales services and marketing services segments . as we have previously stated , although we anticipate a continued downsizing of sales forces by the pharmaceutical industry , we expect that this downsizing has the potential to create an increase in the level of outsourcing of sales and marketing services as the pharmaceutical industry drives to create a new selling model . while we believe that the long-term trends in the pharmaceutical industry will result in a higher level of outsourcing of the types of services we provide , we plan to seek more predictable , higher growth and higher margin business by intensifying our previously announced strategy of in-licensing , acquiring or partnering of products . we believe the overall value of our offerings will be improved by our ability to integrate our core and expand offerings as discussed in the `` going forward '' section further below . revenue , net consolidated revenue for the year ended december 31 , 2012 decreased by $ 30.4 million , or 19.3 % , to $ 126.9 million , compared to the year ended december 31 , 2011 .
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subsequently in 2010 , we amended the 2009 amended and restated credit facility and paid the remaining $ story_separator_special_tag overview market conditions were difficult in several of our key markets during 2011. in particular , the market for conductive pastes used in solar applications was negatively affected by reduced end-market demand and excess inventories of completed solar power modules . as a result , our customers reduced their manufacturing volumes and lowered their demand for our conductive pastes . lower sales of our conductive pastes caused a significant reduction in segment income for our electronic materials business that was not fully offset through higher sales of other products . demand in other markets was mixed during 2011. demand related to automotive markets was generally improved relative to 2010 , although the aftermath of the earthquake and tsunami in japan during march 20 did negatively impact certain customers . demand for building materials continued to be relatively weak in certain regions as construction activity remained depressed in north america and europe . net sales increased by 3 % compared with 2010. sales increased in performance coatings , polymer additives , color and glass performance materials , specialty plastics , and pharmaceuticals . sales declined in electronic materials due to the reduction in demand for conductive pastes , despite an increase in sales of our non-solar electronic materials products and increased precious metal sales that were driven by higher average silver prices during 2011. our consolidated net sales increases were driven by changes in product pricing and mix , with additional contributions from changes in foreign currency exchange rates . these increases were partially offset by the effects of lower sales volume . gross profit declined in 2011 compared with 2010 , primarily driven by the decline in sales of high-margin conductive pastes . raw material costs increased during the year but these changes had little net impact on gross profit as the added costs were offset by product price increases , in aggregate , across the company . raw material cost increases were the most difficult to offset with product price increases in the performance coatings and polymer additives businesses . selling , general and administrative ( sg & a ) expenses increased slightly during 2011 compared with the prior year . sg & a expenses during 2011 included the costs of a new initiative to standardize and streamline our business processes and improve management information systems tools . changes in foreign currency exchange rates also contributed to increased sg & a expenses during the year . reduced incentive compensation expense , lower special charges and a decline in pension expense reduced sg & a expenses compared with the prior year . restructuring and impairment charges were significantly lower in 2011 compared with 2010. the major operational activities related to our manufacturing rationalization activities , started in 2006 , were completed during 2010. the restructuring charges recorded in 2011 were primarily related to residual costs at manufacturing sites where production activities have been concluded . during 2011 , we recorded an impairment of goodwill in the performance coatings segment and fixed asset impairment charges related to property , plant and equipment and property held for sale . interest expense declined during 2011 primarily as a result of lower average borrowing levels , reduced interest rates on borrowings and less amortization of debt issuances costs . during 2010 , we recorded losses on extinguishment of debt related to debt refinancing . losses on extinguishment of debt were minimal during 2011 as we continued our open market activity to redeem outstanding convertible debt . net income increased in 2011 compared with the prior year as a result of reduced restructuring and impairment charges , reduced losses on extinguishment of debt and lower interest expense which more than offset lower gross profit and increased income tax expense . outlook our ability to forecast future financial performance is limited because of uncertainty surrounding customer demand and economic conditions in a number of key markets and regions around the world . customer demand for our conductive solar pastes is difficult to forecast because of uncertainty in end-market demand and the continuing effects of excess inventory of solar power modules . order levels for our solar products remain low and our visibility to future customer orders is very limited . we expect demand for these products to improve during 2012 , but the timing and strength of the recovery in customer demand is not known at this time . in addition , future economic conditions in europe are expected to be generally weaker in 2012 due to sovereign debt issues and other macroeconomic drivers . this weakness may affect demand for our products in the region although the magnitude of these effects is difficult to estimate at this time . factors that could adversely affect our future financial performance are described under the heading risk factors in item 1a . 21 results of operations comparison of the years ended december 31 , 2011 and 2010 replace_table_token_4_th net sales increased by 2.6 % in the year ended december 31 , 2011 , compared with the prior year . changes in product prices and mix , together with changes in foreign currency exchange rates , were the primary drivers of the increased sales . increased sales of precious metals , driven by higher prices for silver , also contributed to the overall sales growth . lower sales volume had a negative effect on sales , particularly in the electronic materials segment . the lower sales volume also was the result of decisions we made in 2010 to exit certain markets served by the color and glass performance materials and electronic materials segments . for the year , changes in product prices and mix accounted for approximately 10 percentage points of sales growth , and changes in foreign currency exchange rates contributed an additional 2 percentage points to higher sales . lower sales volume reduced sales by 9 percentage points . story_separator_special_tag we recorded net income of $ 32.4 million in 2011 compared with net income of $ 7.3 million in 2010. the improvement was driven by lower restructuring and impairment charges , a reduction in losses on extinguishment of debt and lower interest expense , partially offset by reduced gross profit and increased income tax expense . 23 replace_table_token_5_th electronic materials segment results . sales declined in electronic materials primarily as a result of reduced demand for conductive pastes used in solar cell applications . the decline in demand for these products was a consequence of lower end-market demand and excess inventory of completed solar power modules . due to the excess inventory and reduced demand , solar cell production was significantly reduced by our customers . we decided to exit the market for commodity dielectric materials during 2010. as a result , the absence of sales of these products in 2011 also contributed to the lower sales volume in electronic materials during the year . lower sales volume reduced sales by approximately $ 124 million compared with the prior year . changes in product pricing and mix offset approximately $ 60 million of the sales decline during the year , and changes in foreign currency exchange rates increased sales by an additional $ 12 million . sales of precious metals increased by $ 12 million within the electronic materials business , including the effects of increased metal prices and reduced sales volume . the costs of precious metals are passed through to our customers as an element of our product prices . sales of products produced in the u.s. and europe declined , while sales of products produced in asia increased during 2011. operating income declined primarily due to a $ 53 million reduction in gross profit driven by the lower sales volume of conductive pastes , which was only partially offset by increased sales volume of other electronic materials products . performance coatings segment results . sales increased in performance coatings primarily due to higher product prices and changes in foreign currency exchange rates , partially offset by reduced sales volume . the higher product prices were largely due to higher raw material costs compared with the prior year . changes in product prices and mix accounted for approximately $ 49 million of the sales growth during the year . changes in foreign currency exchange rates added an additional $ 15 million to the sales growth . lower sales volume offset approximately $ 16 million of the growth in sales . sales increased in the europe-middle east-africa region , with additional sales growth contributions from latin america , the u.s. , and asia-pacific . operating profit declined as a result of an increase of $ 4 million in sg & a expense , which was partially offset by a $ 3 million increase in gross profit . color and glass performance materials segment results . sales increased in color and glass performance materials as a result of higher product prices , changes in product mix and changes in foreign currency exchange rates . partially offsetting the increases was a decline in sales volume . sales volume of certain metal oxide 24 products was curtailed as a result of the closing of a manufacturing plant in portugal , and sales volume was also lower due to reduced precious metal preparations sales as a result of a business divestiture during 2010. changes in product prices and mix increased sales by approximately $ 38 million , and changes in foreign currency exchange rates contributed an additional $ 14 million to sales growth during the year . lower sales volume reduced sales growth by approximately $ 38 million . the sales growth was primarily driven by increased sales in europe-middle east-africa . operating profit increased as a result of a $ 4 million increase in gross profit which was partially offset by $ 3 million increase in sg & a expense . the increase in gross profit was driven by the benefits from manufacturing rationalization activities completed in prior periods . during the second half of 2011 , both gross profit and sg & a expenses were negatively impacted by costs associated with consolidating production from a plant in austria to one of our existing plants in germany . polymer additives segment results . sales increased in polymer additives primarily as a result of higher product prices . the higher product prices largely reflected higher raw material costs compared with the prior year . changes in product prices and mix increased sales by approximately $ 37 million during 2011. changes in foreign currency exchange rates increased sales by approximately $ 4 million , while lower sales volume reduced sales by $ 6 million . sales increased in the u.s. and europe-middle east-africa , the primary regions where we market our polymer additives . operating income declined as a result of a $ 3 million decline in gross profit caused by changes in product mix and increased manufacturing costs . sg & a expense was little changed from the prior year . specialty plastics segment results . sales increased in specialty plastics primarily as a result of changes in product prices and mix , which were partially offset by the effects of lower sales volume . changes in product price and mix contributed approximately $ 17 million to the overall sales growth , and changes in foreign currency exchange rates increased sales by an additional $ 3 million . lower sales volume reduced sales by approximately $ 11 million . sales growth was primarily driven by increased sales in the united states . operating profit declined primarily as a result of reduced gross profit that resulted from reduced production volume . pharmaceutical segment results . sales increased in pharmaceuticals primarily as a result of changes in product mix compared with the prior year . operating income increased primarily due to a $ 2 million increase in gross profit that was driven by improved manufacturing performance . replace_table_token_6_th international sales increased during 2011 while sales in the united states declined .
| pharmaceutical segment results . sales increased in pharmaceuticals as a result of changes in product mix . operating income increased as a result of a $ 2 million increase in gross profit which was partially offset by a $ 1.6 million increase in sg & a expenses . replace_table_token_9_th during 2010 , sales increased in the united states and internationally . sales of products manufactured in the united states were 49 % of total net sales for the year , compared with 46 % of total sales in 2009. sales grew more rapidly in the united states than internationally in 2010 primarily as a result of strong sales of electronic materials products . many of our electronic materials products are manufactured in the united states and exported to other regions . sales recorded in each region include products that are exported to customers located in other regions . the increase in international sales was driven by higher sales in europe-middle east-africa and asia-pacific . summary of cash flows for the years ended december 31 , 2011 , 2010 , and 2009 replace_table_token_10_th 29 operating activities . cash flows from operating activities decreased $ 145.6 million from 2010 to 2011. cash flows declined $ 68.0 million from decreases in accrued expenses , primarily from the payment of 2010 year-end incentive compensation . the return of precious metal deposits provided $ 28.1 million in 2011 and $ 84.3 million in 2010 due to additional credit lines not requiring collateral . adjustments to reconcile net income to cash provided by operating activities include noncash losses on extinguishment of debt , depreciation and amortization , and deferred income taxes , as well as payments toward retirement benefits greater than the expenses recognized .
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accordingly , investors should not place undue reliance on those statements . our forward-looking statements speak only as of the date of this form 10-k or as of the date which they are made . except as required by applicable law , including the securities laws of the united states , we do not intend to update or revise any forward-looking statements . all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing . overview pbfx is a fee-based , growth-oriented , delaware master limited partnership formed in february 2013 by subsidiaries of pbf energy to own or lease , operate , develop and acquire crude oil and refined petroleum products terminals , pipelines , storage facilities and similar logistics assets . on may 14 , 2014 , pbfx completed the offering of 15,812,500 common units ( including 2,062,500 common units issued pursuant to the exercise of the underwriters ' over-allotment option ) . pbf gp is our general partner and is wholly-owned by pbf llc . pbf energy is the sole managing member of pbf llc and as of december 31 , 2014 owned 89.9 % of the total economic interest in pbf llc . upon completion of the offering , pbf llc held a 50.2 % limited partner interest in pbfx and owns all of pbfx 's idrs , with the remaining 49.8 % limited partner interest held by public unitholders . on september 16 , 2014 , the partnership entered into the contribution agreement ii with pbf llc to acquire the dcr west rack , a heavy crude oil unloading facility at the delaware city refinery with total throughput capacity of at least 40,000 bpd . the transaction closed on september 30 , 2014. also , on december 2 , 2014 , the partnership entered into the contribution agreement iii with pbf llc to acquire the toledo storage facility , including a propane storage and loading facility . the transaction closed on december 11 , 2014 . 54 the financial results presented and related discussion and analysis include the consolidated financial position , results of operations and cash flow information of our predecessor . our predecessor did not historically operate their assets for the purpose of generating revenues independent of other pbf energy businesses that we support . upon closing of the offering and the acquisitions from pbf , we entered into fee based commercial and service agreements with subsidiaries of pbf energy under which we operate the contributed assets for the purpose of generating fee based revenues . we receive , handle and transfer crude oil from sources located throughout the united states and canada and store crude oil , refined products , and intermediates for pbf energy in support of its three refineries located in toledo , ohio , delaware city , delaware and paulsboro , new jersey . the contributed assets consist of the dcr rail terminal , the toledo truck terminal , the dcr west rack and the toledo storage facility , which are integral components of the crude oil delivery and storage operations at all three of pbf energy 's refineries . business strategies we continue to focus on the following strategic areas : generate stable , fee-based cash flow . we intend to generate stable revenues by providing traditional logistics services to pbf energy and third-parties pursuant to long-term , fee-based contracts . in any new service contracts we may enter into , we will endeavor to negotiate minimum volume commitments similar to those included under our current commercial agreements with pbf energy . grow through acquisitions . we plan to pursue strategic acquisitions of assets from pbf energy as well as third parties . we believe pbf will offer us opportunities to purchase additional transportation and midstream assets that it may acquire or develop in the future or that it currently owns . we also may have opportunities to pursue the acquisition or development of additional assets jointly with pbf energy . seek to optimize our existing assets and pursue third-party volumes . we intend to enhance the profitability of our existing assets by increasing throughput volumes from pbf energy , attracting third-party volumes , improving operating efficiencies and managing costs . maintain safe , reliable and efficient operations . we are committed to maintaining and improving the safety , reliability , environmental compliance and efficiency of our operations . we seek to improve operating performance through our commitment to our preventive maintenance program and to employee training and development programs . we will continue to emphasize safety in all aspects of our operations . how we evaluate our operations our management uses a variety of financial and operating metrics to analyze our segment performance . these metrics are significant factors in assessing our operating results and profitability and include but are not limited to volumes , including terminal and storage volumes ; operating and maintenance expenses ; and ebitda and distributable cash flow . we define ebitda and distributable cash flow below . volumes . the amount of revenue we generate primarily depends on the volumes of crude oil that is throughputted at our terminaling operations and operable shell capacity at our storage facility . the throughput volumes are primarily affected by the supply of and demand for crude oil and refined products in the markets served directly or indirectly by our assets . shell capacity is mainly impacted by scheduled and unplanned maintenance at our toledo storage facility . story_separator_special_tag additionally , we reimburse our general partner and its affiliates , including subsidiaries of pbf energy , for the salaries and benefits costs of employees who devote more than 50 % of their time to us , which we currently estimate will be approximately $ 1.5 million annually . we also expect to incur $ 4.5 million of incremental annual general and administrative expense as a result of being a publicly traded partnership . for more information about such fees and services , please read “ item 1. business - agreements with pbf energy - omnibus agreement. ” financing . we have made , and intend to make , cash distributions to our unitholders at a minimum distribution rate of $ 0.30 per unit per quarter ( $ 1.20 per unit on an annualized basis ) . as a result , we expect to fund future capital expenditures primarily from the sale of u.s. treasury or other investment grade securities used as collateral to secure obligations under our term loan , external sources including borrowings under our revolving credit facility , and issuances of equity and debt securities . in connection with the closing of the offering , we entered into the revolving credit facility and the term loan . in connection with the acquisitions from pbf and additional capital spending , we amended and restated the terms of our revolving credit facility to increase the maximum availability under the facility from $ 275.0 million to $ 325.0 million . at december 31 , 2014 , we had $ 275.1 million outstanding under the revolving credit facility and $ 234.9 million outstanding under the term loan . other factors that will significantly affect our results supply and demand for crude oil and refined products . we generate revenue by charging fees for receiving , handling and transferring crude oil and storing and processing crude oil and refined products . all of our revenues are derived from fee-based commercial agreements with subsidiaries of pbf energy with initial terms of seven to ten years , which enhances the stability of our cash flows . the volume of crude oil that are throughputted depends substantially on pbf energy 's refining margins . refining margins are dependent mostly upon the price of crude oil or other refinery feedstocks and the price of refined products . factors driving the prices of petroleum based commodities include supply and demand for crude oil , gasoline and other refined products . supply and demand for these products depend on numerous factors outside of our control , including changes in domestic and foreign economies , weather conditions , domestic and foreign political affairs , production levels , logistics constraints , availability of imports , marketing of competitive fuels , crude oil price differentials and government regulation . please read “ item 1a . risk factors ” in this form 10-k. acquisition opportunities . we may acquire additional logistics assets from pbf energy or third parties . under the second a & r omnibus agreement , subject to certain exceptions , we have a right of first offer on certain logistics assets retained by pbf energy to the extent pbf energy decides to sell , transfer or otherwise dispose of any of those assets . we also have a right of first offer to acquire additional logistics assets that pbf energy may construct or acquire in the future . our commercial agreements provide us with options to purchase certain assets at pbf energy 's delaware city and toledo refineries related to our business in the event pbf energy permanently shuts down either the delaware city refinery or the toledo refinery . in addition , our commercial agreements provide us with the right to use certain assets at pbf energy 's delaware city or toledo refineries in the event of a temporary shutdown . in addition , we may pursue strategic asset acquisitions from third parties to the extent such acquisitions complement our or pbf energy 's existing asset base or provide attractive potential returns . we believe that we are well-positioned to acquire logistics assets from pbf energy and third parties should such opportunities arise , and identifying and executing acquisitions is a key part of our strategy . however , if we do not make acquisitions on economically acceptable terms , our future growth will be limited , and the acquisitions we do make may reduce , rather than increase , our cash available for distribution . these acquisitions could also affect the comparability of 57 our results from period to period . we expect to fund future growth capital expenditures primarily from a combination of cash-on-hand , borrowings under our revolving credit facility and the issuance of additional equity or debt securities . to the extent we issue additional units to fund future acquisitions or expansion capital expenditures , the payments of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level . third-party business . as of december 31 , 2014 , pbf holding accounts for all of our revenues . we are examining further diversification of our customer base by potentially developing third-party throughput volumes at our existing assets and expanding our asset portfolio to service third-party customers . unless we are successful in attracting third-party customers , our ability to increase volumes will be dependent on pbf holding , which has no obligation under our commercial agreements to supply our facilities with additional volumes in excess of its minimum volume commitments . if we are unable to increase throughput volumes , future growth may be limited . results of operations a discussion and analysis of the factors contributing to our results of operations is presented below . the accompanying combined financial statements for the period prior to may 14 , 2014 , represent our predecessor 's results of operations , while the consolidated financial statements for the period subsequent to may 14
| summary . our net income for the year ended december 31 , 2014 increased $ 31.6 million to $ 13.3 million from a net loss of $ 18.3 million for the year ended december 31 , 2013. the increase in net income was primarily due to the following : an increase in revenues of $ 49.8 million to $ 49.8 million attributable to the effect of the new commercial agreements with pbf energy ; partially offset by the following : ◦ an increase in operating and maintenance expenses of $ 8.5 million , or 60.8 % , mainly related to higher repairs and maintenance and contract labor expenses ; ◦ an increase in general and administrative expenses of $ 5.7 million , or 283.7 % , as a result of increased cost allocations of certain direct employee costs , additional expenses related to being a publicly traded partnership and expenses associated with pbfx unit-based compensation ; ◦ an increase in interest expense , net and other financing costs of $ 2.3 million which was attributable to the interest costs associated with the term loan and revolving credit facility , partially offset by interest income associated with our marketable securities ; and ◦ an increase in amortization of loan fees of $ 0.4 million due to the amortization of capitalized debt issuance costs associated with the term loan and revolving credit facility .
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2017 , 35.61 % in 2016 and 34.36 % in 2015. the equity to average assets ratio was 10.15 % in 2017 compared to 10.30 % in 2016 and 10.51 % in 2015. net income in 2017 was positively impacted by a $ 17.4 million increase in net interest income and a $ 3.1 million increase in noninterest income . offsetting this positive impact was a $ 6.3 million increase in noninterest expense and a $ 1.9 million increase in the provision for loan losses . in addition , income tax expense increased $ 7.2 million from 2016. as a result of the tax cuts and jobs act that was enacted into law on december 22 , 2017 , the company revalued its net deferred tax asset position to reflect the reduction in its federal corporate income tax rate from 35 % to 21 % . this revaluation resulted in a non-cash , non-operating and non-recurring income tax expense adjustment of approximately $ 4.1 million , or $ 0.16 per diluted share , for the year ending december 31 , 2017. net income in 2016 was positively impacted by a $ 12.6 million increase in net interest income and a $ 1.4 million increase in noninterest income . offsetting this positive impact was a $ 4.8 million increase in noninterest expense and a $ 1.2 million increase in the provision for loan losses . total assets were $ 4.683 billion as of december 31 , 2017 versus $ 4.290 billion as of december 31 , 2016 , an increase of $ 393.0 million or 9.2 % . this increase was primarily due to a $ 347.5 million increase in total loans . critical accounting policies certain of the company 's accounting policies are important to the portrayal of the company 's financial condition , since they require management to make difficult , complex or subjective judgments , some of which may relate to matters that are inherently uncertain . estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances . some of the facts and circumstances which could affect these judgments include changes in interest rates , in the performance of the economy or in the financial condition of borrowers . management believes that its critical accounting policies include determining the allowance for loan losses and the valuation and other-than-temporary impairment of investment securities . allowance for loan losses the company maintains an allowance for loan losses to provide for probable incurred credit losses . loan losses are charged against the allowance when management believes that the principal is uncollectable . subsequent recoveries , if any , are credited to the allowance . allocations of the allowance are made for specific loans and for pools of similar types of loans , although the entire allowance is available for any loan that , in management 's judgment , should be charged against the allowance . a provision for loan losses is taken based on management 's ongoing evaluation of the appropriate allowance balance . a formal evaluation of the adequacy of the loan loss allowance is conducted monthly . the ultimate recovery of all loans is susceptible to future market factors beyond the company 's control . the level of loan loss provision is influenced by growth in the overall loan portfolio , emerging market risk , emerging concentration risk , commercial loan focus and large credit concentration , new industry lending activity , general economic conditions and historical loss analysis . in addition , management gives consideration to changes in the allocation for specific watch list credits in determining the appropriate level of the loan loss provision . furthermore , management 's overall view on credit quality is a factor in the determination of the provision . the determination of the appropriate allowance is inherently subjective , as it requires significant estimates by management . the company has an established process to determine the adequacy of the allowance for loan losses that generally includes consideration of the following factors : changes in the nature and volume of the loan portfolio , overall portfolio quality and current economic conditions that may affect the borrowers ' ability to repay . consideration is not limited to these factors although they represent the most commonly cited factors . with respect to specific allocation levels for individual credits , management considers the amounts and timing of expected future cash flows and the current valuation of collateral as the primary measures . management also considers trends in adversely classified loans based upon an ongoing review of those credits . with respect to pools of similar loans , allocations are assigned based upon historical experience unless the rate of loss is expected to be greater than historical losses as noted below . a detailed analysis is performed on loans that are classified but determined not to be impaired which incorporates different scenarios where the risk that the borrower will be unable or unwilling to repay its debt in full or on time is combined with an estimate of loss in the event the borrower can not pay to develop non-specific allocations for such loan pools . these allocations may be adjusted based on the other factors cited above . an appropriate level of general allowance for pooled loans is determined after considering the following : application of historical loss percentages , emerging market risk , commercial loan focus and large credit concentration , new industry lending activity and general economic conditions . it is also possible that the following could affect the overall process : social , political , economic and terrorist events or activities . all of these factors are susceptible to change , which may be significant . as a result of this detailed process , the allowance results in two forms of allocations , specific and general . these two components represent the total allowance for loan losses deemed adequate to cover probable losses inherent in the loan portfolio . story_separator_special_tag the change in interest or expense due to both rate and volume has been allocated between factors in proportion to the relationship of the absolute dollar amounts of the change in each . ( 2 ) tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2017 , 2016 and 2015. the tax equivalent rate for tax exempt loans and tax exempt securities acquired after january 1 , 1983 included the tefra adjustment applicable to nondeductible interest expense . net interest income increased by $ 17.4 million to $ 135.9 million in 2017 compared to 2016 , primarily due to a 10.1 % increase in average earning assets in 2017 , driven by an increase of 12.5 % in the average commercial loan portfolio , which reflects our continuing strategic focus on commercial lending . the net interest margin increased to 3.33 % in 2017 versus 3.18 % in 2016 , due to higher yields on average earning assets , which more than offset an increase in the cost of interest bearing liabilities during 2017. during 2016 , net interest income increased by $ 12.6 million to $ 118.5 million , primarily due to a 12.3 % increase in average earning assets , driven by an increase of 12.1 % in the average commercial loan portfolio . the net interest margin decreased to 3.18 % in 2016 versus 3.19 % in 2015 , due to an increase in the cost of interest bearing liabilities , which more than offset an increase in earning asset yields during 2016. growth in the commercial loan portfolio accounted for most of the growth in loans , as well as total earning assets , during both 2017 and 2016 , and positively impacted total interest income . management believes that the growth in the loan portfolio will likely continue in a measured , but prudent , fashion as a result of our continued strategic focus on commercial and industrial lending , as well as commercial real estate lending . in addition , management believes its organic growth strategy of continued expansion in its current geographic footprint and in indianapolis will provide continued loan growth opportunities . growth in average loans of $ 385.3 million was funded through an increase in interest bearing deposits . average interest bearing deposit accounts increased $ 214.4 million . in addition , average demand deposits increased $ 65.0 million in 2017. the increase in the company 's yields on average earning assets during 2017 and 2016 resulted from increases in market rates overall , including increases in loan portfolio yields during both years . market rates were impacted by four federal reserve bank increases of 25 basis points each in the federal funds rate , which occurred in december 2016 , march 2017 , september 2017 , and december 2017. yields on commercial loans increased in 2017 , as a result of higher market interest rates . during 2017 management continued to focus on growing the commercial portfolio in a prudent and responsible manner . the cost of funds was also impacted by the rising rate environment during 2017 , with the largest impact in public fund interest bearing checking and time deposit accounts . during 2017 , the company marketed two deposit specials in certificates of deposit and money market account products . 29 provision for loan losses the company recorded provision for loan loss expense of $ 3.0 million due primarily to the increase in the loan portfolio . the 2017 provision expense compares to $ 1.2 million of provision expense recorded in 2016 and no provision expense recorded in 2015. the allowance for loan losses at december 31 , 2017 was $ 47.1 million , which represented 1.23 % of the loan portfolio , versus an allowance for loan losses of $ 43.7 million at the end of 2016 , which represented 1.26 % of the loan portfolio . the allowance for loan losses was $ 43.6 million at the end of 2015 , which represented 1.42 % of the loan portfolio . the provision in 2017 and 2016 was attributable to the increasing size of the loan portfolio with consideration to the level of nonperforming loans and net charge-offs ( recoveries ) . healthy economic conditions in 2017 and 2016 resulted in net charge-offs ( recoveries ) of ( $ 403,000 ) , or ( 0.01 ) % of average loans , and $ 1.0 million , or 0.03 % of average loans , respectively . the lack of a provision in 2015 was attributable to a number of factors but was primarily a result of improvement in key loan quality metrics , including a decrease in net charge-offs , strong reserve coverage of nonperforming loans , a decrease in historical loss percentages , stabilization in economic conditions in the company 's markets and general signs of improvement in borrower performance and future prospects . in addition , management gave consideration to changes in the allocation for specific watch list credits in determining the appropriate level of the loan loss provision . management 's overall view on current credit quality was also a factor in the determination of the provision for loan losses . the company 's management continues to monitor the adequacy of the provision based on loan levels , asset quality , economic conditions and other factors that may influence the assessment of the collectability of loans . noninterest income the following table presents changes in the components of noninterest income for the years ended december 31. replace_table_token_8_th noninterest income was $ 36.0 million in 2017 versus $ 32.9 million in 2016 , an increase of $ 3.1 million , or 9.6 % . the increase was primarily driven by a $ 1.7 million increase in service charges on deposit accounts driven by growth in fees from business accounts . in addition , wealth advisory fees increased $ 676,000 , due to new business development as well as growth in assets managed for existing clients .
| results of operations overview in 2017 and 2016 , the company continued to grow loans and deposits organically , in its geographic footprint of northern indiana and in indianapolis . the company opened its fifth branch in indianapolis in early 2017 bringing the total number of branches in indiana to 49 as of december 31 , 2017. the company 's profitability has been positively impacted by growth in loans and deposits . in addition , asset quality has remained strong . the core banking contributions to noninterest income of deposit , loan and wealth management fee income continued to grow in 2017. overall , expense growth has reflected the continued investment in people , technology and our branch infrastructure . the outlook for 2018 includes plans for continued organic loan and deposit growth , a disciplined credit philosophy and investment in the company . selected income statement information for the years ended december 31 , 2017 , 2016 and 2015 is presented in the following table . replace_table_token_5_th ( 1 ) noninterest expense/net interest income plus noninterest income ( 2 ) per share data has been adjusted for a 3-for-2 stock split on july 25 , 2016 paid in the form of a stock dividend on august 5 , 2016 . ( 3 ) tangible common equity , tangible assets , and the tangible capital ratio are non-gaap financial measures calculated using gaap amounts . tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of stockholders ' equity , net of deferred tax . tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets , net of deferred tax . the tangible capital ratio is calculated by dividing tangible common equity by tangible assets .
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our brand portfolio consists of nationally and internationally recognized brand names , including calvin klein , tommy hilfiger , van heusen , izod , arrow , speedo ( licensed for north america in perpetuity from speedo international , ltd. ) , warner 's and olga . in addition , through the end of the third quarter of 2013 , we owned , and operated businesses under , the g.h . bass & co . and bass trademarks . we also license brands from third parties primarily for use on dress shirts and neckwear offered in the united states and canada . 30 we acquired warnaco on february 13 , 2013 , and , with it , acquired the global calvin klein jeanswear and underwear businesses and the core intimates ( warner 's and olga ) and speedo businesses , which operate primarily in north america . prior to the acquisition , warnaco was our largest calvin klein licensee , as their royalty and administrative fee payments to us accounted for approximately 37 % of our calvin klein royalty , advertising and other revenue in 2012. our total consideration for the acquisition was $ 3.137 billion , consisting of $ 2.180 billion paid in cash , the issuance of approximately 8 million shares of our common stock ( valued at $ 926 million ) , the issuance of stock awards valued at $ 40 million to replace outstanding stock awards made by warnaco to its employees and the elimination of a $ 9 million pre-acquisition liability to warnaco . we funded the cash portion and related costs of the acquisition , repaid all outstanding borrowings under our previously outstanding senior secured credit facilities and repaid all of warnaco 's previously outstanding long-term debt with the net proceeds of ( i ) an offering during the fourth quarter of 2012 of $ 700 million of 4 1/2 % senior notes due 2022 ; and ( ii ) $ 3.075 billion of term loans borrowed during the first quarter of 2013 under new senior secured credit facilities . these items are more fully described in the section entitled “ liquidity and capital resources ” below . our revenue reached a record $ 8.186 billion in 2013 , approximately 45 % of which was generated internationally . our global designer lifestyle brands , tommy hilfiger and calvin klein , together generated approximately 75 % of this revenue . our business strategy is to manage and market a portfolio of nationally and internationally recognized apparel and lifestyle brands at multiple price points and across multiple channels of distribution . we believe this approach reduces our reliance on any one demographic group , merchandise preference , distribution channel or geographic region . our acquisition of warnaco is consistent with this strategy , as it gave us direct global control of the brand image and commercial operations for calvin klein 's two largest apparel categories — jeanswear and underwear . with these categories under our ownership , our teams have taken steps to strengthen management , improve operations , unify our brand messaging , and coordinate and improve design , merchandising , retail distribution and marketing functions on a regional and global basis . we believe that these steps , which we will build upon in 2014 , will strengthen calvin klein 's image , positioning and execution across all markets to drive sustainable growth . the warnaco acquisition also provides a broader global platform for both the calvin klein and tommy hilfiger businesses and has enabled us to continue to transform from a primarily north american multi-brand business with strong european tommy hilfiger operations , to a more diversified , global organization . we intend to take advantage of our and warnaco 's complementary geographic operations ; warnaco 's operations in asia and brazil should enhance our opportunities in those high-growth regions , and we will have the opportunity to leverage our expertise and infrastructure in north america and europe to enhance the growth and profitability of the calvin klein jeans and calvin klein underwear businesses in those regions . the acquisition also added the speedo , warner 's and olga brands to our heritage brands portfolio . like our other heritage brands businesses , these businesses are replenishment-based and generally provide consistent profitability , healthy margins and strong cash flows . with a diversified brand portfolio and strong operations in every major consumer market around the world , we believe the acquisition made our business better balanced across geographies , channels of distribution , product categories and price points , and expanded our opportunity to realize revenue growth and enhanced profitability . we remain on track to achieve significant synergies created through the acquisition , principally with respect to certain corporate functions and duplicative brand management functions in north america and europe . additionally , in order to focus on our core competencies in apparel and continue to grow the calvin klein and tommy hilfiger brands globally , we sold substantially all of the assets of our bass division on november 4 , 2013. the sale enables us to further invest in our more profitable apparel businesses , while also reducing sales and earnings volatility . results of operations operations overview we generate net sales from ( i ) the wholesale distribution to retailers , franchisees , licensees and distributors of men 's dress shirts , neckwear and underwear , men 's and women 's jeanswear , sportswear , intimate apparel , swim products , footwear , accessories and related products under owned and licensed trademarks ; and ( ii ) the sale through approximately 1,900 company-operated free-standing retail store locations worldwide under our calvin klein , tommy hilfiger , van heusen and izod trademarks , and approximately 900 company-operated concessions/shop-in-shops worldwide under our calvin klein and tommy hilfiger trademarks , of apparel , footwear , accessories and other products . we also operated g.h . bass & co . stores through the end of the third quarter of 2013 , at which time we sold substantially all of the assets of our bass business . story_separator_special_tag the calvin klein business in europe underperformed and was under pressure primarily due to our initiative to restructure the sales distribution mix in this region and the business ' concentration in southern europe , in particular italy , where there is a weak macroeconomic environment . in addition , net sales in the calvin klein international segment in 2013 include a reduction of $ 30 million due to sales returns for certain warnaco asia wholesale customers in connection with an initiative to reduce excess inventory levels . an increase of $ 209 million in net sales attributable to growth in our tommy hilfiger north america and tommy hilfiger international segments . within the tommy hilfiger north america segment , net sales increased 8 % , principally driven by 4 % retail comparable store sales growth , retail square footage expansion and double-digit growth in the wholesale business . net sales in the tommy hilfiger international segment increased 6 % . growth in europe was driven by a 6 % european retail comparable store sales increase , retail square footage expansion and a 9 % increase in the european wholesale business and also included the positive impact of foreign currency translation due to a stronger euro as compared with the prior year period . these increases were partially offset by a revenue decline in japan , where we continue our efforts to reposition the brand . the revenue in japan was also negatively impacted by foreign currency translation due to a weaker yen as compared with the prior year . 33 an increase of $ 313 million in net sales in our heritage brands wholesale and heritage brands retail segments . the newly acquired speedo , warner 's and olga businesses contributed $ 450 million of net sales in our heritage brands wholesale segment and revenue in our pre-acquisition ongoing heritage brands wholesale businesses increased 2 % . these revenue increases were partially offset by ( i ) the loss of $ 75 million of revenue generated in the fourth quarter of 2012 related to the exited bass business ; ( ii ) the loss of sales related to the exited izod women 's and timberland wholesale sportswear businesses , which totaled $ 42 million in 2012 ; and ( iii ) a comparable store sales decline of 7 % in the retail business due , in large part , to weak performance at bass during the first three quarters of 2013. the 2012 net sales increase of $ 131 million as compared to 2011 included a negative impact of approximately $ 210 million , or 4 % , of which approximately $ 110 million was due to foreign currency translation and approximately $ 100 million was attributable to the exit from the izod women 's and timberland wholesale sportswear businesses . the overall increase in 2012 as compared to 2011 was due principally to the effect of the following items : an increase of $ 154 million in net sales attributable to growth in our tommy hilfiger north america and tommy hilfiger international segments . within the tommy hilfiger north america segment , net sales increased 10 % , principally driven by retail comparable store sales growth of 10 % . net sales in the tommy hilfiger international segment increased 2 % , including a negative impact of approximately $ 110 million , or 6 % , related to foreign currency translation . european retail comparable store sales grew 11 % and the european wholesale business exhibited strong growth , but these increases were partially offset by weakness in japan . an increase of $ 70 million in net sales attributable to our calvin klein north america segment , driven principally by ( i ) a 12 % increase in the north america calvin klein retail business , which was due to new store openings , store expansions and a 5 % increase in comparable store sales ; and ( ii ) a 16 % increase in the north america wholesale business . a $ 100 million reduction in net sales attributable to our heritage brands wholesale and heritage brands retail segments . comparable store sales in the heritage brands retail segment were relatively flat as compared to 2011 , while sales in the heritage brands wholesale segment decreased 10 % , principally related to the exited sportswear businesses . royalty , advertising and other revenue royalty , advertising and other revenue in 2013 decreased to $ 380 million from $ 502 million in 2012 , as strong performance in women 's apparel , handbags and accessories , as well as men 's and women 's outerwear , was more than offset by the absence in 2013 of warnaco royalty and advertising revenue subsequent to the warnaco acquisition , and the expiration of a long-term contractual agreement related to calvin klein royalties in the north america women 's sportswear business , which together totaled $ 146 million . excluding this contractual agreement and the loss of warnaco royalty and advertising revenue , calvin klein royalty , advertising and other revenue increased 8 % . tommy hilfiger royalty , advertising and other revenue increased $ 7 million due to growth across most licensed product categories . royalty , advertising and other revenue was $ 502 million in 2012 as compared to $ 481 million in 2011. of the $ 22 million increase , $ 12 million was attributable to our tommy hilfiger business , due principally to strong performance in footwear in north america , watches and eyewear globally , and other product categories in asia and latin america . within the calvin klein business , global licensee royalty revenue increased 2 % , including a negative impact of 1 % related to foreign currency translation .
| cash flow summary cash at february 2 , 2014 was $ 593 million , which included the impact of $ 2.993 billion of net proceeds from the senior secured credit facilities entered into in 2013 at the time of the warnaco acquisition , offset by $ 2.180 billion of cash paid as consideration for the acquisition and $ 1.097 billion of debt payments made to repay all outstanding borrowings under our previously outstanding senior secured credit facilities and all of warnaco 's previously outstanding long-term debt . in addition , cash at february 2 , 2014 included the impact of $ 500 million of payments on our senior secured credit facilities during the year ended february 2 , 2014. cash at february 2 , 2014 excluded a restricted cash balance of $ 10 million , which was placed into an escrow account prior to year end to contribute funding to our joint venture in australia in the first quarter of 2014. see the section entitled “ investments in unconsolidated affiliates ( australia , brazil , china and india joint ventures ) ” below for a further discussion . cash at february 3 , 2013 was $ 892 million , which included the proceeds from the $ 700 million senior notes offering undertaken in connection with the warnaco acquisition . cash flow in 2014 will be impacted by various factors in addition to those noted below in this “ liquidity and capital resources ” section , including the amount of debt repayments we make in 2014. as of february 2 , 2014 , approximately $ 467 million of cash and cash equivalents was held by international subsidiaries whose undistributed earnings are considered permanently reinvested . our intent is to reinvest these funds in international operations .
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revenue from these product offerings is recognized ratably over the subscription term beginning on 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 . executive overview story_separator_special_tag higher variable subscription fees . opportunities and risks dynamic e-commerce landscape . we need to continue to innovate in the face of a rapidly changing e-commerce landscape if we are to remain competitive . brands and retailers . as consumer preferences potentially shift from smaller retailers to brands and large retailers , we need to continue to add brands and large retailers as profitable customers . brands in particular tend to have longer customer life cycles , stronger financial stability and overall better unit economics . brands also offer increased expansion opportunities to grow their e-commerce business through our platform . these customers generally pay a lower percentage of gmv as fees to us based on the relatively higher volume of their gmv processed through our platform . to help drive our future growth , we have made significant investments in our sales force and allocated resources focused on growing our customer base of brands and large retailers . we continue to focus our efforts on increasing value for our customers to support higher rates . strategic partnerships . our business development team 's mission is to expand our sales and market opportunities through strategic partner relationships . we plan to continue to invest in initiatives to expand our strategic partnership base to further enhance our offerings for brands and retailers and to help support our indirect sales channel efforts . the goal of these strategic partnerships is to further improve the value of our platform for our customers and , when possible , provide us opportunities for incremental revenue streams . increasing complexity of e-commerce . although e-commerce continues to expand as brands and retailers continue to increase their online sales , it is also becoming more complex due to the hundreds of channels available to brands and retailers and the rapid pace of change and innovation across those channels . in order to gain consumers ' attention in a more crowded and competitive online marketplace , an increasing number of brands and many retailers sell their merchandise through multiple online channels , each with its own rules , requirements and specifications . in particular , third-party marketplaces are an increasingly important driver of growth for a number of brands and large online retailers . as a result , we need to continue to support multiple channels in a variety of geographies in order to support our targeted revenue growth . global growth in e-commerce . we believe the growth in e-commerce globally presents an opportunity for brands and retailers to engage in international sales . however , country-specific marketplaces are often a market share leader in their regions , as is the case for zalando in europe . in order to help our customers capitalize on this potential market opportunity , and to address our customers ' needs with respect to cross-border trade , we intend to continue to invest in our international operations . doing business overseas involves substantial challenges , including management attention and resources needed to adapt to multiple languages , cultures , laws and commercial infrastructure , as further described in this report under the caption `` risks related to our international operations . '' 34 our senior management continuously focuses on these and other trends and challenges , and we believe that our culture of innovation and our history of growth and expansion will contribute to the success of our business . we can not , however , assure you that we will be successful in addressing and managing the many challenges and risks that we face . 35 key financial and operating metrics the average revenue generated per customer is a primary determinant of our revenue . we calculate this metric by dividing our revenue for a particular period by the average monthly number of customers during the period , which is calculated by taking the sum of the number of customers at the end of each month in the period and dividing by the number of months in the period . we typically calculate average revenue per customer in absolute dollars on a trailing twelve-month , or ttm , basis , but we may also calculate percentage changes in average revenue per customer on a quarterly basis in order to help us evaluate our period-over-period performance . for purposes of this metric and the number of customers metric described below , we include all customers who subscribe to at least one of our solutions , as well as strategic partners from which we receive revenue . the number of customers has decreased during 2019 , primarily due to a decline in the number of small retail customers as well as the anticipated decline in customers based in china following our office closure in this market in july 2019. we continue our focus on obtaining brands and large retailers as customers , which may represent a smaller number of total customers , but a potentially larger source of predictable or sustainable recurring revenue as well as higher average revenue per customer as presented above . story_separator_special_tag our where to buy solution allows customers to provide their web visitors or digital marketing audiences with up-to-date information about the authorized resellers that carry their products and the availability of those products . our product intelligence solution provides customers with insights about online assortment , product coverage gaps , pricing trends and adherence by their retailers to content guidelines . our customers are categorized as follows : retailers . we generally categorize a customer as a retailer if it primarily focuses on selling third-party goods to consumers . brands . we generally categorize a customer as a brand if it primarily focuses on designing , manufacturing and selling its own proprietary products . other . other is primarily comprised of agencies who use our solutions on behalf of their retail or brand customers . 39 we generally invoice our customers for the fixed portion of the subscription fee in advance , in monthly , quarterly , semi-annual or annual installments . we invoice our customers for the implementation fee at the inception of the arrangement . fixed subscription and implementation fees that have been invoiced are initially recorded as deferred revenue and are generally recognized ratably over the contract term . in general , we invoice and recognize revenue from the variable portion of subscription fees in the period in which the related gmv or advertising spend is processed . comparison of 2019 to 2018 revenue decreased by 1.0 % , or $ ( 1.3 ) million , to $ 130.0 million for the year ended december 31 , 2019 compared with $ 131.2 million for the prior year . the change was primarily due to a $ 4.5 million decline in variable revenue , primarily due to a shift in our revenue mix from variable to fixed resulting from more customers moving to higher fixed fee tiers and some of our strategic partner agreements evolving to incorporate more fixed fees instead of purely variable revenues . this decrease was partially offset by a $ 3.3 million increase in fixed revenue primarily attributable to growth in our international operations , as well as continued revenue growth from our brands customers . for the year ended december 31 , 2019 , brands customers represented approximately 26 % of our total revenue compared to approximately 22 % for year ended december 31 , 2018. average revenue per customer increased 3.5 % , to $ 47,891 for the year ended december 31 , 2019 compared with $ 46,286 for the year ended december 31 , 2018 . the increase in the average revenue per customer was primarily driven by our continued focus on obtaining brands and large retailers as customers , which may represent a smaller number of total customers , but a potentially larger source of predictable and sustainable recurring revenue . comparison of 2018 to 2017 revenue increased by 7.1 % , or $ 8.7 million , to $ 131.2 million for the year ended december 31 , 2018 compared with $ 122.5 million for the prior year primarily due to an increase in the average revenue per customer . average revenue per customer increased 8.4 % to $ 46,286 for the year ended december 31 , 2018 compared with $ 42,693 for the year ended december 31 , 2017 . the increase in the average revenue per customer was primarily driven by the growth of revenue derived from our marketplaces solution . this growth was largely attributable to an overall increase in transaction volume . in addition , the increase in average revenue per customer was due in part to our established customers who have increased their revenue over time on our platform . in general , as customers mature they generate a higher amount of gmv from which we derive revenue and in some cases they may subscribe to additional modules on our platform , thereby increasing our subscription revenue . in addition , other revenue increased by 39.7 % , or $ 4.5 million , to $ 16.0 million for the year ended december 31 , 2018 compared with $ 11.4 million for the prior year largely due to growth in revenue derived from our where to buy solution , attributable to both new and expanded contractual arrangements . cost of revenue 40 cost of revenue primarily consists of : salaries and personnel-related costs for employees providing services to our customers and supporting our platform infrastructure , including benefits , bonuses and stock-based compensation ; co-location facility costs for our data centers ; infrastructure maintenance costs ; and fees we pay to credit card vendors in connection with our customers ' payments to us . comparison of 2019 to 2018 cost of revenue decreased by 1.7 % , or $ 0.5 million , to $ 29.0 million for the year ended december 31 , 2019 compared with $ 29.5 million for the prior year . the change was comprised primarily of ( decreases ) increases of : 41 $ ( 0.6 ) million in compensation and employee-related costs due to reductions in headcount , primarily as a result of the implementation of a plan , or the 2019 actions , to reduce our expenses and align our operations with evolving business needs in the third quarter of 2019 ; partially offset by $ 0.2 million in non-recurring severance and related costs in connection with the 2019 actions . comparison of 2018 to 2017 cost of revenue increased by 1.4 % , or $ 0.4 million , to $ 29.5 million for the year ended december 31 , 2018 compared with $ 29.1 million for the prior year . the change was comprised primarily of an increase in contractor costs to support our services team .
| financial results total revenue of $ 130.0 million for the year ended december 31 , 2019 decreased 1.0 % from the prior year ; average revenue per customer of $ 47,891 for the year ended december 31 , 2019 increased 3.5 % compared with $ 46,286 for the prior year ; revenue was comprised of 79.6 % and 20.4 % fixed and variable subscription fees , respectively , for the year ended december 31 , 2019 compared with 76.3 % and 23.7 % fixed and variable subscription fees , respectively , for the prior year ; revenue derived from customers located outside of the united states as a percentage of total revenue was 25.2 % for the year ended december 31 , 2019 compared with 23.9 % for the prior year ; revenue from our brands customers represented 26.1 % of total revenue for the year ended december 31 , 2019 , up from 21.7 % for the year ended december 31 , 2018 ; gross margin of 77.7 % for the year ended december 31 , 2019 improved by 20 basis points compared with gross margin of 77.5 % for the prior year ; operating margin of 2.9 % for the year ended december 31 , 2019 improved 860 basis points compared with operating margin of ( 5.7 ) % for the prior year ; net income was $ 3.5 million for the year ended december 31 , 2019 compared with a net loss of $ 7.6 million for the prior year ; adjusted ebitda , a non-gaap measure , of $ 20.2 million for the year ended december 31 , 2019 increased 106.1 % compared with adjusted ebitda of $ 9.8 million for the prior year ; cash and cash equivalents were $ 51.8 million at december 31 , 2019 compared with $ 47.2 million at december 31 , 2018 ; operating cash flow was $ 13.0 million for the year ended december 31 , 2019 compared with $ 1.2 million for the prior year ; and free cash flow
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the series a warrant is exercisable at a price of $ 7.25 per warrant for ( x ) one share of common stock and ( y ) one series b warrant ( story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under item 1a . “ risk factors ” and under “ forward-looking statements ” in this annual report on form 10-k. overview we are a biopharmaceutical company focused on the discovery , development , and commercialization of pharmaceutical-grade hypochlorous acid , or hocl , based therapeutics designed to prevent and treat infection in invasive applications . our lead drug candidate , rut58-60 , is a broad spectrum anti-infective that we are developing for the prevention and treatment of infection in surgical and trauma procedures . we are focusing rut58-60 for use initially to prevent infections in abdominal surgery due to the large addressable market , high rate of post-surgical infection associated with abdominal surgery , the high-impact opportunity that abdominal surgery offers us in the clinical trial setting to expose multiple internal organs to rut58-60 at one time , and feedback from surgeons identifying post-surgical infection in abdominal surgery ( relative to other surgeries ) as a significant unmet medical need . we were incorporated in january 2013 as a wholly-owned subsidiary of oculus innovative sciences , inc. , or oculus or the former parent , and we were operated as a wholly-owned subsidiary of oculus until the completion of our initial public offering , or ipo , in march 2014. we currently have no products approved for sale . we submitted our investigational new drug application , or ind , for rut58-60 to the united states food and drug administration , or fda , in early may 2014. in june 2014 , our ind became effective thereby allowing us to begin human clinical testing of rut58-60 . our goal is to become the first company to market rut58-60 as a drug containing hocl for the prevention and treatment of infection in invasive surgeries in the united states . we believe that rut58-60 has the potential to significantly reduce the rate of post-surgical infections , reduce the use of systemic antibiotics that have proven to be ineffective against certain common resistant strains of bacteria , including methicillin-resistant staphylococcus aureus , or mrsa , and vancomycin-resistant enterococcus , or vre , reduce the negative side effects associated with the increasingly widespread use of antibiotics , accelerate post-surgical healing which should lead to quicker patient discharge from the hospital , and ultimately reduce hospital readmission rates . we expect to commence patient enrollment in the initial phase of our first human clinical trial in july 2014. the initial phase will be a 30 patient , 21-day skin irritation trial that we expect to complete in august 2014. following an independent data monitoring committee , or dmc , review of the results from the skin irritation phase , we plan to enroll 20 patients in the phase 1 part of our phase 1/2 clinical trial , to evaluate the safety of rut58-60 within the abdominal cavity , which we refer to as the safety run-in . subject to review of the safety run-in data by the dmc , we will continue patient enrollment in the phase 2 part of our phase 1/2 clinical trial for rut58-60 . pending the successful completion of that trial and our planned pivotal clinical trials , the first of which we anticipate will be our planned phase 2b trial and the second of which we anticipate will be our planned phase 3 trial , we plan to submit our new drug application , or nda , to the fda in late 2017. we believe that rut58-60 will complement the paid for performance paradigm and it is designed to reduce the overall healthcare costs associated with post-surgical infections and improve hospital economics . we believe the benefits of rut58-60 will be significant : rut58-60 mimics the human body 's own infection-fighting mechanism , rut58-60 has not shown evidence of toxicity or other negative side effects in our animal and other preclinical studies , preclinical studies of rut58-60 conducted by us have not produced resistant bacteria , and rut58-60 appears to provide broad spectrum anti-microbial effect . we believe that rut58-60 has the potential to be used as a prophylactic therapy to prevent and treat infections , and may accelerate patient discharge from the hospital and ultimately lead to an overall reduction in hospital readmission rates . 56 the benefits of hocl in preventing infection have been well-demonstrated in products with lower concentrations of hocl than rut58-60 . to date , hocl based products have only been cleared for use as medical devices for topical applications in the united states , europe and certain other countries . earlier formulations have not been able to achieve therapeutic indication status , primarily due to their lack of stability and therefore have been limited for use as topical applications . historically , the lack of stability has posed a vexing problem to companies hoping to pursue hocl products for therapeutic indications in invasive applications and has prevented these companies from being able to conduct the clinical trials necessary to prove whether hocl is safe and effective for use as a therapeutic . hocl based products have been used successfully to prevent infection in topical applications and have been sold commercially since at least 2005 by other companies , generally as medical devices or for the disinfection of medical devices . story_separator_special_tag we will remain an “ emerging growth company ” until the earliest of ( i ) the last day of the fiscal year in which we have total annual gross revenues of $ 1 billion or more ; ( ii ) march 31 , 2019 ; ( iii ) the date on which we have issued more than $ 1 billion in nonconvertible debt during the previous three years ; or ( iv ) the date on which we are deemed to be a large accelerated filer under the rules of the sec . story_separator_special_tag 2.5pt '' > working capital ( deficiency ) $ 14,627,000 $ ( 1,000 ) we reported net losses of $ 3,118,000 and $ 523,000 for the years ended march 31 , 2014 and 2013 , respectively . at march 31 , 2014 and 2013 , our accumulated deficit was $ 3,669,000 and $ 551,000 , respectively . we have not yet achieved profitability . we expect that our research and development and general and administrative expenses will continue to increase and , as a result , we will eventually need to generate significant product revenues to achieve profitability . we may never achieve profitability . on march 26 , 2014 , we closed our ipo and received $ 16,184,000 of net proceeds ( including repayment of $ 798,000 of ipo costs to our former parent ) . subsequent to march 31 , 2014 , we received an additional $ 865,000 of net proceeds from our ipo . we believe that our existing cash , which includes the proceeds from our ipo , will be sufficient to fund our operations into the quarter ending december 31 , 2015. we intend to use our existing cash as follows : approximately $ 8,000,000 to fund our planned phase 1/2 clinical trial of rut58-60 , to conduct research and development activities for additional indications , and to establish an independent research facility ; approximately $ 1,500,000 in milestone payments to our former parent , payable upon completion of last patient enrollment in our phase 1/2 clinical trial ; and approximately $ 6,500,000 for general corporate purposes and working capital ( including repayment of $ 653,000 of non-ipo costs to our former parent ) . this expected use of net proceeds from the ipo represents our intentions based upon our current plans and business conditions . the amounts and timing of our actual expenditures may vary significantly depending on numerous factors , including the status of and results from clinical trials of rut58-60 . as a result , our management will retain broad discretion over the allocation of the net proceeds from the ipo . we may find it necessary or advisable to use the net proceeds from the ipo for other purposes , and we will have broad discretion in the application of net proceeds from the ipo . 59 future capital requirements and availability of funds we expect to continue to incur substantial operating losses in the future and to make capital expenditures to support the expansion of our research and development programs , establishment of a research and development and manufacturing facility and to initiate commercial operations . we anticipate using a portion of the net proceeds from the ipo to finance these activities . it may take several years to obtain the necessary regulatory approvals to commercialize rut58-60 as a drug in the united states . there is no assurance that such approvals will be obtained . our future funding requirements will depend on many factors , including : the scope , rate of progress and cost of our clinical trials and other research and development activities ; future clinical trial results ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; the cost and timing of regulatory approvals ; the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products ; the cost and timing of establishing sales , marketing and distribution capabilities ; the effect of competing technological and market developments ; the cost of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights ; and the extent to which we acquire or invest in businesses , products and technologies . we may seek to raise additional funds through public or private equity offerings , debt financings , capital lease transactions , corporate collaborations or other means . we may seek to raise additional capital due to favorable market conditions or strategic considerations even if we have sufficient funds for planned operations . the sale of additional equity or convertible debt securities could result in dilution to our stockholders . debt financing could require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness , and may contain other terms that are not favorable to our stockholders or us . to the extent that we raise additional funds through collaborative arrangements , it may be necessary to relinquish some rights to our technologies or grant licenses on terms that are not favorable to us . we do not know whether additional funding will be available on acceptable terms , or at all . a failure to secure additional funding when needed may require us to curtail certain operational activities , including regulatory trials , sales and marketing , and international operations and would have a material adverse effect on our future business and financial condition . cash flows during the years ended march 31 , 2014 and 2013 during the years ended march 31 , 2014 and 2013 , our sources and uses of cash were as follows : net cash used in operating activities net cash used in operating activities was $ 2,969,000 and $ 426,000 for the years ended march 31 , 2014 and 2013 , respectively .
| results of operations year ended march 31 , 2014 compared with year ended march 31 , 2013 expenses of the company for the year ending march 31 , 2013 contain carve-out financial statements , including expense allocations related to salaries and consulting activities , which benefited the company , from the former parent from april 1 , 2012 through january 18 , 2013 , prior to the incorporation of ruthigen . the financial information included herein may not necessarily reflect expenses and cash flows of the company if operated on a stand-alone basis . the following table presents selected items in our statements of operations for the years ended march 31 , 2014 and 2013 , respectively : replace_table_token_4_th revenue we did not recognize product sales for the years ended march 31 , 2014 or 2013. our ability to generate product revenues in the future will depend almost entirely on our ability to successfully develop , obtain regulatory approval for and then successfully commercialize rut58-60 in the united states . in the event we choose to pursue a partnering arrangement to commercialize rut58-60 or other products outside the united states , we would expect to initiate additional research and development and clinical trial activities in the future . research and development expense research and development expense was $ 1,382,000 and $ 258,000 for the years ended march 31 , 2014 and 2013 , respectively , an increase of $ 1,124,000 , or 436 % . the increase in research and development expense is primarily a result of the commencement of ruthigen 's operations directly related to rut58-60 in january 2013. research and development expense consists of costs related to the research and development of rut58-60 and our manufacturing process ; the development and testing of new drug formulations ; preclinical studies ; consulting fees ; personnel related costs , including salaries , and benefits ; and in the preparations for clinical trials , which are designed to obtain fda drug approvals for rut58-60 .
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the lease term commenced in 2009 and the primary term expires on february 28 , 2019 , which may be renewed for six successive periods of five years each . in accordance with terms story_separator_special_tag financial condition a nd results of operations throughout this section , the big 5 sporting goods corporation ( “ we , ” “ our , ” “ us ” ) fiscal years ended january 1 , 2017 , january 3 , 2016 and december 28 , 2014 are referred to as fiscal 2016 , 2015 and 2014 , respectively . the following discussion and analysis of our financial condition and results of operations for fiscal 2016 , 2015 and 2014 includes information with respect to our plans and strategies for our business and should be read in conjunction with the consolidated financial statements and related notes , the risk factors and the cautionary statement regarding forward-looking information included elsewhere in this annual report on form 10-k. our fiscal year ends on the sunday nearest december 31. fiscal 2016 and 2014 each included 52 weeks and fiscal 2015 included 53 weeks . overview we are a leading sporting goods retailer in the western united states , operating 432 stores and an e-commerce platform under the name “ big 5 sporting goods ” as of january 1 , 2017. we provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet . in the fourth quarter of fiscal 2014 , we launched our e-commerce platform to also offer selected products online and e-commerce sales for fiscal 2016 , 2015 and 2014 were not material . our product mix includes athletic shoes , apparel and accessories , as well as a broad selection of outdoor and athletic equipment for team sports , fitness , camping , hunting , fishing , tennis , golf , winter and summer recreation and roller sports . we believe that over our 62-year history we have developed a reputation with the competitive and recreational sporting goods customer as a convenient neighborhood sporting goods retailer that consistently delivers value on quality merchandise . our stores carry a wide range of products at competitive prices from well-known brand name manufacturers , including adidas , coleman , columbia , everlast , new balance , nike , rawlings , skechers , spalding , under armour and wilson . we also offer brand name merchandise produced exclusively for us , private label merchandise and specials on quality items we purchase through opportunistic buys of vendor over-stock and close-out merchandise . we reinforce our value reputation through weekly print advertising in major and local newspapers , direct mailers and digital marketing designed to generate customer traffic , drive sales and build brand awareness . we also maintain social media sites to enhance distribution capabilities for our promotional offers and to enable communication with our customers . throughout our history , we have emphasized controlled growth . in fiscal 2016 , we opened five new stores and closed 11 stores , one of which was a relocation . in fiscal 2015 , we opened five new stores and closed six stores , three of which were relocations . in fiscal 2014 , we opened 16 new stores , four of which were relocations , and closed six stores , four of which were relocations . in fiscal 2015 , we slowed our store growth as we maintained a cautious approach toward store openings in the current retail environment and we continued that approach in fiscal 2016 , which included the liquidation and closure of certain major competitors in our markets . the following table summarizes our store count for the periods presented : replace_table_token_8_th ( 1 ) stores that are relocated are classified as new stores . sales from the prior location are treated as sales from a closed store and thus are excluded from same store sales calculations . 25 story_separator_special_tag roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > ( 4 ) same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period . for purposes of reporting same store sales comparisons to the prior year for fiscal 2016 , we used comparable 52-week periods . for purposes of reporting same store sales comparisons to the prior year for fiscal 2015 , we used comparable 53-week periods . fiscal 2016 compared to fiscal 2015 net sales . net sales decreased by $ 7.9 million , or 0.8 % , to $ 1,021.2 million for fiscal 2016 from $ 1,029.1 million for fiscal 2015. the change in net sales was primarily attributable to the following : net sales comparisons for fiscal 2016 were unfavorably impacted by the calendar shift from a 53-week fiscal year in 2015 to a 52-week fiscal year in 2016. this calendar shift unfavorably impacted net sales comparisons to fiscal 2015 by approximately $ 21.5 million . a reduction in sales from closed stores was partially offset by added sales from new stores that reflected the opening of 10 new stores since december 28 , 2014. same store sales increased 1.7 % for fiscal 2016 versus fiscal 2015. because same store sales comparisons to fiscal 2015 are made on a comparable 52-week basis , same store sales comparisons in fiscal 2016 were not materially impacted by the calendar shift from a 53-week year in fiscal 2015. our higher same store sales reflected the liquidation and closure of certain major competitors in the second half of fiscal 2016. we expect to cycle the benefit of such competitive rationalization in the third quarter of fiscal 2017 , which could impact year-over-year sales comparisons for the second half of fiscal 2017. for fiscal 2016 , same store sales in all of our major merchandise categories of hard goods , apparel and footwear increased compared to the prior year . story_separator_special_tag 28 same store sales increased 1.3 % for fiscal 2015 versus fiscal 2014. our higher same store sales reflected increased sales of winter-related merchandise as a result of favorable winter-weather conditions in our primary markets in the first quarter and fourth quarter of fiscal 2015. for fiscal 2015 , same store sales in our major merchandise categories of footwear and apparel increased while same store sales in our hard goods category were down slightly . same store sales for a period reflect n et sales from stores that operated throughout the period as well as the full corresponding prior year period . for purposes of reporting same store sales comparisons to fiscal 2014 , we use comparable 53-week periods . although we experienced decreased customer transactions in our retail stores , the average sale per transaction increased in fiscal 2015 compared to fiscal 2014 , continuing to reflect a shift in our product mix to more branded merchandise . store count at the end of fiscal 2015 was 438 versus 439 at the end of fiscal 2014. we opened five new stores and closed six stores , three of which were relocations , in fiscal 2015. gross profit . gross profit increased by $ 11.6 million to $ 325.0 million , or 31.6 % of net sales , in fiscal 2015 from $ 313.4 million , or 32.1 % of net sales , in fiscal 2014. the change in gross profit was primarily attributable to the following : net sales increased by $ 51.2 million in fiscal 2015 compared to fiscal 2014. merchandise margins , which exclude buying , occupancy and distribution expense , decreased an unfavorable ten basis points from fiscal 2014. store occupancy expense for fiscal 2015 increased by $ 5.6 million , or an unfavorable ten basis points , year over year due primarily to increased rent associated with store lease renewals and new store openings . distribution expense increased $ 3.9 million , or an unfavorable 17 basis points , primarily resulting from higher employee labor and benefit-related expense due in part to an additional week of payroll expense , and lower costs capitalized into inventory , partially offset by reduced fuel expense . selling and administrative expense . selling and administrative expense increased by $ 10.1 million , or 3.5 % , to $ 298.4 million , or 29.0 % of net sales , in fiscal 2015 from $ 288.3 million , or 29.5 % of net sales , in fiscal 2014. the change in selling and administrative expense was primarily attributable to the following : store-related expense , excluding occupancy , increased by $ 9.6 million due primarily to higher labor and employee benefit-related expense of $ 8.1 million that reflected an additional fiscal week of payroll expense , legislated minimum wage increases and personnel increases associated with new store openings , along with added operating expense for new stores . administrative expense increased by $ 3.3 million , primarily reflecting expense associated with the following items : o higher employee labor and benefit-related expense of $ 2.3 million due , in part , to an additional fiscal week of payroll expense . o a publicly-disclosed proxy contest , which was settled on april 30 , 2015. the proxy contest and related matters negatively impacted our administrative expense during fiscal 2015 by approximately $ 1.6 million . o expenses of $ 0.4 million to evaluate store growth strategies and potential profit improvement opportunities . o a pre-tax charge of $ 0.4 million for a legal settlement in fiscal 2015. administrative expense in fiscal 2014 included pre-tax charges of $ 1.4 million for legal accruals . o a pre-tax non-cash impairment charge of $ 0.2 million in fiscal 2015 related to an underperforming store . administrative expense in fiscal 2014 included a pre-tax non-cash impairment charge of $ 1.2 million related to certain underperforming stores . these charges are further discussed in note 4 to the consolidated financial statements included in part ii , item 8 , financial statements and supplementary data , of this annual report on form 10-k. advertising expense for fiscal 2015 decreased by $ 2.8 million , due primarily to lower newspaper advertising , partially offset by increases in digital marketing programs to support sales . interest expense . interest expense increased by $ 0.2 million , or 7.4 % , to $ 1.8 million in fiscal 2015 from $ 1.6 million in fiscal 2014. the increase in interest expense reflects an increase in average debt levels of $ 6.3 million to $ 69.6 million in fiscal 2015 from $ 63.3 million in fiscal 2014. average interest rates remained unchanged at 1.9 % in fiscal 2015 compared with fiscal 2014. income taxes . the provision for income taxes was $ 9.5 million for fiscal 2015 compared with $ 8.6 million for fiscal 2014. this increase was primarily due to a higher effective tax rate and higher pre-tax income in fiscal 2015. our effective tax rate was 38.2 % for fiscal 2015 compared with 36.7 % for fiscal 2014. the higher effective tax rate year over year primarily resulted from a reduced amount of income tax credits for the current year . 29 liquidity and capital resources our principal liquidity requirements are for working capital , capital expenditures and cash dividends . we fund our liquidity requirements primarily through cash on hand , cash flows from operations and borrowings from our revolving credit facility . we believe our cash on hand , future cash flows from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next 12 months .
| executive summary our improved earnings for fiscal 2016 compared to fiscal 2015 were mainly attributable to lower selling and administrative expense , which reflected a 52-week fiscal year in 2016 compared with a 53-week fiscal year in 2015 , along with an increased gross profit margin in fiscal 2016. while fiscal 2016 net sales comparisons to the prior year unfavorably reflected the extra week of sales in fiscal 2015 , we experienced increased sales trends in the second half of fiscal 2016 resulting from the liquidation and closure of certain major competitors that concluded in the third quarter of fiscal 2016. net sales for fiscal 2016 decreased 0.8 % to $ 1,021.2 million compared to fiscal 2015. the decrease in net sales was primarily attributable to the unfavorable impact of an extra week of sales in fiscal 2015 , resulting from a calendar shift from a 53-week year in fiscal 2015 , as well as a reduction in sales from closed stores , partially offset by an increase in same store sales and added sales from new stores . our same store sales increased 1.7 % for fiscal 2016 versus the comparable period in fiscal 2015. our same store sales comparisons to the prior year do not reflect the calendar shift from a 53-week year in fiscal 2015 because we report same store sales on a comparable 52-week basis . same store sales benefited from the liquidation and closure of certain major competitors that concluded in the third quarter of fiscal 2016. for fiscal 2016 , same store sales increased for all of our major merchandise categories of hard goods , apparel and footwear . same store sales for a period reflect net sales from stores that operated throughout the period as well as the full corresponding prior year period , and same store sales comparisons exclude sales from stores closed during the comparable periods .
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in many of our projects , in addition to building homes , we are responsible for the entitlement and development of the underlying land . we build and sell an extensive range of home types across a variety of price points . our emphasis is on acquiring well located land positions and offering quality homes with innovative design elements . during the year ended december 31 , 2014 , we completed the following significant transactions : in april 2014 , we purchased substantially all of the assets of lvlh , a homebuilder with operations in las vegas , nevada , for a purchase price of approximately $ 165 million . the acquired assets consisted of 1,761 lots within five single-family communities . i n may 2014 , we completed a private offering of $ 200.0 million in aggregate principal amount of our 6.875 % senior notes due 2022 ( which we refer to as the “ initial notes ” ) in reliance on rule 144a and regulation s under the securities act , where we received net proceeds of approximately $ 193.3 million . the initial notes carry a coupon of 6.875 % per annum and were issued at a price equal to 99.239 % of their principal amount . in june 2014 , we completed our initial public offering of 4,480,000 shares of our common stock , of which 480,000 shares were issued by non-management and non-affiliate selling stockholders , at a public offering price of $ 23.00 per share , where we received net proceeds of approximately $ 81.6 million . 32 in august 2014 , we acquired substantially all the assets and operations of grand view in houston , texas for a purchase price of approximately $ 13 million and earn out payments based on performance over the next two years . the acquired assets consisted of 601 owned and controlled lots within 13 active selling communities . in november 2 014 , we acquired substantially all the assets and operations of peachtree in atlanta , georgia for a purchase price of approximately $ 5 7 million , inclusive of a true -up payment . the acquired assets consisted of 2,120 owned and controlled lots within 36 active selling communities . story_separator_special_tag # d9d9d9 ; border-bottom:1pt none # d9d9d9 ; font-family : times new roman ; font-size : 1pt '' > during 2014 , we disposed of a parcel of land , which had a carrying basis of $ 1.8 million , for $ 4.8 million . no similar transactions occurred in 2013. gross margin on golf course and other in connection with our acquisition of lvlh , we are the operators of two golf courses within our rhodes ranch and tuscany communities . we generated approximately $ 5.8 million in revenue during the year ended december 31 , 2014 , which was offset by costs associated with the courses of $ 6.3 million . selling , general and administrative expense replace_table_token_8_th our selling , general and administrative costs increased $ 23.2 million for the year ended december 31 , 2014 as compared to the previous year . the increase was primarily attributable to the following : ( 1 ) an increase of $ 9.7 million in our compensation-related expenses , including incentive compensation , resulting largely from a 119.3 % increase in our headcount to 397 employees as of december 31 , 2014 compared to 181 as of december 31 , 2013 , one - time compensation costs associated with our initial public offering of $ 0.6 million , and an increase in stock based compensation of $ 1.4 million , ( 2 ) an increase of $ 5.8 million in commission expense to $ 11.9 million for the year ended december 31 , 2014 , resulting from a 105.6 % increase in home sales revenue , ( 3 ) an increase of $ 2.1 million related to advertising costs associated with our increased number of active communities , ( 4 ) an increase of $ 1.7 million related to depreciation and amortization as a result of amortization expense of intangible assets from our acquisitions of jimmy jacobs , lvlh , grand view , and peachtree , and ( 5 ) moderate increases in outside professional services , insurance , legal , and other miscellaneous expenses related to increased operations from our growth and overall increase in costs associated with being a public company . 35 other income ( expense ) other income ( expense ) decreased by $ 0.4 million to an expense of $ 0.1 million for the year ended december 31 , 2014 , from income of $ 0.2 million for the year ended december 31 , 2013. the decrease was driven by an increase in acqu isition related expenses of $ 0.9 million , which was partially offset by a net increase in interest income , interest expense , other income and gain on disposition of assets of $ 0 . 5 million . income tax expense our income tax expense for the year ended december 31 , 2014 was $ 10.9 million as compared to $ 5.6 million for the year ended december 31 , 2013. our income tax expense for the year ended december 31 , 2014 results in an effective tax rate of 35.3 % . our effective tax rate is driven by our blended federal and state statutory rate of 37.1 % which is partially offset by permanent differences of 1.8 % . in april 2013 , we converted into a corporation from a limited liability company , at which time we became a taxable entity . as such , we had no provision for income taxes prior to april 30 , 2013 , and accordingly , our income tax expense for the year ended december 31 , 2013 is not comparable to 2014. other homebuilding operating data replace_table_token_9_th * nm - not meaningful . story_separator_special_tag inventories and cost of sales we capitalize pre-acquisition , land , development , and other allocated co s ts , including interest , during development and home construction . land , development , and other common costs are allocated to inventory using the relative-sales-value method ; however , as lots within a project typically have comparable market values , we generally allocate land , development , and common costs equally to each lot within the project . home construction costs are recorded using the specific-identification method . cost of sales for homes closed includes the allocation of construction costs of each home and all applicable land acquisition , land development , and related common costs , both incurred and estimated to be incurred . changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining homes in the community . when a home is closed , the company generally has not paid all incurred costs necessary to complete the home , and a liability and a charge to cost of sales are recorded for the amount that is estimated will ultimately be paid related to completed homes . impairment of real estate inventories we review all of our communities for an indicator of impairment and record an impairment loss when conditions exist where the carrying amount of inventory is not recoverable and exceeds its fair value . indicators of impairment include , but are not limited to , significant decreases in local housing market values and selling prices of comparable homes , significant decreases to gross margins and sales absorption rates , costs in excess of budget , and actual or projected cash flow losses . we prepare and analyze cash flows at the lowest level for which there is identifiable cash flows that are independent of the cash flows of other groups of assets , which we have determined as the community level . if events or circumstances indicate that the carrying amount may be impaired , such impairment will be measured based upon the difference between the carrying amount and the fair value of such assets determined using the estimated future discounted cash flows , excluding interest charges , generated from the use and ultimate disposition of the respective inventories . such losses , if any , are reported within costs of sales . when estimating undiscounted cash flows , we make various assumptions , including the following : the expected sales prices and sales incentives to be offered , including the number of homes available , pricing and incentives offered by us or other builders in other communities , and future sales prices adjustments based on market and economic trends ; the costs incurred to date and expected to be incurred including , but not limited to , land and land development costs , home construction costs , interest costs , indirect 38 construction , and selling and marketing costs ; any alternative product offerings that may be offered that could have an impact on sales , sales prices and or building costs ; and alternative uses for the property . for the years ended december 31 , 2014 and 2013 , the following table shows the number of communities for which we identified an indicator of impairment and therefore tested for whether an impairment existed , compared to the total number of communities that existed during such period . for both periods , we did not identify any communities for which the undiscounted cash flows were not substantially in excess of the carrying values and for which potential future impairments , individually or in the aggregate , could materially impact operating results and or total equity . replace_table_token_13_th warranties e stimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized . amounts accrued , which are included in accrued expenses and other liabilities on the consolidated balance sheet , are based upon historical experience rates . we subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internally developed analysis that incorporates historical payment trends and adjust the amounts recorded if necessary . stock-based compensation we estimate the grant date fair value of stock-based compensation awards and recognize the fair value as compensation costs over the requisite service period , which is generally three years , for all awards that vest . prior to our initial public offering in june 2014 , our common stock was not actively traded in a liquid primary market , and accordingly , the determination of the fair value at the grant date of our restricted stock awards required significant judgment by management . as such , we first consider transactions in our common stock by qualified institutional buyers subsequent to our private placement in the secondary market . we also considered various factors to determine whether the closing price of our common stock in the secondary market is an accurate representation of the fair value of the restricted stock awards . these considerations include , but were not limited to , the timing of transactions in the secondary market and the elapsed time from the relevant grant date ( if any ) , the volume of transactions in the market , and the level of information available to the investors . to the extent we believe d that the closing price of our common stock in the secondary market was not an accurate representation of the fair value of the restricted stock award , we also consider ed observable trends in the stock prices of our publicly traded peers since our private placement , as well as internal valuations based on recent forecasts in determining the grant date fair value of the award . had we utilized different assumptions in estimating the fair value of our restricted stock awards prior to our initial public offering our stock-based compensation expense and results of operations could have been different .
| results of operations during the year ended december 31 , 2014 , we delivered 1,046 homes , with an average sales price of $ 336 .4 thousand . during the same period , we generated approximately $ 351.8 million in home sales revenue , approximately $ 31.0 million in income before tax expense , and approximately $ 20.0 million in net income . for the year ended december 31 , 2014 , our net sales orders totaled 1,042 homes , a 156.7 % increase over the same period in 2013. on december 31 , 2014 , we had a backlog of 772 sold but unclosed homes , a 247.7 % increase over the same period in 2013 , consisting of approximately $ 246.3 million in sales valu e , a 138.6 % increase over the same period in 2013. our results of operations are significantly impacted by our acquisitions of jimmy jacobs in september 2013 , lvlh in april 2014 , grand view in august 2014 , and peachtree in november 2014. subsequent to our acquisition , these operations are our central texas , nevada , houston and atlanta operating segments , respectively . the following table summarizes our results of operation for the years ended december 31 , 2014 and 2013. replace_table_token_5_th 33 total owned and controlled lot inventory 11,463 8,341 3,122 37.4 % ( 1 ) for information regarding the unaudited pro-forma adjustments , see not e 19 to our consolidated financial statements . home sales revenue and new homes delivered the following tables summarize our home deliveries and average sales price for each of our operating segments for the years ended december 31 , 2014 and 2013 : replace_table_token_6_th * nm - not meaningful . we generated $ 351.8 mil lion in home sales revenue during the year ended december 31 , 2014. this represents a 105.6 % increase as compared to the year ended december 31 , 2013 where we generated $ 171.1 million in home sales revenue .
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accordingly , the purchase consideration for these assets has been allocated to the proved and unproved oil and gas properties based on their relative fair values measured as of the 72 centennial resource development , inc. notes to consolidated financial statements ( continued ) acquisition dates . after settlement statement adjustments of $ 0.3 million , the company paid an aggregate purchase price of $ 182.3 million . on a relative fair value basis , $ 142.5 million was allocated to unproved properties and $ 39.8 million to proved properties . transaction costs incurred and capitalized amounted to $ 0.2 million and mainly consisted of advisory and legal fees . 2018 disposition on march 2 , 2018 , the company completed the sale of approximately 8,600 undeveloped net acres and 12 gross producing wells located in reeves county , texas for a total unadjusted sales price of $ 140.7 million . the divested acreage represents a largely non-operated position ( 32 % average working interest ) on the western portion of centennial 's position in reeves county . there was no gain or loss recognized as a result of this divestiture , which constituted a partial sale of oil and gas properties in accordance with accounting standard codification ( “ asc ” ) 932 , extractive activities - oil and gas . the company used the net proceeds from the sale to fund the 2018 acquisitions discussed above . note 3—accounts receivable , accounts payable and accrued expenses accounts receivable are comprised of the following : replace_table_token_33_th accounts payable and accrued expenses are comprised of the following : replace_table_token_34_th 73 centennial resource development , inc. notes to consolidated financial statements ( continued ) note 4—long-term debt the following table provides information about the company 's long-term debt as of the dates indicated : replace_table_token_35_th credit agreement crp , the company 's consolidated subsidiary , has a credit agreement with a syndicate of banks that provides for a five-year secured revolving credit facility , maturing on may 4 , 2023 ( the “ credit agreement ” ) . on may 1 , 2020 , crp , as borrower , and the company , as parent guarantor , entered into the second and third amendments to the credit agreement ( the “ q2 2020 amendments ” ) , which , among other things , established a new borrowing base and level of elected commitments of $ 700.0 million . the q2 2020 amendments that the lenders approved also permitted the issuance of the senior secured notes in connection with the debt exchange ( defined below ) , and they implemented an availability blocker equal to 25 % of the newly issued amount of senior secured notes . as of december 31 , 2020 , the company had $ 330.0 million in story_separator_special_tag in the 2019 annual report on form 10-k filed with the sec for a discussion of the results of operations for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . 49 liquidity and capital resources story_separator_special_tag by $ 127.1 million and also reduced future interest payments . 50 analysis of cash flow changes the following table summarizes our cash flows for the periods indicated : replace_table_token_19_th cash flows from 2020 compared to 2019. for the year ended december 31 , 2020 , we generated $ 171.4 million of cash from operating activities , a decrease of $ 392.8 million from 2019. cash provided by operating activities decreased primarily due to lower realized prices for oil and ngls , lower production volumes for crude oil , residue gas and ngls , higher exploration and other expenses , interest payments , cash settlement losses on derivatives , and the timing of vendor payments during 2020 as compared to 2019. these declining factors were partially offset by higher realized natural gas prices , lower lease operating expenses , production taxes , gp & t costs , cash g & a expenses , and the timing of our receivable collections during 2020 as compared to the same 2019 period . refer to “ results of operations ” for more information on the impact of volumes and prices on revenues and on fluctuations in our operating costs periods . for the year ended december 31 , 2020 , cash flows from operating activities , cash on hand , and net borrowings of $ 155.0 million under our credit facility were used to finance $ 318.5 million of drilling and development cash expenditures , to fund $ 8.5 million in oil and gas property acquisitions , and to finance $ 6.7 million of debt issuance and exchange costs . cash flows from 2019 compared to 2018. for the year ended december 31 , 2019 , we generated $ 564.2 million of cash from operating activities , a decrease of $ 105.8 million from 2018. cash provided by operating activities decreased primarily due to lower realized prices for crude oil , natural gas and ngls , higher lease operating expenses , severance and ad valorem taxes , gp & t costs , exploration expense , cash g & a expenses , interest payments , cash settlement losses from derivatives and the timing of our supplier payments during 2019. these declining factors were partially offset by higher crude oil , natural gas and ngl production volumes and the timing of our receivable collections during 2019 as compared to the 2018 period . story_separator_special_tag senior unsecured notes on november 30 , 2017 , crp issued $ 400.0 million of 5.375 % senior notes due 2026 and on march 15 , 2019 , crp issued $ 500.0 million of 6.875 % senior notes due 2027 in 144a private placements . the senior unsecured notes are fully and unconditionally guaranteed on a senior unsecured basis by centennial and each of crp 's current subsidiaries that guarantee crp 's revolving credit facility . in may 2020 , a portion of the senior unsecured notes were exchanged for senior secured notes ( see above discussion for details of the debt exchange ) . the indentures governing the senior unsecured notes and senior secured notes ( collectively , the “ senior notes ” ) contain covenants that , among other things and subject to certain exceptions and qualifications , limit crp 's ability and the ability of crp 's restricted subsidiaries to : ( i ) incur or guarantee additional indebtedness or issue certain types of preferred stock ; ( ii ) pay dividends on capital stock or redeem , repurchase or retire capital stock or subordinated indebtedness ; ( iii ) transfer or sell assets ; ( iv ) make investments ; ( v ) create certain liens ; ( vi ) enter into agreements that restrict dividends or other payments from their subsidiaries to them ; ( vii ) consolidate , merge or transfer all or substantially all of their assets ; ( viii ) engage in transactions with affiliates ; and ( ix ) create unrestricted subsidiaries . crp was in compliance with these covenants as of december 31 , 2020 and through the filing of this annual report . for further information on our senior notes , refer to note 4—long-term debt under part ii , item 8 of this annual report . off-balance sheet arrangements we may enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations . as of december 31 , 2020 , we had no off-balance sheet arrangements . 52 contractual obligations we routinely enter into or extend operating and transportation agreements , office and equipment leases , drilling rig contracts , among others , in the ordinary course of business . the following table summarizes our obligations and commitments as of december 31 , 2020 to make future payments under long-term contracts for the time periods specified below . replace_table_token_20_th ( 1 ) operating leases include our office rental agreements and other wellhead equipment . please refer to note 15—leases under part ii , item 8 of this annual report for details on our operating lease commitments . ( 2 ) water disposal agreements consist of contracts for transportation and disposal of produced water from our operated wells . under the terms of these agreements , we are obligated to deliver a minimum volume of produced water or else pay for any deficiencies at the prices stipulated in the contracts . the obligations reported above represent our remaining minimum financial commitments pursuant to the terms of these contracts as of december 31 , 2020. actual expenditures under these contracts may exceed the minimum commitments presented above . ( 3 ) asset retirement obligations reflect the present value of the estimated future costs associated with the plugging and abandonment of oil and gas wells and the related land restoration in accordance with applicable laws and regulations . ( 4 ) long-term debt consists of the principal amounts of the senior notes due and borrowings outstanding under the credit agreement maturing on may 4 , 2023 . ( 5 ) cash interest expense on the senior notes is estimated assuming no principal repayment until the maturity of the instruments . cash interest expense on the credit agreement includes unused commitment fees and assumes no additional principal borrowings , repayments or changes to commitments under the agreement through the instrument due date . ( 6 ) transportation agreements include various firm natural gas transportation contracts whereby we are required to pay fixed pipeline capacity reservation fees over the contractual terms . the obligations reported above represent minimum financial commitments pursuant to the terms of these contracts . however , our expenditures under these contracts are likely to exceed the minimum commitments presented above . recently issued accounting standards there were no significant new accounting standards adopted or new accounting pronouncements that would have a potential effect on us as of december 31 , 2020. critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with gaap . the preparation of these statements requires us to make certain assumptions , judgments and estimates that affect the reported amounts of assets , liabilities , revenues and expenses , as well as , the disclosure of contingent assets , contingent liabilities and commitments as of the date of our financial statements . we base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time . actual results may vary from our estimates due to changes in circumstances , weather , politics , global economics , commodity prices , production performance , drilling results , mechanical problems , general business conditions and other factors . a summary of our significant accounting policies can be found in note 1—basis of presentation and summary of significant accounting policies , item 8. financial statements and supplementary data in this annual report . we have outlined certain of our accounting policies below which require the application of significant judgment by our management . 53 oil and natural gas reserve quantities we use the successful efforts method of accounting for our oil and gas producing activities . the successful efforts method inherently relies on the estimation of proved crude oil , natural gas and ngl reserves . reserve quantities and the related estimates of future net
| overview our drilling and completion and land acquisition activities require us to make significant capital expenditures . historically , our primary sources of liquidity have been cash flows from operations , borrowings under crp 's revolving credit facility , and proceeds from offerings of debt or equity securities . future cash flows are subject to a number of variables , including oil and natural gas prices . prices for oil and natural gas began to decline significantly in march 2020 and have remained volatile since . these lower commodity prices negatively impact our operating cash flows and our ability to access debt or equity markets , and sustained low oil and natural gas prices could have a material and adverse effect on our liquidity position . to date , our primary use of capital has been for drilling and development capital expenditures and for the acquisition of oil and natural gas properties . the following table summarizes our capital expenditures ( “ capex ” ) incurred during the year : ( in millions ) year ended december 31 , 2020 drilling and completion capital expenditures $ 212.0 facilities , infrastructure and other 38.2 land 4.6 total capital expenditures $ 254.8 we continually evaluate our capital needs and compare them to our capital resources . as a result of the decline in crude oil prices and ongoing uncertainty regarding the oil supply-demand macro environment , we temporarily suspended all drilling and completion activities at the end of the first quarter of 2020 in order to preserve capital . specifically , we reduced our operated drilling rig program to zero rigs starting in april of 2020 and continued with no drilling rigs in operation until the end of september 2020 when we resumed drilling activity with a one-rig program .
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” all dollar amounts presented in the tables that follow are in thousands unless otherwise indicated . also , due to the combination of different units of volumetric measure and the number of decimal places presented and rounding , certain results may not calculate explicitly from the values presented in the tables . certain statistics for years ended december 31 , 2019 and 2018 have been reclassified to conform to the 2020 presentation . overview and executive summary we are an independent oil and gas company focused on the onshore exploration , development and production of crude oil , ngls and natural gas . our current operations consist of drilling unconventional horizontal development wells and operating our producing wells in gonzales , lavaca , fayette and dewitt counties in south texas . industry environment and recent operating and financial highlights commodity price and other economic conditions the global public health crisis associated with the novel coronavirus , or covid-19 , has , and is anticipated to continue to have , an adverse effect on the global economy , which may be prolonged , and has resulted in travel restrictions , business closures , limitations to person-to-person contact and the institution of quarantining and other restrictions on movement in many communities . these restrictions resulted in a dramatic decline in the demand for energy in 2020 , which directly impacted our industry and the company . in addition , global crude oil prices experienced significant decline since the beginning of 2020 as a result of the dual impact of demand deterioration and market oversupply caused by disagreements between the organization of the petroleum exporting countries , or opec , and russia , together with opec , collectively opec+ , with respect to production curtailments . opec+ ultimately agreed to specified reductions in production in the spring of 2020 which , for the most part , held for the remainder of the year and were supplemented by additional voluntary downward adjustments , led primarily by saudi arabia . collectively these curtailments have contributed to a relative stabilization of commodity prices and rebalancing of the global crude oil markets by the end of 2020. notwithstanding the relative improvement in global market stability , as a result of several factors including rising infection rates at the beginning of 2021 , mutating strains of the virus , the return of stricter lockdown measures and logistical challenges in vaccine distribution , among others , a return to pre-covid 19 levels of economic activity remain uncertain in their magnitude and eventual timing . nonetheless , opec+ indicated in their january 2021 meeting a commitment to gradually return limited production to the market with the pace being determined by market conditions . an additional meeting is scheduled for early march of 2021 to monitor conditions and progress . a significant decline in domestic drilling by u.s. producers began in mid-march 2020 and continued through most of the second half of the year . the overall economic decline had an adverse impact on the entire industry , but particularly on smaller upstream producers with limited financial resources as well as oilfield service companies . while a modest recovery in activity began in the fourth quarter of 2020 , including a resumption of our own drilling program , domestic supply and demand imbalances continue to stress the market which is further exacerbated by capacity limitations associated with storage , pipeline and refining infrastructure , particularly within the gulf coast region . while there exists encouraging signs for continued recovery due to the aforementioned vaccine development as well as a commitment by the new u.s. administration to prioritize economic relief efforts , the relative success of such efforts is difficult to predict with respect to timing and the resulting economic impact . accordingly , the combined effect of the global and domestic factors discussed herein is anticipated to continue to contribute to overall volatility within the industry generally and to our operations specifically . the combined effect of covid-19 and the continuing energy industry instability has led to significant volatility in nymex wti crude oil prices throughout 2020 and into 2021. in the beginning of january 2020 , prices were approximately $ 62 per barrel and ended the year at approximately $ 48 per barrel for a decrease of approximately 23 percent . prices have continued to rise and since the beginning of 2021 have ranged from approximately $ 47 to $ 66 per barrel through march 5 , 2021. despite this recovery , overall crude oil pricing will remain subject to significant volatility consistent with the global and domestic factors discussed above . 41 during 2020 , we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity . the more significant actions that we took during that time included : ( i ) temporarily suspending our drilling program from april through september 30 , 2020 , ( ii ) curtailing production through selected well shut-ins for a period of several weeks in april and may , ( iii ) securing additional crude oil storage capacity , ( iv ) substantially expanding the scope and range of our commodity derivatives portfolio , ( v ) utilizing certain provisions of the coronavirus aid , relief and economic security act , or cares act , and related regulations , the most significant of which resulted in the receipt in june 2020 of an accelerated refund of our remaining refundable alternative minimum tax , or amt , credit carryforwards in the amount of $ 2.5 million and ( vi ) eliminating annual cost-of-living and similar adjustments to our salaries and wages for 2020 , and a limited rif during the third quarter of 2020. these actions are described in greater detail in the discussions for key developments that follow as well as notes 2 , 6 , 10 and 14 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data. story_separator_special_tag under the second lien amendment , the company is required to make quarterly amortization payments equal to $ 1,875,000 and outstanding borrowings under the second lien facility bear interest at a rate equal to , at our option , either ( a ) a customary reference rate based on the prime rate plus an applicable margin of 8.25 % or ( b ) a customary london interbank offered rate plus an applicable margin of 7.25 % ; provided that the applicable margin will increase to 9.25 % and 8.25 % respectively during any quarter in which the quarterly amortization payment is not made . we have the right , to the extent permitted under the credit facility and an intercreditor agreement between the lenders under the credit facility and the lenders under the second lien facility , to prepay loans under the second lien facility at any time , subject to the following prepayment premiums ( in addition to customary “ breakage ” costs with respect to eurodollar loans ) : from january 15 , 2021 through january 14 , 2022 , 102 % of the amount being prepaid , from january 15 , 2022 through january 14 , 2023 , 101 % of the amount being prepaid ; and thereafter , no premium . the second lien facility also provides for the following prepayment premiums in the event of a change in control that results in an offer of prepayment that is accepted by the lenders under the second lien facility : from january 15 , 2021 through january 14 , 2023 , 102 % of the amount being prepaid , from january 15 , 2023 through january 14 , 2024 , 101 % of the amount being prepaid ; and thereafter , no premium . additionally , on the closing date , we entered into the omnibus amendment to the second lien facility ( the “ omnibus amendment ” ) to , among other things , effectuate the release of the company from its guarantee of the obligations of the borrower and its grant of a security interest in its assets . 44 additional restrictions and other qualifications associated with the second lien facility , as amended by the second lien amendment and the omnibus amendment , or the amended second lien facility , are described in the discussion of financial condition that follows and note 9 to the consolidated financial statements included in part ii , item 8 , “ financial statements and supplementary data. ” we paid down $ 50.0 million of outstanding loans under the amended second lien facility plus accrued interest of $ 0.2 million attributable to lenders and $ 1.3 million including accrued interest to a non-consenting lender in january 2021 which was funded with the proceeds from the juniper transaction . we incurred and capitalized $ 1.4 million of issue and other costs and wrote-off $ 1.3 million of unamortized issuance costs in connection with the second lien amendment in january 2021. development plans and production in october 2020 , we resumed a limited drilling and completion program on a pad-to-pad basis and are currently drilling with two operated rigs . during december 2020 , we made prepayments of $ 13.6 million for drilling and completion materials and services securing locked in rates or discounts in advance of the program for the first quarter of 2021. we completed and turned two gross ( 2.0 net ) and 23 gross ( 20.6 net ) wells to sales during the quarter and year ended december 31 , 2020 , respectively . subsequent to december 31 , 2020 , we turned an additional five gross ( 4.5 net ) wells to sales through march 5 , 2021. as of march 5 , 2021 , three gross ( 2.8 net ) wells were completing and nine gross ( 7.1 net ) wells were in progress . total sales volume for the quarter and year ended december 31 , 2020 was 1,978 mboe and 8,887 mboe , or 21,502 and 24,281 boepd , with approximately 78 percent and 77 percent , or 1,538 mbbls and 6,829 mbbls , of sales volume from crude oil , 12 and 13 percent from ngls and 10 percent for both periods each from natural gas , respectively . as of march 5 , 2021 , we had approximately 102,100 gross ( 90,100 net ) acres in the eagle ford , net of expirations . approximately 92 percent of our acreage is held by production and substantially all is operated by us . executive transition in august 2020 , we appointed darrin henke our new president and chief executive officer , or ceo , and director following the retirement of john brooks . we incurred incremental g & a costs , in connection with mr. henke 's appointment and mr. brooks ' separation as described in the discussion for results of operations that follow . on january 15 , 2021 , we announced the departure of benjamin a. mathis , senior vice president , operations & engineering , effective january 4 , 2021. separately , we also announced the appointment of julia gwaltney as senior vice president , development , effective january 5 , 2021. in connection with the juniper transactions , five new members were appointed to our board of directors including : ( i ) edward geiser - managing partner of juniper capital , ( ii ) kevin cumming - partner of juniper capital , ( iii ) tim gray - general counsel and chief compliance officer of juniper capital , ( iv ) joshua schmidt - managing director of juniper capital and ( v ) temitope ogunyomi - director of juniper capital . actions to address the economic impact of covid-19 and industry decline during 2020 , we initiated and pursued several actions to mitigate the adverse economic conditions and to support our financial position , liquidity and the efficient continuity of our operations as follows : drilling program .
| results of operations that follow . daily sales volume decreased approximately 12 percent to 21,502 boepd , from 24,295 boepd due primarily to the effect of natural well declines in the absence of an active drilling program that did not resume until october of 2020 as well as the impact of turning only two gross ( 2.0 net ) wells to sales during the fourth quarter of 2020 as compared to five gross ( 4.8 net ) wells during the third quarter of 2020. total sales volume declined approximately 12 percent to 1,978 mboe from 2,235 mboe due to the aforementioned natural well declines and drilling program timing . while overall sales volume declined , the percentage of crude oil volume sold increased to 78 percent from 76 percent during the fourth quarter of 2020. product revenues decreased three percent to $ 66.5 million from $ 68.6 million due primarily to nine percent lower crude oil volume , or $ 5.7 million , partially offset by six percent higher crude oil prices , or $ 3.5 million . ngl revenues declined six percent due to 19 percent lower volume , or $ 0.6 million , partially offset by 16 percent higher prices , or $ 0.4 million . natural gas revenues increased 10 percent due to a 36 percent increase in pricing , or $ 0.8 million , partially offset by a 19 percent decrease in volume , or $ 0.5 million . production and lifting costs ( consisting of loe and gpt ) increased on an absolute and per unit basis to $ 14.8 million and $ 7.49 per boe from $ 14.0 million and $ 6.28 per boe due primarily to higher preventive and other previously deferred maintenance and workover costs , higher environmental compliance costs as well as higher crude oil storage costs partially offset by lower volumetric and variable-based costs attributable to the overall lower sales volume .
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, 2015 as compared to the year ended december 31 , 2014 ; · results of operations for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 ; and · liquidity and capital resources . 41 recent transactions acquisitions on january 5 , 2016 , the company , which held a 50 percent interest in the property-owning entity , overlook ridge apartment investors llc , acquired its remaining interest in a 371-unit multi-family operating property located in malden , massachusetts for $ 39.8 million . on december 23 , 2015 , the company acquired a vacant 147,241 square-foot office property located in the mack-cali business campus in parsippany , new jersey , for approximately $ 10.3 million , which was funded primarily through borrowings under the company 's unsecured revolving credit facility . this property is currently in redevelopment by the company . on november 12 , 2015 , the company acquired a 196,128 square-foot , 95.6 percent leased office property adjacent to an existing mack-cali property located in edison , new jersey , for approximately $ 53.1 million , which was funded primarily through borrowings under the company 's unsecured revolving credit facility . dispositions the company disposed of the following office properties during the year ended december 31 , 2015 ( dollars in thousands ) : rentable net net disposition # of square sales book realized date property/address location bldgs . feet proceeds value gain 01/15/15 1451 metropolitan drive west deptford , new jersey 1 21,600 $ 1,072 $ 929 $ 143 05/27/15 10 independence blvd warren , new jersey 1 120,528 18,351 ( a ) 15,114 3,237 06/11/15 4 sylvan way parsippany , new jersey 1 105,135 15,961 ( a ) 9,522 6,439 06/26/15 14 sylvan way parsippany , new jersey 1 203,506 79,977 55,253 24,724 07/21/15 210 clay ave lyndhurst , new jersey 1 121,203 14,766 ( a ) 5,202 9,564 08/24/15 5 becker farm rd roseland , new jersey 1 118,343 18,129 ( a ) 8,975 9,154 totals 6 690,315 $ 148,256 $ 94,995 $ 53,261 ( a ) the company transferred the deeds for these properties to the lender in satisfaction of its mortgage loan obligations totaling $ 59.7 million . the company recorded an impairment charge of $ 25.2 million during the year ended december 31 , 2013 as it estimated that the carrying value of the properties may not be recoverable over their anticipated holding periods . on january 1 , 2014 , the company adopted the new discontinued operations accounting standard and as the properties disposed of during the year ended december 31 , 2015 did not represent a strategic shift ( as the company is not entirely exiting markets or property types ) , they have not been reflected as part of discontinued operations . impairments on properties held and used in september 2015 , the company announced a three-year strategic initiative to transform the company into a more concentrated owner of new jersey hudson river waterfront and transit-oriented office properties and a regional owner of luxury multi-family residential properties . in connection with the transformation of the company 's portfolio , management began developing a disposition plan in september 2015 , which will be an ongoing assessment process . through this plan , the company , in the coming years , expects to dispose of primarily office properties considered non-core to its ongoing operations . as a result , at september 30 , 2015 , the company evaluated the recoverability of the carrying values of these non-core properties , and determined that due to the shortening of the expected periods of ownership , it was necessary to reduce the carrying values of 22 rental properties to their estimated fair values . accordingly , the company recorded an impairment charge of $ 158.6 million at september 30 , 2015 reducing the aggregate carrying values of these properties from $ 554.3 million to their estimated fair values of $ 395.7 million . at december 31 , 2015 , as a result of its periodic evaluation of the recoverability of the carrying values resulting from its ongoing assessment of non-core properties , the company recorded an additional impairment charge of $ 33.7 million . four of the company 's office properties are collateral for a mortgage loan that matured on august 11 , 2014 , with a principal balance of $ 63.3 million as of december 31 , 2015. the loan was not repaid at maturity and the company is in discussions with the lender regarding potential options in satisfaction of the obligation ( see note 10 : mortgages , loans payable and other obligations ) . as of september 30 , 2015 , the company estimated that the carrying value of three of these properties , aggregating 479,877 square feet and located in roseland and parsippany , new jersey , may not be recoverable over their anticipated holding periods . in order to reduce the carrying values of the properties to their estimated fair values , the company recorded impairment charges of $ 5.6 million at september 30 , 2015 , which resulted from the current decline in leasing activity and market rents of the properties identified . the company had previously recorded impairment charges on these properties at september 30 , 2013 of $ 12.5 million . 42 critical accounting policies and estimates the accompanying consolidated financial statements include all accounts of the company , its majority-owned and or controlled subsidiaries , which consist principally of mack-cali realty , l.p. ( the “ operating partnership ” ) , and variable interest entities for which the company has determined itself to be the primary beneficiary , if any . see note 2 : significant accounting policies – investments in unconsolidated joint ventures – to the financial statements , for the company 's treatment of unconsolidated joint venture interests . intercompany accounts and transactions have been eliminated . story_separator_special_tag above-market and below-market lease values for acquired properties are initially recorded based on the present value ( using a discount rate which reflects the risks associated with the leases acquired ) of the difference between ( i ) the contractual amounts to be paid pursuant to each in-place lease and ( ii ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases . the capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining terms of the respective leases , and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases . other intangible assets acquired include amounts for in-place lease values and tenant relationship values , which are based on management 's evaluation of the specific characteristics of each tenant 's lease and the company 's overall relationship with the respective tenant . factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . in estimating carrying costs , management includes real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , management considers leasing commissions , legal and other related expenses . characteristics considered by management in valuing tenant relationships include the nature and extent of the company 's existing business relationships with the tenant , growth prospects for developing new business with the tenant , the tenant 's credit quality and expectations of lease renewals . the value of in-place leases are amortized to expense over the remaining initial terms of the respective leases . the value of tenant relationship intangibles are amortized to expense over the anticipated life of the relationships . on a periodic basis , management assesses whether there are any indicators that the value of the company 's rental properties held for use may be impaired . in addition to identifying any specific circumstances which may affect a property or properties , management considers other criteria for determining which properties may require assessment for potential impairment . the criteria considered by management include reviewing low leased percentages , significant near-term lease expirations , recently acquired properties , current and historical operating and or cash flow losses , near-term mortgage debt maturities or other factors that might impact the company 's intent and ability to hold the property . a property 's value is impaired only if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges ) to be generated by the property is less than the carrying value of the property . to the extent impairment has occurred , the loss shall be measured as the excess of the carrying value of the property over the fair value of the property . the company 's estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions . these assumptions are generally based on management 's experience in its local real estate markets and the effects of current market conditions . the assumptions are subject to economic and market uncertainties including , among others , demand for space , competition for tenants , changes in market rental rates , and costs to operate each property . as these factors are difficult to predict and are subject to future events that may alter management 's assumptions , the future cash flows estimated by management in its impairment analyses may not be achieved , and actual losses or impairments may be realized in the future . see note 3 : recent transactions – impairments on properties held and used – to the financial statements . rental property held for sale : when assets are identified by management as held for sale , the company discontinues depreciating the assets and estimates the sales price , net of selling costs , of such assets . if , in management 's opinion , the estimated net sales price of the assets which have been identified as held for sale is less than the net book value of the assets , a valuation allowance is established . 44 if circumstances arise that previously were considered unlikely and , as a result , the company decides not to sell a property previously classified as held for sale , the property is reclassified as held and used . a property that is reclassified is measured and recorded individually at the lower of ( a ) its carrying value before the property was classified as held for sale , adjusted for any depreciation ( amortization ) expense that would have been recognized had the property been continuously classified as held and used , or ( b ) the fair value at the date of the subsequent decision not to sell . investments in unconsolidated joint ventures : the company accounts for its investments in unconsolidated joint ventures under the equity method of accounting . the company applies the equity method by initially recording these investments at cost , as investments in unconsolidated joint ventures , subsequently adjusted for equity in earnings and cash contributions and distributions . the outside basis portion of the company 's joint ventures is amortized over the anticipated useful lives of the underlying ventures ' tangible and intangible assets acquired and liabilities assumed .
| results of operations the following discussion should be read in conjunction with the consolidated financial statements of mack-cali realty corporation and the notes thereto ( collectively , the “ financial statements ” ) . certain defined terms used herein have the meaning ascribed to them in the financial statements . executive overview mack-cali realty corporation together with its subsidiaries , ( the “ company ” ) has been involved in all aspects of commercial real estate development , management and ownership for over 60 years and has been a publicly-traded real estate investment trust ( reit ) since 1994. the company owns or has interests in 275 properties ( collectively , the “ properties ” ) , consisting of 147 office and 109 flex properties , primarily class a office and office/flex buildings , totaling approximately 29.9 million square feet , leased to approximately 1,900 commercial tenants and 19 multi-family rental properties containing 5,644 residential units . the properties are located primarily in the northeast , some with adjacent , company-controlled developable land sites able to accommodate up to 5.3 million square feet of additional commercial space and approximately 11,300 apartment units . the company 's historical strategy has been to focus its operations , acquisition and development of office properties in high-barrier-to-entry markets and sub-markets where it believes it is , or can become , a significant and preferred owner and operator . in september 2015 , the company announced a three-year strategic initiative to transform into a more concentrated owner of new jersey hudson river waterfront and transit-oriented office properties and a regional owner of luxury multi-family residential properties . in furtherance of this strategy , the company has commenced a comprehensive review of its portfolio and operations and is developing a business strategy that focuses on reshaping its portfolio over time .
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the amendments in this standard are to be applied prospectively and are effective during interim and annual periods beginning after december 15 , 2011 , which would be the first quarter of fiscal 2012 for the company . the company does not believe asu no . 2011-04 will have a significant impact on its consolidated financial statements story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section entitled selected financial and operating data and our audited consolidated financial statements and the respective related notes included elsewhere in this annual report on form 10-k. this discussion may contain forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth under the section entitled risk factors and elsewhere in this report , our actual results may differ materially from those anticipated in these forward-looking statements . overview we are a value-priced retailer of urban fashion apparel and accessories for the entire family . our merchandise offerings are designed to appeal to the preferences of fashion conscious consumers , particularly african-americans . we operate 511 stores in both urban and rural markets in 29 states . prior to encountering a challenging sales environment , we were pursuing an aggressive store growth strategy that included opening 60 new stores in fiscal 2010 and 55 new stores in fiscal 2011. we expect to take a more conservative approach to growth in fiscal 2012 with plans to open approximately 5 new stores . we will continue to evaluate our growth strategy as we monitor operating results in fiscal 2012. we measure performance using key operating statistics . one of the main performance measures we use is comparable store sales growth . we define a comparable store as a store that has been opened for an entire fiscal year . therefore , a store will not be considered a comparable store until its 13th month of operation at the earliest or until its 24th month at the latest . as an example , stores opened in fiscal 2010 and fiscal 2011 were not considered comparable stores in fiscal 2011. relocated and expanded stores are included in the comparable store sales results . we also use other operating statistics , most notably average sales per store , to measure our performance . as we typically occupy existing space in established shopping centers rather than sites built specifically for our stores , store square footage ( and therefore sales per square foot ) varies by store . we focus on overall store sales volume as the critical driver of profitability . the average sales per store has increased over the years , as we have increased comparable store sales and opened new stores that are generally larger than our historical store base . average sales per store have increased from $ 0.8 million in fiscal 2000 to $ 1.3 million in fiscal 2011. in addition to sales , we measure gross profit as a percentage of sales and store operating expenses , with a particular focus on labor , as a percentage of sales . these results translate into store level contribution , which we use to evaluate overall performance of each individual store . finally , we monitor corporate expenses against budgeted amounts . all of the statistics discussed above are critical components of earnings before interest , taxes , depreciation and amortization ( ebitda ) and adjusted ebitda ( comprised of ebitda plus non-cash asset impairment expense ) , which are considered our most important operating statistics . although ebitda and adjusted ebitda provide useful information on an operating cash flow basis , they are limited measures in that they exclude the impact of cash requirements for capital expenditures , income taxes and interest expense . therefore , ebitda and adjusted ebitda should be used as supplements to results of operations and cash flows as reported under gaap and should not be used as a singular measure of operating performance or as a substitute for gaap results . provided below is a reconciliation of net ( loss ) income to ebitda and to adjusted ebitda for fiscal years ended january 28 , 2012 , january 29 , 2011 and january 30 , 2010 : 18 replace_table_token_5_th basis of the presentation net sales consist of store sales and layaway fees , net of returns by customers . cost of sales consists of the cost of products we sell and associated freight costs . selling , general and administrative expenses are comprised of store costs , including payroll and occupancy costs , corporate and distribution center costs and advertising costs . we operate on a 52- or 53-week fiscal year , which ends on the saturday closest to january 31. each of our fiscal quarters consists of four 13-week periods , with an extra week added to the fourth quarter every five to six years . the years ended january 28 , 2012 , january 29 , 2011 , january 30 , 2010 , january 31 , 2009 , and february 2 , 2008 are referred to as fiscal 2011 , 2010 , 2009 , 2008 and 2007 , respectively . each of these five fiscal years is comprised of 52 weeks . fiscal 2012 will be a 53-week year ending on february 2 , 2013. based on historical sales results in late january and early february , the 53 rd week is expected to reflect sales that are higher than our annual weekly average ; however , incremental profits for such week may be negligible because that week has historically had high levels of markdowns . story_separator_special_tag in fiscal 2011 and 60 new stores in fiscal 2010. selling , general and administrative expenses as a percentage of net sales increased to 32.3 % in fiscal 2011 from 30.1 % in fiscal 2010 due primarily to the deleveraging effect on expenses as a percentage of sales when comparable store sales decline 8.3 % . story_separator_special_tag depreciation and amortization expense increased $ 2.0 million , or 10.9 % , to $ 20.3 million in fiscal 2010 from $ 18.3 million in fiscal 2009 , as the result of capital expenditures incurred for new and relocated/expanded stores . income tax expense . income tax expense increased $ 0.7 million , or 7.8 % , to $ 10.7 million in fiscal 2010 from $ 10.0 million in fiscal 2009 due to higher pretax earnings in fiscal 2010 and an increase in the effective income tax rate to 34.0 % in fiscal 2010 from 33.6 % in fiscal 2009. the increase in the tax rate was due to having less tax-free interest income in fiscal 2010. net income . net income increased 5.8 % to $ 20.9 million in fiscal 2010 from $ 19.7 million in fiscal 2009 due to the factors discussed above . liquidity and capital resources our cash requirements are primarily for working capital and for capital expenditures for our stores , distribution infrastructure and information systems . historically , we have met these cash requirements from cash flow from operations , short-term trade credit , borrowings under our revolving lines of credit , long-term debt and capital leases , and cash proceeds from our initial public offering . we expect to be able to meet future cash requirements with cash flow from operations , short-term trade credit , existing cash balances and , if necessary , borrowings under our revolving credit facility ( described below ) . in fiscal 2011 , there was no need to borrow under the credit facility , including during the seasonal build of inventory in advance of the christmas season . due to our strong cash and cash equivalents position as of january 28 , 2012 ( $ 42.0 million ) , we believe that we will likely not have to borrow under the credit facility during fiscal 2012. cash flows fiscal 2011 compared to fiscal 2010 as of january 28 , 2012 , we had total cash and cash equivalents of $ 42.0 million , compared with $ 69.2 million as of january 29 , 2011. the most significant factors in the decrease in our cash and cash equivalents position during fiscal 2011 were capital expenditures and purchases of investment securities , partially offset by positive cash flow from operating activities . inventory represented 41.8 % of our total assets as of january 28 , 2012 , compared with 39.6 % as of january 29 , 2011. management 's ability to manage our inventory can have a significant impact on our cash flows from operations during a given interim period or fiscal 22 year . in addition , inventory purchases can be seasonal in nature , such as the purchase of warm-weather or christmas-related merchandise . cash flows provided by operating activities . net cash provided by operating activities was $ 22.1 million in fiscal 2011 compared with $ 24.3 million in fiscal 2010. net loss , adjusted for noncash expenses such as depreciation and amortization , asset impairment , deferred income taxes , loss on disposal of property and equipment , and stock-based compensation expense , provided cash of $ 24.2 million ( compared with $ 44.7 million in fiscal 2010 from net income , adjusted for noncash expenses ) . other significant sources of cash provided by operating activities included an increase in accounts payable , accrued expenses and other long-term liabilities , and accrued compensation . accounts payable increased $ 11.0 million ( compared with $ 5.2 million in fiscal 2010 ) . the increase in accounts payable was due to an increase in inventory and as a result of inventory at the end of fiscal 2010 including a higher-than-normal level of opportunistic purchases of next-season-buy merchandise made in the second half of 2010 in an effort to lock-in costs in advance of anticipated 2011 merchandise cost inflation . many of the payments to trade vendors for the higher level of next-season-buys had been made prior to the end of the year , therefore , accounts payable was lower as a percentage of inventory at the end of fiscal 2010 than fiscal 2011. accrued expenses and other long-term liabilities increased $ 5.2 million ( compared with $ 0.4 million in fiscal 2010 ) due primarily to the company 's store growth and our increasing tendency to take responsibility for the leasehold improvements in new stores in return for tenant improvement reimbursements from landlords . accrued compensation increased $ 1.7 million ( compared with a decrease of $ 0.9 million in fiscal 2010 ) as a result of severance accruals for two former officers and for employees laid off in connection with a reduction-in-force . significant uses of cash included : ( 1 ) income tax receivable increased $ 10.9 million ( compared with $ 3.2 million in fiscal 2010 ) due to a pretax loss in fiscal 2011 , including losses incurred after first quarter estimated tax payments had already been made ; and ( 2 ) inventory increased $ 10.1 million ( compared with $ 20.6 million in fiscal 2010 ) due primarily to the growth in new stores . the new store inventory was partially offset by a $ 6.4 million reduction in next-season-buy merchandise , as discussed above . cash flows used in investing activities . cash used in investing activities was $ 48.4 million in fiscal 2011 compared with $ 17.5 million in fiscal 2010. cash used for the purchase of property and equipment was $ 38.4 million in fiscal 2011 and $ 40.8 million in fiscal 2010 , including capital expenditures for 55 new stores in fiscal 2011 and 60 new stores in 2010. capital expenditures related to the new distribution center in roland , oklahoma totaled $ 5.6 million in fiscal 2011 and $ 11.2 million in 2010. purchases of investment securities , net of sales/redemptions , used cash of $ 10.0 million in fiscal 2011. sales/redemptions of investment securities , net of purchases , provided cash of $ 23.3 million in fiscal 2010. cash flows used in financing activities .
| results of operations the following discussion of our financial performance is based on the consolidated financial statements set forth in the financial pages of this report . the nature of our business is seasonal . historically , sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year . expenses and , to a greater extent , operating income , vary by quarter . results of a period shorter than a full year may not be indicative of results expected for the entire year . furthermore , the seasonal nature of our business may affect comparisons between periods . 19 net sales and additional operating data the following table sets forth , for the periods indicated , selected consolidated statement of operations data expressed both in dollars and as a percentage of net sales : replace_table_token_6_th the following table provides information , for the years indicated , about the number of total stores open at the beginning of the year , stores opened and closed during each year , total stores open at the end of each year and comparable store sales for the years : replace_table_token_7_th ( 1 ) stores included in the comparable store sales calculation for any year are those stores that were opened prior to the beginning of the preceding fiscal year and were still open at the end of such year . relocated stores and expanded stores are included in the comparable store sales results . 20 fiscal 2011 compared to fiscal 2010 net sales . net sales increased $ 18.3 million , or 2.9 % , to $ 640.8 million in fiscal 2011 from $ 622.5 million in fiscal 2010. the increase in net sales was due primarily to 55 new store openings in fiscal 2011 and 60 new store openings in fiscal 2010 for which there was not a full year of sales in fiscal 2010 , partially offset by an 8.3
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accordingly , the assets , liabilities and results of operations of kwi have become the historical financial statements of prospect at the closing of the merger , and prospect 's assets ( primarily cash and cash equivalents ) , liabilities and results of operations have been consolidated with kwi beginning on the date of the merger , again becoming the combined entity of kennedy-wilson . the components of equity are the retained earnings and other equity balances of kwi immediately before the merger with the capital share account of kwi adjusted to reflect the par value of the outstanding shares of prospect . assets , liabilities , and results of operations story_separator_special_tag the following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information appearing elsewhere in this report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . see the section title `` forward-looking statements '' for more information . actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors , including those discussed in “ risk factors ” on page 5 and elsewhere in this report . overview founded in 1977 , we are an international real estate investment and services firm . we have grown from a real estate auction business into a vertically-integrated real estate operating company with approximately 300 professionals in 23 offices throughout the u.s. , united kingdom , ireland and japan . when reading our financial statements and the information included in this section , it should be considered that we have experienced , and continue to experience , the same material trends that have affected the nation . it is , therefore , a challenge to predict our future performance based on our historical results , but we believe that the following material trends assist in understanding our historical earnings and cash flows and the potential for the future . unless specifically noted otherwise , as used throughout this management 's discussion and analysis section , “ we , ” “ our , ” or “ us ” refers to the business , operations and financial results of kennedy-wilson , inc. prior to , and kennedy-wilson holdings , inc. subsequent to , the closing of the merger as the context requires . kennedy wilson 's 2011 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > that may be reversed in future periods if there is negative fund performance were $ 2.5 million . performance fees recognized during the year ended december 31 , 2011 and 2010 were $ 0.9 million and $ 1.6 million , respectively . commissions primarily consist of acquisition fees , auction and real estate sales commissions and leasing commissions . 22 acquisition fees are earned for identifying and closing investments on behalf of investors and are based on a fixed percentage of the acquisition price . acquisition fees are recognized upon the successful completion of an acquisition after all required services have been performed . in the case of auction and real estate sales commissions , the revenue is generally recognized when escrow closes . in accordance with the guidelines established for reporting revenue gross as a principal versus net as an agent in the asc subtopic 605-45 , we record commission revenues and expenses on a gross basis . of the criteria listed in the subtopic 605-45 , we are the primary obligor in the transaction , do not have inventory risk , perform all or part of the service , have credit risk , and have wide latitude in establishing the price of services rendered and discretion in selection of agents and determination of service specifications . leasing fees that are payable upon tenant occupancy , payment of rent or other events beyond our control are recognized upon the occurrence of such events . sales of real estate are recognized at the close of escrow when title to the real property passes to the buyer and there is no continuing involvement in the real property . we follow the requirements for profit recognition as set forth by the sale of real estate asc subtopic 360-20. investments in joint ventures —we have a number of joint venture interests , generally ranging from 5 % to approximately 50 % , that were formed to acquire , manage , and or sell real estate . investments in joint ventures which we do not control are accounted for under the equity method of accounting as we can exercise significant influence , but do not have the ability to control the joint venture . an investment in a joint venture is recorded at its initial investment and is increased or decreased by our share of undistributed income or loss , plus additional contributions and less distributions . a decline in the value of an investments in a joint venture that is other than temporary is recognized when evidence indicates that such a decline has occurred in accordance with equity method investments asc subtopic 323-10. profits on the sale of real estate held by joint ventures in which we have continuing involvement are deferred until such time that the continuing involvement has been concluded and all the risks and rewards of ownership have passed to the buyer . profit on sales to joint ventures in which we retain an equity ownership interest results in partial sales treatment in accordance with sale of real estate asc subtopic 360-20 , thus deferring a portion of the gain as a result of our continuing ownership percentage in the joint ventures . story_separator_special_tag results of operations the following table sets forth items derived from our consolidated statement of operations for the years ended december 31 , 2011 , 2010 , and 2009 : 24 replace_table_token_7_th — ( 1 ) ebitda represents net income ( loss ) before interest expense , our share of interest expense included in income from investments in joint ventures and loan pool participations , depreciation and amortization , our share of depreciation and amortization included in income from investments in joint ventures , loss on early extinguishment of corporate debt and income taxes . we do not adjust ebitda for gains or losses on the extinguishment of mortgage debt as we are in the business of purchasing discounted notes secured by real estate and , in connection with these note purchases , we may resolve these loans through discounted payoffs with the borrowers . ebitda is not a recognized term under gaap and does not purport to be an alternative to net earnings as a measure of operating performance or to cash flows from operating activities as a measure of liquidity . additionally , ebitda is not intended to be a measure of free cash flow available for management 's discretionary use , as it does not consider certain cash requirements such as interest payments , tax payments and debt service requirements . our presentation of ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap . ebitda is not calculated under gaap and should not be considered in isolation or as a substitute for net income , cash flows or other financial data prepared in accordance with gaap or as a measure of our overall profitability or liquidity . our management believes ebitda is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of ebitda generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions . such items may vary for different companies for reasons unrelated to overall operating performance . additionally , we believe ebitda is useful to investors to assist them in getting a more accurate picture of our results from operations . 25 ( 2 ) adjusted ebitda represents ebitda , as defined above , adjusted to exclude merger related expenses and stock based compensation expense . our management uses adjusted ebitda to analyze our business because it adjusts ebitda for items we believe do not have an accurate reflection of the nature of our business going forward . such items may vary for different companies for reasons unrelated to overall operating performance . additionally , we believe adjusted ebitda is useful to investors to assist them in getting a more accurate picture of our results from operations . however , ebitda and adjusted ebitda are not recognized measurements under gaap and when analyzing our operating performance , readers should use ebitda and adjusted ebitda in addition to , and not as an alternative for , net income as determined in accordance with gaap . because not all companies use identical calculations , our presentation of ebitda and adjusted ebitda may not be comparable to similarly titled measures of other companies . furthermore , ebitda and adjusted ebitda are not intended to be a measure of free cash flow for our management 's discretionary use , as it does not consider certain cash requirements such as tax and debt service payments . the amounts shown for ebitda and adjusted ebitda also differ from the amounts calculated under similarly titled definitions in our debt instruments , which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in certain activities , such as incurring additional debt and making certain restricted payments . additionally , we use certain non-gaap measures to analyze our business , they include ebitda ( 1 ) and adjusted ebitda ( 2 ) calculated as follows : replace_table_token_8_th — ( 1 ) ( 2 ) see definitions in previous discussion . 26 the following summarizes revenue , operating expenses , non-operating expenses , operating income ( loss ) and net income ( loss ) and calculates ebitda ( 1 ) and adjusted ebitda ( 2 ) by our services , investments , and corporate operating segments years ended december 31 , 2011 , 2010 , and 2009 : replace_table_token_9_th — ( 1 ) ( 2 ) see definitions in previous discussion . replace_table_token_10_th — ( 1 ) ( 2 ) see definitions in previous discussion . ( 3 ) consolidated results 27 replace_table_token_11_th — ( 1 ) ( 2 ) see definitions in previous discussion . the following compares results of operations for the years ended december 31 , 2011 and december 31 , 2010 and years ended december 31 , 2010 and december 31 , 2009 . our consolidated financial results and comparison of the years ended december 31 , 2011 and 2010 our revenues for the year ended december 31 , 2011 and 2010 were $ 62.6 million and $ 50.5 million , respectively . total operating expenses for the same periods were $ 66.1 million and $ 69.9 million , respectively . net loss attributable to our common shareholders was $ 2.4 million and $ 1.1 million in 2011 and 2010 , respectively . adjusted ebitda was $ 71.2 million and $ 58.4 million in 2011 and 2010 , respectively . revenues services segment revenues third party services - these are management and leasing fees as well as commissions earned from third parties and relate to assets in which we do not have an ownership interest . our third party management and leasing services generated revenues of $ 12.6 million in 2011 compared to approximately $ 8.9 million in 2010 .
| highlights balance sheet our book net worth increased by 37 % to $ 410 million at december 31 , 2011 from $ 300 million as of december 31 , 2010 . our investment account ( kennedy wilson 's equity in real estate , loan investments and marketable securities ) increased by 60 % to $ 583 million at december 31 , 2011 from $ 364 million as of december 31 , 2010 . we increased our year-end cash position by 147 % to $ 116 million at december 31 , 2011 from $ 47 million at december 31 , 2010 . operating metrics we achieved an adjusted ebitda of $ 71 million for fy 2011 : our best year in history versus an adjusted ebitda in 2010 of $ 58 million , an increase of 22 % . our services segment adjusted ebitda for fy 2011 increased by 171 % to $ 26 million from $ 9 million for fy 2010 . our investments segment adjusted ebitda for fy 2011 decreased by 6 % to $ 53 million from $ 56 million for fy 2010 . capital markets we completed our first public debt offering , issuing $ 250 million of senior notes . we completed two stock offerings , raising gross proceeds of approximately $ 127 million . we refinanced $ 838 million of property level debt at an average rate of 3.5 % and average maturity of july 2016. acquisition program in 2011 , we closed $ 3.1 billion of real estate and real estate related debt acquisitions through direct and joint venture investments ( including approximately $ 2.2 billion of debt secured by real estate and $ 536 million of multifamily acquisitions ) . we , along with equity partners , acquired the largest apartment building by units on the west coast ( bella vista : 1,008 units ) . we , along with equity partners , acquired the largest loan portfolio in europe in the current cycle ( uk-based loan pool with $ 2.2
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the wood river acquisition was accounted for under the acquisition method of story_separator_special_tag the following discussion is intended to assist in the understanding of the consolidated balance sheets of barnwell industries , inc. and subsidiaries ( collectively referred to herein as “ barnwell , ” “ we , ” “ our , ” “ us ” or the “ company ” ) as of september 30 , 2017 and 2016 , and the related consolidated statements of operations , comprehensive income ( loss ) , equity , and cash flows for the years ended september 30 , 2017 and 2016 . this discussion should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in this report . current outlook due to the negative impacts of 1 ) declines in oil and natural gas prices ( notwithstanding the recent increases in prices ) ; 2 ) declines in oil and natural gas production due to both oil and natural gas property sales and the natural decline oil and natural gas wells experience as they age ; 3 ) increasing costs due to both inflation , the age of barnwell 's properties , increases in governmental regulation and other factors , barnwell 's existing oil and natural gas assets are projected to have negative cash flow from operations . as a result , the company 's current cash on hand will likely not be sufficient to fund both the reinvestments that are necessary to sustain our business in the future and our asset retirement obligations , retirement plan funding , and ongoing operating and general and administrative expenses . therefore , it is likely that barnwell will be increasingly reliant upon future land investment segment proceeds , if any , and future cash distributions , if any , from the kukio resort land development partnerships , the timing of which are both highly uncertain and not within barnwell 's control , to fund operations and provide capital for reinvestment . additionally , the company may need to consider alternative strategies to enable it to sustain or grow its business . if the company is unable to make sufficient and successful investments in the near future , or if unforeseen circumstances arise that impair our ability to sustain or grow the company , we will likely be forced to wind down our operations , either through liquidation , bankruptcy or further sales of our assets , and or we may not be able to continue as a going concern beyond one year . use of estimates in the preparation of financial statements the preparation of the financial statements in conformity with u.s. gaap requires management of barnwell to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of contingent assets and liabilities . actual results could differ significantly from those estimates . critical accounting policies and estimates the company considers an accounting estimate to be critical if the accounting estimate requires the company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made , and changes in the estimate that are reasonably likely to occur in periods subsequent to the period in which the estimate was made , or use of different estimates that the company could have used in the current period , would have a material impact on the company 's financial condition or results of operations . the most critical accounting policies inherent in the preparation of the company 's financial statements are described below . we continue to monitor our accounting policies to ensure proper application of current rules and regulations . 31 oil and natural gas properties - full cost ceiling calculation and depletion policy description we use the full cost method of accounting for our oil and natural gas properties under which we are required to conduct quarterly calculations of a “ ceiling , ” or limitation , on the carrying value of oil and natural gas properties . the ceiling limitation is the sum of 1 ) the discounted present value ( at 10 % ) , using average first-day-of-the-month prices during the 12-month period ending as of the balance sheet date held constant over the life of the reserves , of barnwell 's estimated future net cash flows from estimated production of proved oil and natural gas reserves , less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations ; plus 2 ) the cost of major development projects and unproven properties not subject to depletion , if any ; plus 3 ) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion ; less 4 ) related income tax effects . if net capitalized costs exceed this limit , the excess is expensed . judgments and assumptions the estimate of our oil and natural gas reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments . estimates of reserves are forecasts based on engineering data , historical data , projected future rates of production and the timing of future expenditures . the process of estimating oil and natural gas reserves requires substantial judgment , resulting in imprecise determinations , particularly for new discoveries . our reserve estimates are prepared at least annually by independent petroleum reserve engineers . the passage of time provides more quantitative and qualitative information regarding estimates of reserves , and revisions are made to prior estimates to reflect updated information . a portion of the revisions are attributable to changes in the rolling 12-month average first-day-of-the-month prices , which impact the economics of producible reserves . in the last three fiscal years , annual revisions to our reserve volume estimates have averaged 30 % of the previous year 's estimate . story_separator_special_tag judgments and assumptions we make estimates and judgments in determining our income tax expense for each reporting period . significant changes to these estimates could result in an increase or decrease in our tax provision in future periods . we are also required to make judgments about the recoverability of deferred tax assets and when it is more likely than not that all or a portion of deferred tax assets will not be realized , a valuation allowance is provided . we consider available positive and negative evidence and available tax planning strategies when assessing the realizability of deferred tax assets . accordingly , changes in our business performance and unforeseen events could require a further increase in the valuation allowance or a reversal in the valuation allowance in future periods . this could result in a charge to , or an increase in , income in the period such determination is made , and the impact of these changes could be material . in addition , barnwell operates within the u.s. and canada and is subject to audit by taxing authorities in these jurisdictions . barnwell records accruals for the estimated outcomes of these audits , and the accruals may change in the future due to new developments in each matter . tax benefits are recognized when we determine that it is more likely than not that such benefits will be realized . management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities . these potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes , regulations and rules . management considers the possibility of alternative outcomes based upon past experience , previous actions by taxing authorities ( e.g. , actions taken in other jurisdictions ) and advice from tax experts . where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant , we generally seek independent tax opinions to support our positions . if our evaluation of the likelihood of the realization of benefits is inaccurate , we could incur additional income tax and interest expense that would adversely impact earnings , or we could receive tax benefits greater than anticipated which would positively impact earnings , either of which could be material . 34 asset retirement obligation policy description barnwell records the fair value of a liability for an asset retirement obligation in the period in which it is incurred . barnwell 's estimated site restoration and abandonment costs of its oil and natural gas properties are capitalized as part of the carrying amount of oil and natural gas properties and depleted over the life of the related reserves . when the assumptions used to estimate a recorded asset retirement obligation change , a revision is recorded to both the asset retirement obligation and the capitalized cost of asset retirements . the liability is accreted at the end of each period through charges to oil and natural gas operating expense . judgments and assumptions the asset retirement obligation is recorded at fair value in the period in which it is incurred along with a corresponding increase in the carrying amount of the related asset . barnwell has estimated fair value by discounting the estimated future cash outflows required to settle abandonment and restoration liabilities . the present value calculation includes numerous estimates , assumptions and judgments regarding the existence of liabilities , the amount and timing of cash outflows required to settle the liability , what constitutes adequate restoration , inflation factors , credit adjusted discount rates , and consideration of changes in legal , regulatory , environmental and political environments . abandonment and restoration cost estimates are determined in conjunction with barnwell 's reserve engineers based on historical information regarding costs incurred to abandon and restore similar well sites , information regarding current market conditions and costs , and knowledge of subject well sites and properties . the process of estimating the asset retirement obligation requires substantial judgment and use of estimates , resulting in imprecise determinations . actual asset retirement obligations through the end of fiscal 2017 have not materially differed from our estimates . however , because of the inherent imprecision of estimates as described above , there can be no assurance that material differences will not occur in the future . a 20 % increase in accretion and depletion of the asset retirement obligation would have increased barnwell 's fiscal 2017 expenses before taxes by approximately $ 104,000. overview barnwell is engaged in the following lines of business : 1 ) acquiring , developing , producing and selling oil and natural gas in canada ( oil and natural gas segment ) , 2 ) investing in land interests in hawaii ( land investment segment ) , and 3 ) drilling wells and installing and repairing water pumping systems in hawaii ( contract drilling segment ) . in previous years , barnwell developed homes for sale in hawaii in its residential real estate segment . oil and natural gas segment barnwell is involved in the acquisition and development of oil and natural gas properties in canada where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest , and evaluate proposals by third parties with regard to participation in exploratory and developmental operations elsewhere . barnwell sells all of its oil and natural gas liquids production under short-term contracts with marketers of oil . natural gas sold by barnwell is generally sold under short-term contracts with prices indexed to market prices . the price of natural gas , oil and natural gas liquids is freely negotiated between the buyers and sellers . oil and natural gas prices are determined by many factors that are outside of our control .
| results of operations summary net earnings attributable to barnwell for fiscal 2017 totaled $ 1,171,000 , a $ 4,786,000 increase in operating results from a net loss of $ 3,615,000 in fiscal 2016 . the following factors affected the results of operations for the current fiscal year as compared to the prior fiscal year : a $ 2,093,000 increase in land investment segment operating profit , before income taxes and non-controlling interests ' share of such profits , due to a $ 2,500,000 payment received by kaupulehu developments from kd ii in the current year ; a $ 1,708,000 increase in oil and natural gas segment operating results , before impairment of assets and income taxes , due primarily to an increase in net revenues as a result of increases in prices for all products and a reduction in the depletion rate as a result of sales of oil and natural gas properties and upward revisions of oil and natural gas reserves due to higher rolling average prices in the current year period ; a $ 553,000 increase in contract drilling segment operating results , before income taxes , primarily resulting from increased activity on a contract for the plugging and abandonment of two geothermal wells which was partially offset by losses on certain water well drilling contracts due to unforeseen difficulties such as geological formation issues and well wall subsidences ; a $ 1,154,000 impairment of oil and natural gas properties recorded in the prior year ; and a $ 348,000 decrease in equity in income from affiliates recorded as a result of decreased operating results of the kukio resort land development partnerships . 39 general barnwell conducts operations in the u.s. and canada . consequently , barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the canadian dollar and the u.s. dollar .
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the impact of invotas to our business prior to the divestiture date was not material . we retained a minority interest in the business such that the results of operations from the business are not included in our financial statements subsequent to the divestiture date . in february 2016 , this business was acquired by a third-party . based on the terms of our agreement with former management personnel , we have received additional proceeds which were contingent upon a liquidation event , as defined in the agreement , resulting in an additional gain on the sale of approximately $ 6.6 million . the additional gain on sale will be recognized in the first quarter of 2016 , and will be included in restructuring and reorganization charges in our income statement . ● on december 31 , 2013 , we sold our marketing analytics business marketed under the quaero brand , which generated approximately $ 11 million of revenue in 2013. as part of this transaction , we retained certain clients , which generated approximately $ 2 million and $ 3 million , respectively , of this revenue in 2015 and 2014 . ● on july 1 , 2013 , we sold a small print operation , which generated revenues of approximately $ 5 million in 2013. as a result of these acquisitions and divestitures , amounts may not be comparable between years due to the timing of the transactions . the comparable differences have been described below where relevant or significant . overall , the acquisition and divestiture activity was not material to our operating results in 2015 , 2014 , or 2013. management overview story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:12pt ; text-indent:0 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > we have identified the most critical accounting policies that affect our financial position and the results of our operations . these critical accounting policies were determined by considering our accounting policies that involve the most complex or subjective decisions or assessments . the most critical accounting policies identified relate to : ( i ) revenue recognition ; ( ii ) impairment assessments of goodwill and other long-lived assets ; ( iii ) income taxes ; and ( iv ) loss contingencies . these critical accounting policies , as well as our other significant accounting policies , are disclosed in the notes to our financial statements . revenue recognition . the revenue recognition policy that involves the most complex or subjective decisions or assessments that may have a material impact on our business ' operations relates to the accounting for certain software license and services arrangements . the accounting for software license arrangements , especially when software is sold in a multiple-element arrangement , can be complex and may require considerable judgment . key factors considered in accounting for software license and related services include the following criteria : ( i ) the identification of the separate elements of the arrangement ; ( ii ) the determination of whether any undelivered elements are essential to the functionality of the delivered elements ; ( iii ) the assessment of whether the software , if hosted , should be accounted for as a services arrangement and thus outside the scope of the software revenue recognition literature ; ( iv ) the determination of vendor specific objective evidence ( “ vsoe ” ) of fair value for the undelivered element ( s ) of the arrangement ; ( v ) the assessment of whether the software license fees are fixed or determinable ; ( vi ) the determination as to whether the fees are considered collectible ; and ( vii ) the assessment of whether services included in the arrangement represent significant production , 24 customization or modification of the software . the evaluation of these factors , and the ultimate revenue recognition decision , requires significant judgmen ts to be made by us . the judgments made in this area could have a significant effect on revenues recognized in any period by changing the amount and or the timing of the revenue recognized . in addition , because software licenses typically have little or no direct , incremental costs related to the recognition of the revenue , these judgments could also have a significant effect on our results of operations . the initial sale of our software products generally requires significant production , modification or customization and thus falls under the guidelines of contract accounting . in these software license arrangements , the software license and professional services elements of the arrangement fee are typically combined and subject to contract accounting using the percentage-of-completion ( “ poc ” ) method of accounting . under the poc method of accounting , software license and professional services revenues are typically recognized as the professional services related to the software implementation project are performed . we are using hours performed on the project as the measure to determine the percentage of the work completed . a portion of our professional services revenues does not include an element of software delivery ( e.g. , business consulting services , etc . ) , and thus , do not fall within the scope of specific authoritative accounting literature for software arrangements . in these cases , revenues from fixed-price , professional service contracts are recognized using a method consistent with the proportional performance method , which is relatively consistent with our poc methodology . under a proportional performance model , revenue is recognized by allocating revenue between reporting periods based on relative service provided in each reporting period , and costs are generally recognized as incurred . we utilize an input-based approach ( i.e. , hours worked ) for purposes of measuring performance on these types of contracts . our input measure is considered a reasonable surrogate for an output measure . story_separator_special_tag we are required to estimate our income tax liability in each jurisdiction in which we operate , which includes the u.s. ( including both federal and state income taxes ) and numerous foreign countries . various judgments are required in evaluating our income tax positions and determining our provisions for income taxes . during the ordinary course of our business , there are certain transactions and calculations for which the ultimate income tax determination may be uncertain . in addition , we may be subject to examination of our income tax returns by various tax authorities which could result in adverse outcomes . for these reasons , we establish a liability associated with unrecognized tax benefits based on estimates of whether additional taxes and interest may be due . we adjust this liability based upon changing facts and circumstances , such as the closing of a tax audit , the closing of a tax year upon the expiration of a statute of limitations , or the refinement of an estimate . should any of the factors considered in determining the adequacy of this liability change significantly , an adjustment to the liability may be necessary . because of the potential significance of these issues , such an adjustment could be material . one of the more complex items within our income tax expense is the determination of our annual research and experimentation income tax credit ( “ r & d credit ” ) . we incur more than $ 100 million annually in r & d expense . the calculation of the r & d tax credit involves the identification of qualifying projects , and then an estimation of the qualifying costs for such projects . because of the size , nature , and the number of projects worked on in any given year , the calculation can become complex and certain judgments are necessary in determining the amount of the r & d credits claimed . in fact , during the fourth quarter of 2015 , we corrected our financial statements for an error in the calculation of r & d credit amounts recorded within our 2014 , 2013 , and 2012 income tax provisions . see further discussion below and note 7 to our financial statements for additional information regarding this immaterial correction . loss contingencies . in the ordinary course of business , we are subject to claims ( and potential claims ) related to various items including but not limited to the following : ( i ) legal and regulatory matters ; ( ii ) client and vendor contracts ; ( iii ) product and service delivery matters ; and ( iv ) labor matters . accounting and disclosure requirements for loss contingencies requires us to assess the likelihood of any adverse judgments in or outcomes to these matters , as well as the potential ranges of probable losses . a determination of the amount of reserves for such contingencies , if any , for these contingencies is based on an analysis of the issues , often with the assistance of legal counsel . the evaluation of such issues , and our ultimate accounting and disclosure decisions , are by their nature , subject to various estimates and highly subjective judgments . should any of the factors considered in determining the adequacy of any required reserves change significantly , an adjustment to the reserves may be necessary . because of the potential significance of these issues , such an adjustment could be material . detailed discussion of results of operations total revenues . total revenues for : ( i ) 2015 were $ 752.5 million , a slight increase from $ 751.3 million for 2014 ; and ( ii ) 2014 increased 1 % to $ 751.3 million , from $ 747.5 million for 2013 . · the slight increase in 2015 revenues can be primarily attributed to growth in our processing revenues , offset by unfavorable foreign currency movements , which had a negative impact to total revenues of approximately $ 15 million . the growth in our processing revenues for 2015 was driven largely by the migration of new customer accounts onto acp , and the continued revenue growth from our ascendon solution and international managed services offering , offset by some of the challenges we experienced in our software and services revenues . · the 1 % year-over-year increase between 2014 and 2013 is mainly due to the growth in processing revenues of approximately $ 25 million that we experienced during 2014 , which more than offset the lower software and services 26 revenues for the year and the approximately $ 13 million year-over-year impact of the two business divestitures completed in the second half of 2013 , discussed above . the components of total revenues , discussed in more detail below , are as follows : replace_table_token_10_th processing and related services revenues . processing and related services revenues for : ( i ) 2015 increased 3 % to $ 577.4 million , from $ 562.1 million for 2014 ; and ( ii ) 2014 increased 5 % to $ 562.1 million , from $ 537.5 million for 2013 . · the year-over-year increase between 2015 and 2014 in processing and related services revenues is primarily the result of the migration of new customer accounts onto acp , and the continued revenue growth from our ascendon solution and international managed services offering . as discussed above , comcast added over two million customer accounts onto acp during the fourth quarter of 2014 , and approximately two million additional customer accounts during the second half of 2015 . · the year-over-year increase between 2014 and 2013 in processing and related services revenues is due mainly to the following key items : ( i ) continued growth in our acp processing revenues and several of our related ancillary products and services ; and ( ii ) growth in our international managed services offering as a result of recent contract wins and service launches .
| results of operations . a summary of our results of operations for 2015 and 2014 , and other key performance metrics are as follows ( in thousands , except percentages and per share amounts ) : replace_table_token_7_th ( 1 ) stock-based compensation included in the table above excludes amounts that have been recorded in restructuring and reorganization charges . revenues . our revenues for 2015 were $ 752.5 million , a slight increase when compared to $ 751.3 million for 2014. the increase can be primarily attributed to a 3 % increase in our processing revenues , offset by unfavorable foreign currency movements , which had a negative impact to total revenues of approximately $ 15 million . the growth in our processing revenues for 2015 was driven largely 22 by the migration of new customer accounts onto acp , and the continued revenue growth from our ascendon solution and international managed services offering , offset by some of the challenges we experienced in our software and services revenues . operating results . operating income for 2015 was $ 113.1 million , or a 15.0 % operating income margin percentage , compared to $ 75.7 million , or a 10.1 % operating income margin percentage for 2014 , with the increase due to lower operating expenses ( driven primarily by foreign currency movements , focus on cost improvements , and lower restructuring and reorganization charges ) , and the scale benefits we are achieving from increasing the number of customer accounts and clients on our solutions . diluted eps . diluted eps for 2015 was $ 1.87 compared to $ 1.06 for 2014 with the increase primarily attributed to the higher operating margin . balance sheet and cash flows .
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adjustment of $ 14.0 million ) ; ( ii ) a purchase and sale agreement ( the “ harrah 's atlantic city purchase agreement ” ) pursuant to which we agreed to acquire , and eldorado agreed to cause to be sold , all of the land and real property improvements associated with harrah 's resort atlantic city and harrah 's atlantic city waterfront conference center in atlantic city , new jersey for a cash purchase price of $ 599.3 million ; and ( iii ) a purchase and sale agreement ( the “ harrah 's laughlin purchase agreement ” and , collectively with the harrah 's new orleans purchase agreement and the harrah 's atlantic city purchase agreement , the “ mta property purchase agreements ” and each , a “ mta property purchase agreement ” ) pursuant to which we agreed to acquire , and eldorado agreed to cause to be sold , all of the equity interests in a newly formed entity that will acquire the land and real property improvements associated with harrah 's laughlin hotel & casino in laughlin , nevada for a cash purchase price of $ 434.8 million . each of our existing call options on the harrah 's new orleans , harrah 's laughlin and harrah 's atlantic city properties will terminate upon the earlier to occur of the closing of the corresponding mta property acquisition or our obtaining specific performance or liquidated damages with respect to the relevant property . the closings of the mta property acquisitions are subject to conditions in addition to the consummation of the eldorado/caesars merger , and are not cross-conditioned on each other ( that is , we are not required to close on “ all or none ” of the mta properties ) . in addition , the closing of the other transactions that comprise the eldorado transaction is not conditioned on the completion of any or all of the mta property acquisitions . cplv lease agreement amendment . in consideration of a payment by us to eldorado of $ 1,189.9 million , we and eldorado will amend the cplv lease agreement to ( i ) increase the annual rent payable to us under the cplv lease agreement by $ 83.5 million ( the “ cplv additional rent acquisition ” ) and ( ii ) provide for the amended terms described below . hlv lease agreement termination and creation of las vegas master lease . in consideration of a payment by us to eldorado of $ 213.8 million , we and eldorado will terminate the hlv lease agreement and the related lease guaranty . annual rent previously payable to us with respect to the harrah 's las vegas property will be increased by $ 15.0 million ( the “ hlv additional rent acquisition ” ) . the cplv lease agreement will be amended ( as amended , the “ las vegas master lease agreement ” ) to provide , among other things , that the harrah 's las vegas property , which is currently subject to the hlv lease agreement , will be leased pursuant thereto ( with the harrah 's las vegas property subject to the higher rent escalator currently in place under the cplv lease agreement ) . thereafter the las vegas master lease agreement will be a multi-property master lease whereby the harrah 's las vegas property tenant and the caesars palace las vegas property tenant will collectively be the tenant . centaur properties put/call agreement . affiliates of caesars currently own two gaming facilities in indiana - harrah 's hoosier park and indiana grand ( together the “ centaur properties ” ) . at the closing of the eldorado/caesars merger , a 56 right of first refusal that we have with respect to the centaur properties will terminate and we will enter into a put/call agreement with eldorado , whereby ( i ) we will have the right to acquire all of the land and real estate assets associated with the centaur properties at a price equal to 13.0x the initial annual rent of each facility ( determined as provided below ) , and to simultaneously lease back each such property to a subsidiary of eldorado for initial annual rent equal to the property 's trailing four quarters ebitda at the time of acquisition divided by 1.3 ( i.e. , the initial annual rent will be set at 1.3x rent coverage ) and ( ii ) eldorado will have the right to require us to acquire the centaur properties at a price equal to 12.5x the initial annual rent of each facility , and to simultaneously lease back each such centaur property to a subsidiary of eldorado for initial annual rent equal to the property 's trailing four quarters ebitda at the time of acquisition divided by 1.3 ( i.e. , the initial annual rent will be set at 1.3x rent coverage ) . either party will be able to trigger its respective put or call , as applicable , beginning on january 1 , 2022 and ending on december 31 , 2024. the put/call agreement will provide that the leaseback of the centaur properties will be implemented through addition of the centaur properties to the non-cplv lease agreement . las vegas strip assets rofr . we will enter into a right of first refusal agreement with eldorado ( the “ las vegas rofr ” ) whereby we will have the first right , with respect to the first two of certain specified las vegas strip assets that eldorado proposes to sell , whether pursuant to a sale leaseback or a wholeco sale , to a third party , to acquire any such asset ( it being understood that we will have the opportunity to find an operating company shouldeldorado elect to pursue a wholeco sale ) . story_separator_special_tag pursuant to the master transaction agreement , the specified las vegas strip assets subject to the las vegas rofr will be the land and real estate assets associated ( i ) with respect to the first such asset subject to the las vegas rofr , the flamingo las vegas , paris las vegas , planet hollywood and bally 's las vegas gaming facilities , and ( ii ) with respect to the second asset subject to the las vegas rofr , the foregoing assets plus the linq gaming facility . if we enter into a sale leaseback transaction with eldorado on any of these facilities , the leaseback will be implemented through the addition of such properties to the cplv lease agreement . horseshoe baltimore rofr . we and eldorado agreed to enter into a right of first refusal agreement pursuant to which we will have the first right to enter into a sale leaseback transaction with respect to the land and real estate assets associated with the horseshoe baltimore gaming facility ( subject to any consent required from caesars ' joint venture partners with respect to this asset ) ( the “ horseshoe baltimore rofr ” ) . lease guaranties and mlsa terminations . eldorado will execute new guaranties ( the “ eldorado guaranties ” ) of the cplv lease agreement , the non-cplv lease agreement and the joliet lease agreement , and the existing guaranties by caesars of such leases , along with all covenants and other obligations of caesars incurred in connection with such guaranties , will be terminated with respect to caesars ( which will become a subsidiary of eldorado following the closing of the eldorado/caesars merger ) . the eldorado guaranties will guaranty the prompt and complete payment and performance in full of : ( i ) all monetary obligations of the tenants under the respective leases , including all rent and other sums payable by the tenants under the leases and any obligation to pay monetary damages in connection with any breach and to pay any indemnification obligations of the tenants under the leases ; and ( ii ) the performance when due of all other covenants , agreements and requirements to be performed and satisfied by the tenants under the leases . in addition , we and eldorado will terminate the management and lease support agreements with respect to the cplv lease agreement , the non-cplv lease agreement and the joliet lease agreement , and certain provisions currently set forth therein will be added to the respective leases , as amended , and the eldorado guaranties . other lease amendments . the cplv lease agreement , the non-cplv lease agreement and the joliet lease agreement will be amended to , among other things , ( i ) remove the rent coverage floors , which coverage floors serve to reduce the rent escalators under such leases in the event that the “ ebitdar to rent ratio ” ( as defined in each of the cplv lease agreement , the non-cplv lease agreement and the joliet lease agreement ) coverage is below the stated floor and ( ii ) extend the term of each such lease by such additional period of time as necessary to ensure that following the consummation of the eldorado/caesars merger , each lease will have a full 15-year initial lease term . the non-cplv lease agreement also will be amended to , among other things : ( a ) permit the tenant under the non-cplv lease agreement to cause facilities subject to the non-cplv lease agreement that in the aggregate represent up to five percent of the aggregate ebitdar of ( a ) all of the facilities under such non-cplv lease agreement and ( b ) the harrah 's joliet facility , for the 2018 fiscal year ( defined as the “ 2018 ebitdar pool ” in the non-cplv lease agreement , without giving effect to any increase in the 2018 ebitdar pool as a result of a facility being added to the non-cplv lease agreement ) to be sold ( whereby the tenant and landlord under the non-cplv lease agreement would sell the operations and real estate , respectively , with respect to such facility ) , provided , among other things , that ( 1 ) we and eldorado mutually agree to the split of proceeds from such sales , ( 2 ) such sales do not result in any impairment ( s ) /asset write down ( s ) by us , ( 3 ) rent under the non-cplv lease agreement remains unchanged following such sale and ( 4 ) the sale does not result in us recognizing certain taxable gain ; ( b ) restrict the ability of the tenant thereunder to transfer and sell the operating business of harrah 's new orleans and harrah 's atlantic city to replacement tenants without our consent and remove such restrictions with 57 respect to horseshoe southern indiana ( in connection with the restrictions applying to harrah 's new orleans ) and horseshoe bossier city ( in connection with the restrictions applying to harrah 's atlantic city ) , provided that the tenant under the non-cplv lease agreement may only sell such properties if certain terms and conditions are met , including that replacement tenants meet certain criteria provided in the non-cplv lease agreement ; and ( c ) require that the tenant under the non-cplv lease agreement complete and pay for all capital improvements and other payments , costs and expenses related to the extension of the existing operating license with respect to harrah 's new orleans , including , without limitation , any such payments , costs and expenses required to be made to the city of new orleans , the state of louisiana or any other governmental body or agency . cplv cmbs refinancing . we were obligated to cause the cplv cmbs debt to be repaid in full prior to the closing of the eldorado/caesars merger
| results of operations for the years ended december 31 , 2019 and december 31 , 2018 replace_table_token_4_th revenue for the years ended december 31 , 2019 and 2018 , our revenue was comprised of the following items : replace_table_token_5_th 60 leasing revenue the following table details the components of our income from direct financing , sales-type and operating leases : replace_table_token_6_th ( 1 ) represents portion of land separately classified and accounted for under the operating lease model associated with our investment in caesars palace las vegas and certain operating land parcels contained in the non-cplv lease agreement . ( 2 ) amounts represent the non-cash adjustment to income from direct financing and sales-type leases in order to recognize income on an effective interest basis at a constant rate of return over the term of the leases . leasing revenue is generated from rent from our lease agreements . total leasing revenue increased $ 76.3 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . total contractual leasing revenue increased $ 122.0 million during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . the increase was primarily driven by the addition of octavius tower , harrah 's philadelphia , margaritaville , greektown , jack cincinnati and the century portfolio to our real estate portfolio in july 2018 , december 2018 , january 2019 , may 2019 , september 2019 and december 2019 , respectively . tenant reimbursement of property taxes during the year ended december 31 , 2018 , we recorded $ 81.2 million of income from tenant reimbursement of property taxes . upon the adoption of asc 842 on january 1 , 2019 , we ceased recording tenant reimbursement of property taxes as these taxes are paid directly by our tenants to the applicable government entity .
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the lease also provides the company the right of first refusal on certain additional story_separator_special_tag results of operations change in fiscal year end in 2010 , our board of directors approved the change in our fiscal year end from june 30 to december 31. the change became effective at the end of the quarter ended december 31 , 2010. all references to years , unless otherwise noted , refer to the 12-month fiscal year , which prior to july 1 , 2010 , ended on june 30 , and beginning with december 31 , 2010 , ends on december 31 , of each year . all amounts presented for the six months ended december 31 , 2009 , the twelve months ended december 31 , 2010 and the six months ended december 31 , 2011 are unaudited . overview we were incorporated in 1989 and are a regenerative medicine company focused on the development of innovative cell therapies to repair or regenerate damaged or diseased tissues . we are developing patient-specific , expanded multicellular therapies for use in the treatment of severe , chronic ischemic cardiovascular diseases . we believe ixmyelocel-t ( the new generic name approved by the u.s. food and drug administration ( fda ) and united states adopted names ( usan ) council in march 2011 for our multicellular therapy ) is a disease modifying therapy with multi-functional properties including : tissue remodeling , immuno-modulation and the promotion of angiogenesis . our proprietary cell-manufacturing technology enables the manufacture of multicellular therapies , expanded from an adult 's own bone marrow , and delivered directly to damaged tissues . preclinical and clinical data suggest that ixmyelocel-t may be effective in treating patients with severe , chronic ischemic cardiovascular diseases such as cli . preliminary data utilizing ixmyelocel-t in dilated cardiomyopathy ( dcm ) have provided indications of efficacy and safety . nearly 200 patients have been treated in recent clinical trials using ixmyelocel-t ( over 400 patients safely treated since our inception ) . we recently released positive phase 2b data from our restore-cli trial and launched our pivotal phase 3 revive trial in cli in february 2012. we also plan to start a randomized , placebo-controlled , double-blinded phase 2b trial in dcm by mid-2012 . our therapy ixmyelocel-t is a patient specific , expanded multicellular therapy developed using our proprietary , automated processing system . ixmyelocel-t is a product derived from an adult 's own bone marrow but it is significantly enhanced compared with the original bone marrow . our process enhances the patient 's bone marrow mononuclear cells by expanding the mesenchymal stromal cells and alternatively activated macrophages while retaining many of the hematopoietic cells . the manufacture of our patient specific , expanded multicellular therapies is done under current good manufacturing practices ( cgmp ) and current good tissue practices ( cgtp ) guidelines required by the fda . our therapy has several features that we believe are primarily responsible for success in treating adult patients with severe , chronic cardiovascular diseases : patient specific ( autologous ) we start with the patient 's own cells , which are accepted by the patient 's immune system allowing the cells to integrate into existing functional tissues . this characteristic of our therapy , we believe , eliminates both the risk of rejection and the risk of having to use immunosuppressive therapy pre- or post-therapy . our data also suggests that ixmyelocel-t provides the potential for long-term engraftment and tissue repair . expanded we begin with a small amount of bone marrow from the patient ( up to 60 ml ) and significantly expand the number of certain cell types , primarily cd90+ ( mesenchymal stromal cells or mscs ) and cd14 + auto+ ( alternatively activated macrophages ) to far more than are present in the patient 's own bone marrow ( up to 200 times the number of certain cell types compared with the starting bone marrow aspirate ) . ixmyelocel-t is derived from the patient 's own bone marrow but it is significantly enhanced compared with the starting bone marrow . multicellular we believe the multiple cell types in ixmyelocel-t , which are normally only found in bone marrow but in smaller quantities , possess the key functions required for tissue remodeling , immuno-modulation and the promotion of angiogenesis . 28 minimally invasive our procedure for taking bone marrow ( an aspirate ) can be performed in an out-patient setting and takes approximately 15 minutes . for diseases such as cli , the administration of ixmyelocel-t is performed in an out-patient setting ( e.g . a physician 's office ) in a one-time , approximately 20 minute procedure . safe bone marrow and bone marrow-derived therapies have been used safely and efficaciously in medicine for over three decades . our product , ixmyelocel-t , a bone marrow-derived , patient specific , expanded multicellular therapy leverages this body of scientific study and medical experience . our therapy is produced at our cell manufacturing facility in the united states , located at our headquarters in ann arbor , michigan . clinical development programs our clinical development programs are focused on addressing areas of high unmet medical needs in severe , chronic ischemic cardiovascular diseases . we have completed a successful phase 2b clinical trial in cli . we have reached agreement with the fda on cmc which has allowed us to launch our pivotal phase 3 revive clinical trial in the first quarter of 2012 with a protocol approved by fda through the special protocol assessment ( spa ) process . our cli development program has also received fast track designation from the fda . we have completed our phase 1/2 clinical trials in dcm and plan to begin a randomized , placebo-controlled , double-blinded phase 2b trial in mid-2012 . our dcm development program has received orphan disease designation from the fda . results to date in our clinical trials may not be indicative of results obtained from subsequent patients enrolled in those trials or from future clinical trials . story_separator_special_tag the first patient is expected to be randomized and aspirated in march 2012. leading up to the launch of the revive pivotal trial , we received fast track designation from the fda for use of ixmyelocel-t for cli in october 2010 and reached agreement with the fda on a special protocol assessment ( spa ) in july 2011. the phase 3 revive no option trial that we agreed to with the fda under the spa process includes 594 no option cli patients with tissue loss ( ulcers and gangrene ) at baseline . patients will be randomized 1:1 and followed for 12 months for the primary efficacy endpoint of amputation-free survival . patients will be followed for an additional 6 months for safety . we anticipate that enrollment will occur at approximately 80 sites across the u.s. dilated cardiomyopathy background dcm is a severe , chronic cardiovascular disease that leads to enlargement of the heart , reducing the pumping function of the heart to the point that blood circulation is impaired . patients with dcm typically present with symptoms of congestive heart failure , including limitations in physical activity and shortness of breath . it is currently estimated that there are approximately 125,000 ischemic dcm patients in the u.s. there are two types of dcm : ischemic and non-ischemic . ischemic dcm , the most common form representing an estimated 60 % of all dcm patients , is associated with atherosclerotic cardiovascular disease . patient prognosis depends on the stage and cause of the disease but is typically characterized by a very poor quality of life and a high mortality rate . current treatments for dcm patients include both heart transplantation and left ventricular assist devices ( lvads ) . there are less than 2,500 heart transplantations in the u.s. each year , many dcm patients are not eligible , and they 're expensive at an estimated cost of over $ 750,000. lvads are also expensive at an estimated cost of over $ 175,000 and have a mortality rate of 50 % at 2 years . 30 in february 2007 , the fda granted orphan drug designation to ixmyelocel-t for the treatment of dcm . our dcm development program is currently in phase 2. we recently completed follow up on two u.s. phase 1/2 trials investigating surgical and catheter-based delivery for our product in the treatment of dcm in reporting stages . we plan to initiate a randomized , placebo-controlled , double-blinded phase 2b trial using catheter delivery for 60 80 ischemic dcm patients in the u.s. in mid-2012 . surgical trial program dcm we completed enrollment of 40 dcm patients in the impact-dcm clinical trial in january 2010 and the final patient was treated in march 2010. participants in the impact-dcm clinical trial were required to have new york heart association ( nyha ) functional class iii or iv heart failure , a left ventricular ejection fraction ( lvef ) of less than or equal to 30 % ( 60-75 % is typical for a healthy person ) , and meet other eligibility criteria , including optimized medical therapy . patients were randomized in an approximate 3:1 ratio of treatment to control group . patients in the treatment group received our therapy through direct injection into the heart muscle during minimally invasive-surgery ( involving a chest incision of approximately 2 inches ) . the primary objective of this study was to assess the safety of ixmyelocel-t in patients with dcm . efficacy measures include cardiac dimensions and tissue mass , cardiac function ( e.g . cardiac output , lvef , cardiopulmonary exercise testing parameters ) , cardiac perfusion and viability , as well as other efficacy endpoints . nyha functional class and quality of life are also assessed . patients were followed for 12 months after treatment . six-month data from the impact-dcm interim analysis were presented at the sixth international conference on cell therapy for cardiovascular disease in january 2011. results indicated that ixmyelocel-t is safe and showed that serious adverse events were associated with the surgical procedure and not the cellular therapy . adverse events after the initial peri-operative period were roughly equal between the control and treatment groups . efficacy findings include positive trends in clinical endpoints , quality of life , functional , and structural parameters in the treatment group as compared with the control group . twelve-month data on all 40 patients enrolled in the impact-dcm trial were presented at the 15th annual heart failure society of america scientific meeting in september 2011. results were consistent with the six-month interim analysis , indicating that ixmyelocel-t is safe and showed that serious adverse events were associated with the surgical procedure and not the therapy . efficacy results were also consistent with the six-month results and demonstrated promising efficacy results in patients with ischemic dcm . catheter trial program dcm the catheter-dcm clinical trial was designed to explore catheter-based direct injection delivery of ixmyelocel-t to treat dcm patients . this multi-center , randomized , controlled , prospective , open-label , phase 2 study enrolled approximately 11 patients with ischemic dcm and 10 patients with non-ischemic dcm at clinical sites across the united states . participants met the same criteria as stated above for the impact-dcm surgical trial . the first patient was enrolled into the trial in april 2010 and enrollment concluded in december 2010 with 21 patients enrolled . in september 2011 , we reported results from a six-month interim analysis of patients treated in the catheter-dcm phase 2 trial . in this analysis , efficacy parameters were consistent with those seen in the impact-dcm trial results . in addition , the adverse event profile suggests that catheter administration of ixmyelocel-t is safe and appears to cause fewer adverse events compared to surgical administration . we expect to report 12-month results from the catheter-dcm phase 2 trial in q2 2012. we plan to launch a randomized , placebo-controlled , double-blind phase 2b trial in mid-2012 in approximately 60 80 ischemic dcm patients in the u.s. and using catheter administration .
| results of operations total revenues decreased to $ 18,000 for the year ended december 31 , 2011 from $ 253,000 for the twelve months ended december 31 , 2010. total revenues decreased to $ 9,000 for the six months ended december 31 , 2011 from $ 253,000 for the six months ended december 31 , 2010. the decreases in both periods are due to the non-recurring proceeds from the qualifying therapeutic discovery project in november 2010. total revenues increased to $ 253,000 for the six months ended december 31 , 2010 from $ 89,000 for the six months ended december 31 , 2009. the increase is due to proceeds from the qualifying therapeutic discovery project in november 2010. total revenues decreased to $ 89,000 in fiscal 2010 from $ 182,000 in fiscal 2009 due to the declines in volume of cell production sales for investigator sponsored clinical trials in spain and limited cell manufacturing supplies to a research institute in the united states . at such time as we satisfy applicable regulatory approval requirements , we expect the sales of our cell-based products will constitute nearly all of our product sales revenues . total costs and expenses increased to $ 29,058,000 for the year ended december 31 , 2011 from $ 21,279,000 for the twelve months ended december 31 , 2010. total costs and expenses increased to $ 15,282,000 for the six months ended december 31 , 2011 from $ 11,876,000 for the six months ended december 31 , 2010. the increases in both periods are due to increased cash compensation and non-cash stock based compensation associated with an increase in headcount , as well as increased cro costs and increased consulting costs due to preparations for the phase 3 cli program .
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as required by fasb asc topic 740 , income taxes , the company recognizes story_separator_special_tag you should read the following discussion and analysis of financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this form 10-k. this discussion and analysis contains forward-looking statements about our business and operations , based on current expectations and related to future events and our future financial performance , that involve risks and uncertainties . our actual results may differ materially from those we currently anticipate as a result of many important factors , including the factors we describe under risk factors and elsewhere in this form 10-k. overview we are a medical device company focused on developing and commercializing interventional treatment systems for vascular disease . our primary products , the diamondback 360° pad system ( diamondback 360° ) , diamondback predator 360° pad system ( predator 360° ) and stealth 360° pad system ( stealth 360° ) , are catheter-based platforms capable of treating a broad range of plaque types in arteries throughout the leg and address many of the limitations associated with existing treatment alternatives . we also intend to pursue approval of our products for coronary use . we refer to the diamondback 360° , predator 360° and stealth 360° collectively in this report as the pad systems. we were incorporated as replidyne , inc. in delaware in 2000. on february 25 , 2009 , replidyne , inc. completed its business combination with cardiovascular systems , inc. , a minnesota corporation ( csi-mn ) , in accordance with the terms of the agreement and plan of merger and reorganization , dated as of november 3 , 2008 ( the merger agreement ) . pursuant to the merger agreement , csi-mn continued after the merger as the surviving corporation and a wholly-owned subsidiary of replidyne . replidyne changed its name to cardiovascular systems , inc. ( csi ) and csi-mn merged with and into csi , with csi continuing after the merger as the surviving corporation . these transactions are referred to herein as the merger. unless the context otherwise requires , all references herein to the company , csi , we , us and our refer to csi-mn prior to the completion of the merger and to csi following the completion of the merger and the name change , and all references to replidyne refer to replidyne prior to the completion of the merger and the name change . replidyne was a biopharmaceutical company focused on discovering , developing , in-licensing and commercializing anti-infective products . csi was incorporated in minnesota in 1989. from 1989 to 1997 , we engaged in research and development on several different product concepts that were later abandoned . since 1997 , we have devoted substantially all of our resources to the development of the pad systems . from 2003 to 2005 , we conducted numerous bench and animal tests in preparation for application submissions to the fda . we initially focused our testing on providing a solution for coronary in-stent restenosis , but later changed the focus to pad . in 2006 , we obtained an investigational device exemption from the fda to conduct our pivotal oasis clinical trial , which was completed in january 2007. the oasis clinical trial was a prospective 20-center study that involved 124 patients with 201 lesions . in august 2007 , the fda granted us 510 ( k ) clearance for the use of the diamondback 360° as a therapy in patients with pad . we commenced commercial introduction of the diamondback 360° in the united states in september 2007. we were granted 510 ( k ) clearance of the predator 360° in march 2009 and stealth 360° in march 2011. we market the pad systems in the united states through a direct sales force and expend significant capital on our sales and marketing efforts to expand our customer base and utilization per customer . we assemble at our facilities the saline infusion pump used with our stealth 360° product and the single-use catheter used in the pad systems with components purchased from third-party suppliers , as well as with components manufactured in-house . the control unit and guidewires are purchased from third-party suppliers . as of june 30 , 2012 , we had an accumulated deficit of $ 179.2 million . we expect our losses to continue in fiscal 2013 as we invest in sales , marketing , and clinical studies for our next phase of growth in the peripheral market and a potential coronary application . to date , we have financed our operations primarily from the issuance of common and preferred stock , convertible promissory notes , and debt . 35 financial overview revenues . we derive substantially all of our revenues from the sale of pad systems and other ancillary products . the pad systems each use a disposable , single-use , low-profile catheter that travels over our proprietary viperwire guidewire . the air powered diamondback 360° and predator 360° pad systems use an external control unit that powers the system , while the electric powered stealth 360° pad system uses a saline infusion pump as a power supply for the operation of the catheter . our ancillary products include the viperslide lubricant and vipertrack radiopaque tape . we also have an exclusive distribution agreement with asahi to market its peripheral guide wire line in the united states . cost of goods sold . we assemble the single-use catheter with components purchased from third-party suppliers , as well as with components manufactured in-house . the control unit and guidewires are purchased from third-party suppliers . our cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . selling , general and administrative expenses . selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation . other significant expenses include travel and marketing costs and professional fees . story_separator_special_tag due to the technological nature of our products , there is a risk of obsolescence to changes in our technology and the market , which is impacted by technological developments and events . accordingly , we write down our inventories as we become aware of any situation where the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions . the evaluation includes analyses of inventory levels , expected product lives , product at risk of expiration , sales levels by product and projections of future sales demand . debt conversion option . the fair value of the conversion option is related to the loan and security agreement with partners for growth and has been included as a component of debt conversion option and other assets on our balance sheet . the monte carlo option pricing model used to determine the value of the conversion option includes various inputs including historical volatility , stock price simulations , and the assessed behavior of us and partners for growth based on those simulations . stock-based compensation . we recognize stock-based compensation expense in an amount equal to the fair value of share-based payments computed at the date of grant . the fair value of all restricted stock awards and units are expensed in the consolidated statements of operations over the related vesting period . 37 all restricted stock awards and units we have granted become exercisable over periods established at the date of grant . the fair value of each restricted stock award and unit was equal to the fair market value of our common stock at the date of grant , as determined by management and the board of directors . legal proceedings . in accordance with fasb guidance , we record a liability in our consolidated financial statements related to legal proceedings when a loss is known or considered probable and the amount can be reasonably estimated . if the reasonable estimate of a known or probable loss is a range , and no amount within the range is a better estimate than any other , the minimum amount of the range is accrued . if a loss is possible , but not known or probable , and can be reasonably estimated , the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements . in most cases , significant judgment is required to estimate the amount and timing of a loss to be recorded . our significant legal proceedings are discussed in note 12 to the consolidated financial statements . story_separator_special_tag other . other expenses increased by $ 85,000 , from $ 52,000 for the year ended june 30 , 2011 to $ 237,000 for the year ended june 30 , 2012. the increase in other expenses was primarily due to increased state taxes . net loss . net loss for the year ended june 30 , 2012 was $ 16.8 million , or $ 0.93 per basic and diluted share , compared to $ 11.1 million , or $ 0.70 per basic and diluted share for the year ended june 30 , 2011. comparison of fiscal year ended june 30 , 2011 with fiscal year ended june 30 , 2010 revenues . revenues increased by $ 14.0 million , or 21.5 % , from $ 64.8 million for the year ended june 30 , 2010 to $ 78.8 million for the year ended june 30 , 2011. this increase was attributable to an $ 11.5 million , or 39 20.1 % , increase driven by an increase in the number of pad systems sold and a $ 2.4 million , or 32.0 % , increase in sales of supplemental and other revenue during the year ended june 30 , 2011 compared to the year ended june 30 , 2010. supplemental products include our viper product line and distribution partner products . cost of goods sold . cost of goods sold increased by $ 1.3 million , or 8.5 % , from $ 15.0 million for the year ended june 30 , 2010 to $ 16.3 million for the year ended june 30 , 2011. these amounts represent the cost of materials , labor and overhead for single-use catheters , guidewires , control units , pumps , and other supplemental products . the increase in gross margin from 76.9 % during the year ended june 30 , 2010 to 79.3 % for the year ended june 30 , 2011 was primarily due to operating efficiencies , product cost reductions , and a favorable product mix resulting in a reduction in shipments of lower margin control units . cost of goods sold for the years ended june 30 , 2011 and 2010 includes $ 312,000 and $ 548,000 , respectively , for stock-based compensation . selling , general and administrative expenses . selling , general , and administrative expense was $ 62.4 million for the years ended june 30 , 2010 and june 30 , 2011. increases for the year ended june 30 , 2011 to build our sales organization , along with increased professional fees were offset by lower stock-based compensation . selling , general , and administrative expenses for the years ended june 30 , 2011 and 2010 includes $ 5.6 million and $ 7.3 million , respectively , for stock-based compensation . research and development expenses . research and development expenses decreased by $ 1.4 million , or 13.0 % , from $ 10.3 million for the year ended june 30 , 2010 to $ 8.9 million for the year ended june 30 , 2011. research and development expenses relate to specific projects to improve our product or expand into new markets , such as the development of electric versions of the pad systems , shaft designs , crown designs , and pad and coronary clinical trials . the reduction in these expenses related to the decreased numbers and sizes of pad development projects in fiscal 2011 , as well as the timing of those projects , and reduced stock-based compensation .
| results of operations the following table sets forth , for the periods indicated , our results of operations expressed as dollar amounts ( in thousands ) , and , for certain line items , the changes between the specified periods expressed as percent increases or decreases : replace_table_token_3_th comparison of fiscal year ended june 30 , 2012 with fiscal year ended june 30 , 2011 revenues . revenues increased by $ 3.7 million , or 4.7 % , from $ 78.8 million for the year ended june 30 , 2011 to $ 82.5 million for the year ended june 30 , 2012. this increase was primarily attributable to a $ 3.7 million , or 5.4 % , increase driven by increased average selling prices of pad systems during the year ended june 30 , 2012 compared to the year ended june 30 , 2011. currently , all of our revenues are in the united states ; however , we may potentially sell internationally in the future . we expect our revenue to increase as we continue to increase the number of physicians using the devices , and increase the usage per physician as we continue to focus on physician education programs , introduce new and improved products , and generate clinical data . cost of goods sold . cost of goods sold increased by $ 2.9 million , or 18.1 % , from $ 16.3 million for the year ended june 30 , 2011 to $ 19.2 million for the year ended june 30 , 2012. these amounts represent the cost of materials , labor and overhead for single-use catheters , guidewires , control units , pumps , and other supplemental products . the decrease in gross margin from 79.3 % during the year ended june 30 , 2011 to 76.7 % for the year ended june 30 , 2012 was primarily due to a higher mix of stealth 360° sales , which currently carry higher unit costs due to limited initial component purchasing volumes , and reserves for inventory transitions .
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for the years ended april 30 , 2012 and 2011 , approximately 46 % and 54 % , respectively , of the company 's sales were made under contracts to the u.s. government story_separator_special_tag “ safe harbor ” statement under the private securities litigation reform act of 1995 : the statements in this annual report on form 10-k regarding future earnings and operations and other statements relating to the future constitute `` forward-looking '' statements pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements . factors that would cause or contribute to such differences include , but are not limited to , inability to integrate operations and personnel , actions by significant customers or competitors , general domestic and international economic conditions , consumer spending trends , reliance on key customers , continued acceptance of the company 's products in the marketplace , competitive factors , new products and technological changes , product prices and raw material costs , dependence upon third-party vendors , competitive developments , changes in manufacturing and transportation costs , the availability of capital , and the outcome of any litigation and arbitration proceedings . the factors listed above are not exhaustive . other sections of this 10-k include additional factors that could materially and adversely impact the company 's business , financial condition and results of operations . moreover , the company operates in a very competitive and rapidly changing environment . new factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the company 's business , financial condition or results of operations or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . given these risks and uncertainties , investors should not rely on forward-looking statements as a prediction of actual results . any or all of the forward-looking statements contained in this 10-k and any other public statement made by the company or its management may turn out to be incorrect . the company expressly disclaims any obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . critical accounting policies and estimates the company 's significant accounting policies are described in note 1 to the consolidated financial statements . the company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts and the valuation of inventory . each of these areas requires the company to make use of reasonable estimates including estimating the cost to complete a contract , the realizable value of its inventory or the market value of its products . changes in estimates can have a material impact on the company 's financial position and results of operations . 13 revenue recognition revenues under larger , long-term contracts which generally require billings based on achievement of milestones rather than delivery of product , are reported in operating results using the percentage of completion method . on fixed-price contracts , which are typical for commercial and u.s. government satellite programs and other long-term u.s. government projects , and which require initial design and development of the product , revenue is recognized on the cost-to-cost method . under this method , revenue is recorded based upon the ratio that incurred costs bear to total estimated contract costs with related cost of sales recorded as the costs are incurred . each month management reviews estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information and status of the contract . the effect of any change in the estimated gross margin percentage for a contract is reflected in revenues in the period in which the change is known . provisions for anticipated losses on contracts are made in the period in which they become determinable . on production-type orders , revenue is recorded as units are delivered with the related cost of sales recognized on each shipment based upon a percentage of estimated final program costs . changes in job performance on long-term contracts and production-type orders may result in revisions to costs and income and are recognized in the period in which revisions are determined to be required . provisions for anticipated losses on customer orders are made in the period in which they become determinable . for customer orders in the company 's gillam-fei and fei-zyfer segments or smaller contracts or orders in the fei-ny segment , sales of products and services to customers are reported in operating results based upon ( i ) shipment of the product or ( ii ) performance of the services pursuant to terms of the customer order . when payment is contingent upon customer acceptance of the installed system , revenue is deferred until such acceptance is received and installation completed . costs and expenses contract costs include all direct material , direct labor costs , manufacturing overhead and other direct costs related to contract performance . selling , general and administrative costs are charged to expense as incurred . inventory in accordance with industry practice , inventoried costs contain amounts relating to contracts and programs with long production cycles , a portion of which will not be realized within one year . inventory write downs are established for slow-moving and obsolete items and are based upon management 's experience and expectations for future business . any changes arising from revised expectations are reflected in cost of sales in the period the revision is made . marketable securities a ll of the company 's investments in marketable securities are level 1 securities which trade on public markets and have current prices that are readily available . story_separator_special_tag thus , the company expects to report higher operating profits in fiscal year 2013. other income ( expense ) replace_table_token_9_th investment income includes interest and dividend income on marketable securities . earnings on these securities may vary based on fluctuating dividends and interest rates and the timing of purchases or sales of securities . during the year ended april 30 , 2012 , the company broadened its investment portfolio to include higher yielding marketable securities . the greater yield plus more income-earning investments account for the year-over-year increase in investment income . during fiscal year 2012 , investment income included approximately $ 20,000 of gains upon the sale or redemption of marketable securities . in fiscal year 2011 , the company recorded investment losses of approximately $ 48,000 upon the sale or redemption of certain marketable securities in its portfolio . during fiscal year 2013 , the company anticipates that investment income will be approximately the same as that earned in fiscal year 2012. as described above , the fiscal year 2012 step acquisition of fei-elcom resulted in the recognition of a gain of approximately $ 730,000. equity losses of $ 650,000 represent the company 's share of the losses recorded by fei-elcom prior to the company 's fourth quarter acquisition of that company ( see significant matters above ) . in addition , during the second quarter of fiscal year 2012 , based on comparisons to comparable companies as well as fei-elcom 's forecasts of future financial results , the company recorded an impairment charge in the amount of $ 350,000. in fiscal years 2012 and 2011 , interest expense was incurred on borrowings under short-term credit obligations , on deferred compensation payments and capital leases for equipment . during the year ended april 30 , 2012 , to complete the acquisition of fei-elcom , the company decided to draw on its bank line of credit rather than liquidate any of its investment in marketable securities . as a result of this borrowing , the company anticipates that interest expense in fiscal year 2013 will be higher than that incurred in fiscal year 2012 . 18 other expenses for the year ended april 30 , 2012 , consisted primarily of amortization of certain non-operating assets which was partially offset by gains of approximately $ 137,000 derived from the excess of proceeds over the cash values of life insurance policies covering a former employee . the company anticipates that in future years items in this category will not be significant to pretax earnings . income tax benefit replace_table_token_10_th as described above , during the fourth quarters of fiscal years 2012 and 2011 , the company reduced its valuation allowance against deferred tax assets in the amount of $ 3.1 million and $ 3.6 million , respectively . these reductions were based on a review of all available evidence , both positive and negative , and management 's assessment that it is more likely than not that it will be able to realize the tax benefits from the future deductibility of most items included in its deferred tax assets . excluding the valuation allowance reduction , for the years ended april 30 , 2012 and 2011 , the company recorded a net tax provision of $ 2.5 million and $ 1.2 million , respectively , or effective tax rates of 37 % and 34 % , respectively . the company is subject to taxation in several countries . the statutory federal rates are 34 % in the united states , 33 % in europe and 25 % in china . the company utilizes the availability of research and development tax credits in the united states to lower its tax rate . the actual rate incurred may be impacted by the non-deductibility of losses incurred in overseas operations . ( see note 13 to the consolidated financial statements for a reconciliation of the actual tax benefit to the expected tax provision at the federal statutory rate . ) the company 's european subsidiaries have available net operating loss carryforwards of approximately $ 1.2 million to offset future taxable income . these loss carryforwards have no expiration date . as a result of the acquisition of fei-elcom , the company has a federal net operating loss carryforward of $ 6.6 million which may be applied in annually limited amounts to offset future u.s.-sourced taxable income over the next 20 years . for state of california income tax purposes , the company has a tax loss carryforward of approximately $ 2.3 million which expires in 20 years . liquidity and capital resources the company 's balance sheet continues to reflect a highly liquid position with working capital of $ 63.3 million at april 30 , 2012. included in working capital at april 30 , 2012 is $ 22.4 million consisting of cash , cash equivalents and short-term investments . the company 's current ratio at april 30 , 2012 is 4.9 to 1 compared to 9.2 to 1 at the end of the prior fiscal year . net cash provided by operating activities for the year ended april 30 , 2012 , was $ 2.1 million compared to $ 1.9 million for the prior fiscal year . during fiscal years 2012 and 2011 , the company incurred $ 5.8 million and $ 4.7 million , respectively , in non-cash charges to earnings , including depreciation and amortization expense , the equity loss on its elcom investment net of the gain on the investment , and certain employee benefit plan expenses , including accounting for stock-based compensation . in fiscal years 2012 and 2011 , such non-cash charges were partially offset by the non-cash benefit of $ 3.1 million and $ 3.6 million , respectively , resulting from the company 's reduction of a portion of the valuation allowance on its deferred tax assets . for fiscal year 2012 , operating cash was reduced by increases to accounts receivable and inventory . in fiscal year 2013 , the company anticipates that it will maintain positive cash flow from operations by continuing to generate operating profits .
| results of operations significant matters : acquisition of elcom and reduction in deferred tax valuation allowance acquisition of fei-elcom tech inc. during the fourth quarter of fiscal year 2012 , the company completed the purchase of all remaining capital stock of elcom technologies , inc. ( “ elcom ” or , after the acquisition , “ fei-elcom ” ) that it did not previously own , resulting in 100 % ownership . prior to this transaction , the company held a minority interest in elcom . ( see note 11 to the accompanying financial statements . ) this transaction is a “ step acquisition ” under generally accepted accounting principles . such an acquisition required the company to remeasure its previously held interest in elcom to fair value . the difference between the fair value of elcom and the company 's carrying value of its investment resulted in the recognition of a gain of approximately $ 730,000. this gain partially offset previously recorded impairment charges and equity losses in elcom incurred during fiscal year 2012 prior to the acquisition , fei-elcom 's fiscal year 2012 fourth quarter operating loss and costs incurred by the company in acquiring elcom . for fiscal year 2012 , these elcom-related transactions reduced the company 's consolidated pretax income by approximately $ 1.2 million . the company anticipates that fei-elcom tech will make a positive contribution to fiscal year 2013 profits . 14 reduction of deferred tax asset valuation allowance during the fourth quarters of fiscal years 2012 and 2011 , the company reduced its valuation allowance against deferred tax assets in the amount of $ 3.1 million and $ 3.6 million , respectively .
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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 ” included in part i , item 1a or in other parts of this report . overview splunk provides innovative software solutions that enable organizations to gain real-time operational intelligence by harnessing the value of their data . our offerings enable users to collect , index , search , explore , monitor , correlate and analyze data regardless of format or source . our offerings address large and diverse data sets commonly referred to as big data and are specifically tailored for machine data . machine data is produced by nearly every software application and electronic device across an organization and contains a definitive , time-stamped record of various activities , such as transactions , customer and user behavior , and security threats . beyond an organization 's traditional information technology ( “ it ” ) and security infrastructure , data from the industrial internet , including industrial control systems , sensors , scada systems , networks , manufacturing systems , smart meters and the internet of things ( “ iot ” ) which includes consumer-oriented systems , such as electronic wearables , mobile devices , automobiles and medical devices are also continuously generating machine data . our offerings help organizations gain the value contained in machine data by delivering real-time information to enable operational decision making . we believe the market for products that provide operational intelligence presents a substantial opportunity as data grows in volume and diversity , creating new risks , opportunities and challenges for organizations . since our inception , we have invested a substantial amount of resources developing our offerings to address this market , specifically with respect to machine data . our offerings are designed to deliver rapid return-on-investment for our customers . they generally do not require customization , long deployment cycles or extensive professional services commonly associated with traditional enterprise software applications . prospective users can get started with our free online sandboxes that enable our customers to immediately try and experience splunk offerings . users that prefer to deploy the software on-premises can take advantage of our free 60-day trial of splunk enterprise , which converts into a limited free perpetual license of up to 500 megabytes of data per day . paying users can sign up for splunk cloud and avoid the need to provision , deploy and manage internal infrastructure . 41 alternatively , they can simply download and install the software , typically in a matter of hours , to connect to their relevant machine data sources . customers can also provision a compute instance on aws via a pre-built amazon machine image , which delivers a pre-configured virtual machine instance with our splunk enterprise software . in fiscal 2017 , we introduced free development-test licenses for certain commercial customers , allowing customers to explore new data and use cases in a non-production environment without incurring additional fees . we also offer support , training and professional services to our customers to assist in the deployment of our software . for splunk enterprise , we base our license fees on the estimated daily data indexing capacity our customers require . a substantial portion of our license revenues consist of revenues from perpetual licenses , whereby we generally recognize the license fee portion of these arrangements upfront . as a result , the timing of when we enter into large perpetual licenses may lead to fluctuations in our revenues and operating results because our expenses are largely fixed in the short-term . additionally , we license our software under term licenses , which are generally recognized ratably over the contract term . from time to time , we also enter into transactions that are designed to enable broad adoption of our software within an enterprise , referred to as enterprise adoption agreements . these agreements often include provisions that require revenue deferral and recognition over time . splunk cloud delivers the benefits of splunk enterprise deployed and managed reliably , and scalably as a service . splunk cloud customers pay an annual subscription fee based on the combination of the volume of data indexed per day and the length of the data retention period . splunk light provides log search and analysis that is designed , priced and packaged for small it environments , where a single-server log analytics solution is sufficient . splunk enterprise security addresses emerging security threats and security information and event management ( `` siem '' ) use cases through monitoring , alerts and analytics . splunk it service intelligence monitors the health and key performance indicators of critical it and business services . splunk user behavior analytics detects cyber-attacks and insider threats using data science , machine learning and advanced correlation . we intend to continue investing for long-term growth . we have invested and intend to continue to invest heavily in product development to deliver additional features and performance enhancements , deployment models and solutions that can address new end markets . during fiscal 2018 we released new versions of existing offerings such as splunk enterprise and splunk cloud . in addition , we expect to continue to aggressively expand our sales and marketing organizations to market and sell our software both in the united states and internationally . we have utilized and expect to continue to utilize acquisitions to contribute to our long-term growth objectives . during fiscal 2018 we completed a number of acquisitions , including signalsense inc. , which develops cloud-based data collection and breach detection solutions that leverage machine learning , and rocana inc. , which develops analytics solutions for the it market . our goal is to make our software the platform for delivering operational intelligence and real-time business insights from machine data . the key elements of our growth strategy are to : extend our technological capabilities . story_separator_special_tag the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . we use these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons . we believe that these non-gaap financial measures provide useful information about our operating results , enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in our financial and operational decision making . in addition , these non-gaap financial measures facilitate comparisons to competitors ' operating results . we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more 43 meaningful comparisons between our operating results and those of other companies . we exclude employer payroll tax expense related to employee stock plans in order for investors to see the full effect that excluding that stock-based compensation expense had on our operating results . these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise , which may vary from period to period independent of the operating performance of our business . we also exclude amortization of acquired intangible assets , adjustments related to facility exits , acquisition-related costs , including the partial release of the valuation allowance due to acquisitions , and make adjustments related to a financing lease obligation from our non-gaap financial measures because these are considered by management to be outside of our core operating results . accordingly , we believe that excluding these expenses provides investors and management with greater visibility to the underlying performance of our business operations , facilitates comparison of our results with other periods and may also facilitate comparison with the results of other companies in our industry . we consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities , including investing in our business , making strategic acquisitions and strengthening our balance sheet . we consider billings to be a useful measure for management and investors because it provides visibility into our sales activity for a particular period , which is not necessarily reflected in our revenues given that we recognize term licenses and subscriptions for cloud services ratably . there are limitations in using non-gaap financial measures because the non-gaap financial measures are not prepared in accordance with gaap , may be different from non-gaap financial measures used by our competitors and exclude expenses that may have a material impact upon our reported financial results . further , stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees . the non-gaap financial measures are meant to supplement and be viewed in conjunction with gaap financial measures . the following table reconciles our net cash provided by operating activities to free cash flow for the fiscal years ended january 31 , 2018 , 2017 and 2016 ( in thousands ) : replace_table_token_7_th the following table reconciles our gaap to non-gaap financial measures for the fiscal year ended january 31 , 2018 ( in thousands , except per share amounts ) . replace_table_token_8_th 44 _ ( 1 ) gaap net loss per share calculated based on 139,866 weighted-average shares of common stock . non-gaap net income per share calculated based on 144,862 diluted weighted-average shares of common stock , which includes 4,996 potentially dilutive shares related to employee stock awards . gaap to non-gaap net income ( loss ) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock . ( 2 ) includes $ 8.4 million of interest expense related to the financing lease obligation . ( 3 ) represents the tax effect of the non-gaap adjustments based on the estimated annual effective tax rate of 27 % . the following table reconciles our gaap to non-gaap financial measures for the fiscal year ended january 31 , 2017 ( in thousands , except per share amounts ) . replace_table_token_9_th _ ( 1 ) gaap net loss per share calculated based on 133,910 weighted-average shares of common stock . non-gaap net income per share calculated based on 137,409 diluted weighted-average shares of common stock , which includes 3,499 potentially dilutive shares related to employee stock awards . gaap to non-gaap net income ( loss ) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock . ( 2 ) includes $ 7.7 million of interest expense related to the financing lease obligation . ( 3 ) for consistency , prior year non-gaap net loss has been adjusted to reflect the tax effect of the non-gaap adjustments based on the annual effective tax rate of 21 % . reconciliation of total billings the following table reconciles our total revenues to billings for the fiscal years ended january 31 , 2018 and 2017 ( in thousands ) . replace_table_token_10_th reconciliation of total cloud billings the following table reconciles our total cloud revenues to cloud billings for the fiscal years ended january 31 , 2018 and 2017 ( in thousands ) . 45 replace_table_token_11_th components of operating results revenues license revenues . license revenues reflect the revenues recognized from sales of licenses to new customers and additional licenses to existing customers .
| results of operations the following tables set forth our 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_12_th ( 1 ) calculated as a percentage of the associated revenues . 48 fiscal 2018 , 2017 and 2016 revenues replace_table_token_13_th fiscal 2018 compared to fiscal 2017 . the increase in license revenues of $ 146.8 million was primarily driven by increases in our total number of customers , sales to existing customers and an increase in the number of larger orders . for example , we had 2,338 and 1,942 orders greater than $ 100,000 for the fiscal years ended january 31 , 2018 and 2017 , respectively . our total number of splunk customers increased from over 13,000 at january 31 , 2017 to over 15,000 at january 31 , 2018 . the increase in maintenance and services revenues of $ 174.1 million was due to increases in sales of our maintenance agreements resulting from the growth of our installed customer base , sales of our cloud services and sales of our professional services . fiscal 2017 compared to fiscal 2016 . the increase in license revenues of $ 141.5 million was primarily driven by increases in our total number of customers , sales to existing customers and an increase in the number of larger orders . for example , we had 1,942 and 1,447 orders greater than $ 100,000 for the fiscal years ended january 31 , 2017 and 2016 , respectively . our total number of splunk customers increased from approximately 11,000 at january 31 , 2016 to over 13,000 at january 31 , 2017 .
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our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth in the section captioned “ risk factors ” in item 1a and elsewhere in this report . the following should be read in conjunction with our audited financial statements included elsewhere herein . the following management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is intended to help you understand bio-key international ( the “ company ” , “ we ” , “ us ” or “ our ” ) . md & a is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes . overview we develop and market advanced fingerprint biometric identification and identity verification technologies , cryptographic authentication-transaction security technologies , as well as related identity management and credentialing software solutions . we were pioneers in developing automated , finger identification technology that supplements or compliments other methods of identification and verification , such as personal inspection identification , passwords , tokens , smart cards , id cards , pki , credit card , passports , driver 's licenses , otp or other form of possession or knowledge-based credentialing . advanced bio-key® technology has been and is used to improve both the accuracy and speed of competing finger-based biometrics . in partnerships with oems , integrators , and solution providers , we provide biometric software solutions to private and public sector customers . we provide the ability to positively identify and authenticate individuals before granting access to valuable corporate resources , web portals or applications in seconds . powered by our patented vector segment technology or vst , web-key® and bsp development kits are fingerprint biometric solutions that provide interoperability with all major reader manufacturers , enabling application developers and integrators to integrate fingerprint biometrics into their applications . we have developed what we believe is the most discriminating and effective commercially available finger-based biometric technology . our primary focus is in marketing and selling this technology into commercial logical and physical privilege entitlement & access control markets . our primary market focus includes , among others , mobile payments & credentialing , online payments and credentialing , and healthcare record and payment data security . our secondary focus includes government markets , primarily law enforcement forensic investigation and homeland security . strategic outlook and recent developments historically , our largest market has been access control within highly regulated industries such as healthcare . however , we believe the mass adoption of advanced smart-phone and hand-held wireless devices have caused commercial demand for advanced user authentication to emerge as viable . the introduction of smart-phone capabilities , like mobile payments and credentialing , could effectively require biometric user authentication on mobile devices to reduce risks of identity theft , payment fraud and other forms of fraud in the mobile or cellular based world wide web . as more services and payment functionalities , such as mobile wallets and near field communication ( nfc ) , migrate to smart-phones , the value and potential risk associated with such systems should grow and drive demand and adoption of advanced user authentication technologies , including fingerprint biometrics and bio-key solutions . in october 2013 , apple computer corporation released the apple iphone 5s smartphone ( “ 5s ” ) . we believe the 5s to be the first broadly distributed smartphone to incorporate fingerprint biometrics in the phone . since that time , htc corporation has also released a fingerprint biometric enabled smartphone . we believe other smartphone , tablet , laptop and related smart-device manufacturers will additionally make fingerprint-enabled smart devices available for consumer applications . as devices with onboard fingerprint sensors continue to deploy to consumers , we expect that third party application developers will demand the ability to authenticate users of their respective applications ( app 's ) with the onboard fingerprint biometric . we further believe that authentication will occur on the device itself for potentially low-value , and therefore low-risk , use-transactions and that user authentication for high-value transactions will migrate to the application provider 's authentication server , typically located within their supporting technology infrastructure , or cloud . we have developed our technology to enable , on-device authentication as well as network or cloud-based authentication and believe we may be the only technology vendor capable of providing this flexibility and capability . we believe there is potential for significant market growth in three key areas : ● corporate network access control , including corporate campuses , computer networks and applications ; - 15 - ● consumer mobile credentialing , including mobile payments , credit and payment card programs , data and application access , and commercial loyalty programs ; and . ● government services and highly regulated industries , including medicare , medicaid , social security , drivers licenses , campus and school id , passports/visas . in the near-term , we expect to grow our business within government services and highly-regulated industries in which we have historically had a strong presence , such as the healthcare industry . we believe that continued heightened security and privacy requirements in these industries will generate increased demand for security solutions , including biometrics . over the longer term , we intend to expand our business into the cloud and mobile computing industries . the emergence of cloud computing and mobile computing are primary drivers of commercial and consumer adoption of advanced authentication applications , including biometric and bio-key authentication capabilities . as the value of assets , services and transactions increases on such networks , we expect that security and user authentication demand should rise proportionately . our integration partners include major web and network technology providers , who we believe will deliver our cloud-applicable solutions to interested service-providers . story_separator_special_tag the interdigital note accrues interest at a rate of 7 % per annum , with a default rate of 9 % per annum while a nonpayment default is continuing , matures on december 31 , 2015 , is secured by all of our tangible and intangible assets , and is subject to acceleration upon an event of default . a portion of the proceeds from the sale of the interdigital note was used to repay the colatosti note in full , and the remaining proceeds were used for general corporate purposes . on november 22 , 2013 , we repaid in full the $ 497,307 balance due under the interdigital note . in connection with the repayment , drnc 's security interest in all of our tangible and intangible assets was terminated . on february 26 , 2013 , we issued 4,026,935 shares of common stock to drnc for an aggregate purchase price of $ 402,693. on february 26 , 2013 , we also issued 5,000,000 shares of common stock to a limited number of investors for an aggregate purchase price of $ 500,000. on july 23 , 2013 , we issued units to certain investors consisting of 3,500,006 shares of our common stock and warrants to purchase an additional 3,500,006 shares of our common stock at a purchase price $ 0.30 per unit , for an aggregate purchase price of $ 1,050,000. the warrants are exercisable at $ 0.40 per share and expire five years after the date of the grant . on december 2 , 2013 , we agreed to reduce the exercise price of the warrants to $ 0.25 per share . on october 25 and november 8 , 2013 , we issued an aggregate of 24,647,337 units consisting of 24,647,337 shares of common stock and warrants to purchase an additional 24,647,337 shares of common stock at a purchase price $ 0.15 per unit for an aggregate purchase price of $ 3,697,100 prior to deduction for placement agent fees and expenses . the warrants are exercisable at $ 0.25 per share and expire three years after the date of the grant . investors in this offering have certain anti-dilution rights which require us to issue additional shares of common stock to the investors if within the nine months following november 8 , 2013 , we sell or issue any common stock or common stock equivalents ( other than sales or issuances to directors , officers , employees or independent contractors in the ordinary course of business for compensation purposes and stock splits and stock dividends payable in respect our common stock ) having a purchase , exercise or conversion price per share of less than $ 0.15 . - 20 - off-balance sheet arrangements we do not have any off-balance sheet arrangements that have , or are in the opinion of management reasonably likely to have , a current or future effect on our financial condition or results of operations . critical accounting policies our financial statements are prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ significantly from these estimates under different assumptions or conditions . there have been no material changes to these estimates for the periods presented in this annual report on form 10-k. we believe that of our significant accounting policies , which are described in note a of the notes to our consolidated financial statements included in this annual report on form 10-k , the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations . 1. revenue recognition revenues from software licensing are recognized in accordance with asc 985-605 , “ software revenue recognition . accordingly , revenue from software licensing is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectability is probable . the company intends to enter into arrangements with end users for items which may include software license fees , and services or various combinations thereof . for each arrangement , revenues will be recognized when evidence of an agreement has been documented , the fees are fixed or determinable , collection of fees is probable , delivery of the product has occurred and no other significant obligations remain . multiple-element arrangements : for multiple-element arrangements , the company applies the residual method in accordance with asc 985-605. the residual method requires that the portion of the total arrangement fee attributable to the undelivered elements be deferred based on its vsoe of fair value and subsequently recognized as the service is delivered . the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements , which is generally the software license . vsoe of fair value for all elements in an arrangement is based upon the normal pricing for those products and services when sold separately . vsoe of fair value for support services is additionally determined by the renewal rate in customer contracts . the company has established vsoe of fair value for support as well as consulting services . license revenues : amounts allocated to license revenues are recognized at the time of delivery of the software and all other revenue recognition criteria discussed above have been met .
| results of operations consolidated results of operations two year % trend replace_table_token_3_th revenues and costs of goods sold replace_table_token_4_th revenues for the years ended december 31 , 2013 and 2012 , service revenues included approximately $ 326,000 and $ 407,000 , respectively , of non-recurring maintenance and support revenue , and approximately $ 662,000 and $ 688,000 , respectively , of recurring custom services revenue . recurring service revenue decreased 4 % from 2012 to 2013 increasing as we continued to bundle maintenance agreements to our expanding customer license base , offset by the delay in a large deployment renewal . for the years ended december 31 , 2013 and 2012 , license and other revenue ( comprised of third party hardware and royalty ) decreased approximately 64 % as a result of several contributing factors . software license revenue decreased approximately $ 1,589,000 or 76 % . during the years ended december 31 , 2013 and 2012 , we shipped orders from mckesson for their continued deployment of our identification technology in their accudose® product line , and for continued expansion of biometric id deployments with commercial partners lexisnexis , educational biometric technology , and identimetrics . third-party hardware sales decreased by approximately $ 153,000 ( 28 % ) , as a result smaller healthcare industry deployments . royalty income , from an oem agreement , for the year ended december 31 , 2013 , decreased 1 % to approximately $ 115,000 from $ 116,000 during the corresponding period in 2012 . - 17 - costs of goods sold for the year ended december 31 , 2013 , cost of service decreased approximately $ 75,000 primarily as a result of costs associated with non-recurring custom services revenue . license and other costs for the year ended december 31 , 2013 decreased approximately $ 109,000 due to the decrease in third party hardware revenue .
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interest rate cap and swap agreements the company often carries a combination of current or forward interest rate caps or interest rate swaps on portions of its variable rate debt as a means of hedging its exposure to changes in libor interest rates as part of its overall interest rate risk management strategy . these interest rate caps and swaps are not held for trading or speculative purposes and are typically designated as qualifying cash flow hedges . see note 14 to these consolidated financial statements for further details . noncontrolling interests noncontrolling interests represent third-party equity ownership interests in entities which are consolidated by the company for financial statement reporting purposes . as of december 31 , 2018 , third parties held noncontrolling equity interests in 653 consolidated legal entities , including 650 legal entities classified within continuing operations . fair value estimates story_separator_special_tag forward-looking statements this annual report on form 10-k , including this management 's discussion and analysis of financial condition and results of operations , contains statements that are forward-looking statements within the meaning of the federal securities laws . all statements that do not concern historical facts are forward-looking statements and include , among other things , statements about our expectations , beliefs , intentions and or strategies for the future . these forward-looking statements may include statements regarding our future operations , financial condition and prospects , such as expectations for treatment growth rates , revenue per treatment , expense growth , levels of the provision for uncollectible accounts receivable , operating income , cash flow , operating cash flow , earnings per share , estimated tax rates , estimated charges and accruals , capital expenditures , the development of new dialysis centers and dialysis center acquisitions , government and commercial payment rates , revenue estimating risk , the impact of our level of indebtedness on our financial performance , our stock repurchase program , our advocacy costs , and the pending dmg sale transaction . these statements involve substantial known and unknown risks and uncertainties that could cause our actual results to differ materially from those described in the forward-looking statements , including risks resulting from the concentration of profits generated by higher-paying commercial payor plans for which there is continued downward pressure on average realized payment rates , and a reduction in the number of patients under such plans , including as a result of restrictions or prohibitions on the use and or availability of charitable premium assistance , which may result in the loss of revenues or patients , or our making incorrect assumptions about how our patients will respond to any change in financial assistance from charitable organizations ; the extent to which the ongoing implementation of healthcare exchanges or changes in or new legislation , regulations or guidance , or enforcement thereof , including among other things those regarding the exchanges , results in a reduction in reimbursement rates for our services from and or the number of patients enrolled in higher-paying commercial plans ; a reduction in government payment rates under the medicare end stage renal disease program or other government-based programs ; the impact of the medicare advantage benchmark structure ; risks arising from potential and proposed federal and or state legislation , regulation or ballot or other initiatives , including healthcare-related and labor-related legislation , regulation or ballot or other initiatives ; the impact of the changing political environment and related developments on the current health care marketplace and on our business , including with respect to the future of the affordable care act , the exchanges and many other core aspects of the current health care marketplace ; uncertainties related to the impact of federal tax reform legislation ; changes in pharmaceutical practice patterns , reimbursement and payment policies and processes , or pharmaceutical pricing , including with respect to calcimimetics ; legal compliance risks , such as our continued compliance with complex government regulations and the provisions of our current corporate integrity agreement ( cia ) and current or potential investigations by various government entities and related government or private party proceedings , and restrictions on our business and operations required by our cia and other current or potential settlement terms and the financial impact thereof and our ability to recover any losses related to such legal matters from third parties ; continued increased competition from dialysis providers and others , and other potential marketplace changes ; our ability to reduce administrative expenses while maintaining targeted levels of service and operating performance , including our ability to achieve anticipated savings from our recent restructurings ; our ability to maintain contracts with physician medical directors , changing affiliation models for physicians , and the emergence of new models of care introduced by the government or private sector that may erode our patient base and reimbursement rates , such as accountable care organizations ( acos ) , independent practice associations ( ipas ) and integrated delivery systems ; our ability to complete acquisitions , mergers or dispositions that we might announce or be considering , on terms favorable to us or at all , or to integrate and successfully operate any business we may acquire or have acquired , or to successfully expand our operations and services in markets outside the united states , or to businesses outside of dialysis ; noncompliance by us or our business associates with any privacy laws or any security breach by us or a third party involving the misappropriation , loss or other unauthorized use or disclosure of confidential information ; the variability of our cash flows ; the risk that we may not be able to generate sufficient cash in the future to service our indebtedness or to fund our other liquidity needs , and the risk that we may not be able to refinance our indebtedness as it becomes due , on terms favorable to us or at all ; factors that may impact our ability to repurchase stock under our stock repurchase program and the timing of any such stock repurchases , including market story_separator_special_tag a net increase of 154 u.s. dialysis centers and a net increase of 4 international dialysis centers ; an increase in the overall number of patients we serve of approximately 2.5 % in the u.s. and 9.3 % internationally in 2018 ; repurchased 16,844,067 shares of our common stock for $ 1.2 billion ; proposition 8 , a california state-wide ballot initiative that sought to limit the amount of revenue dialysis providers could retain from caring for patients with commercial insurance , was defeated in california ; and consolidated operating cash flows of $ 1.8 billion , or $ 1.5 billion from continuing operations . we believe we will face challenges in 2019 similar to those we faced in 2018. we expect to see an increase in dialysis treatment volume and expect u.s. dialysis revenue per treatment to be up slightly from 2018. we expect revenue per treatment to be favorably impacted by an increase in medicare esrd rates of approximately 1.2 % , offset by anticipated downward pressure on commercial payor rates due to a shift of out-of-network patients to in-network . we expect patient care costs to increase due to inflation and a tight labor market and do not foresee an opportunity to fully offset these pressures with productivity or pharmaceutical cost improvements . in addition , we expect to continue to incur advocacy costs in connection with union policy initiatives , such as ab 290 in california and other potential ballot or other legislative initiatives . as a result of expected costs continuing to outpace our expected revenue increases , we anticipate that margins will continue to experience pressure . we remain committed to our plans for international expansion in certain regions , which will continue to require investment . 72 following is a summary of our consolidated operating results for reference in the discussion that follows . replace_table_token_5_th certain columns , rows or percentages may not sum or recalculate due to the use of rounded numbers . ( 1 ) on january 1 , 2018 , we adopted revenue from contracts with customers ( topic 606 ) using the cumulative effect method for those contracts that were not substantially completed as of january 1 , 2018. results related to performance obligations satisfied beginning on and after january 1 , 2018 are presented under topic 606 , while results related to the satisfaction of performance obligations in prior periods continue to be reported in accordance with our historical accounting under revenue recognition ( topic 605 ) . see notes 1 and 2 of the consolidated financial statements for further discussion of our adoption of topic 606. the following table summarizes our consolidated revenues among our reportable segments : replace_table_token_6_th certain columns , rows or percentages may not sum or recalculate due to the use of rounded numbers . ( 1 ) on january 1 , 2018 , we adopted revenue from contracts with customers ( topic 606 ) using the cumulative effect method for those contracts that were not substantially completed as of january 1 , 2018. results related to performance obligations satisfied beginning on 73 and after january 1 , 2018 are presented under topic 606 , while results related to the satisfaction of performance obligations in prior periods continue to be reported in accordance with our historical accounting under revenue recognition ( topic 605 ) . see notes 1 and 2 of the consolidated financial statements for further discussion of our adoption of topic 606. the following table summarizes our consolidated operating income and adjusted consolidated operating income : replace_table_token_7_th certain columns , rows or percentages may not sum or recalculate due to the use of rounded numbers . ( 1 ) for the periods presented in the table above adjusted operating income is defined as operating income before certain items which we do not believe are indicative of ordinary results , including goodwill impairment charges , investment and other asset impairments , restructuring charges , a net settlement gain , net gain ( loss ) on changes in ownership interests and estimated accruals for certain legal matters . adjusted operating income as so defined is a non-gaap measure and is not intended as a substitute for gaap operating income . we have presented these adjusted amounts because management believes that these presentations enhance a user 's understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations . as a result , adjusting for these amounts allows for comparison to our normalized prior period results . consolidated revenues consolidated revenues for 2018 increased by approximately $ 528 million , or 4.9 % , from 2017 . this increase in consolidated revenues was due to an increase in u.s. dialysis and related lab services revenues of approximately $ 976 million , principally due to the administration of calcimimetics , an increase in medicare bad debt revenue , and volume growth from additional treatments in 2018 , as discussed below . revenue for 2018 was negatively impacted by a decrease of approximately $ 400 million from 2017 in our ancillary services and strategic initiatives driven primarily from decreases in revenue from our pharmacy business due to changes in reimbursement for calcimimetics , as well as restructuring of our pharmacy business , partially offset by an increase in revenues from expansion in our international business and an increase in revenues in davita ikc , as described below . effective january 1 , 2018 , both oral and iv forms of calcimimetics , a drug class taken by many patients with esrd to treat mineral bone disorder , became the financial responsibility of our u.s. dialysis and lab services business for our medicare 74 patients and are now reimbursed under medicare part b. during an initial pass-through period , medicare payment for calcimimetics will be based on a pass-through rate of the average sales price plus approximately 4 % .
| results of operations the following table reflects the results of operations for our u.s. dialysis and related lab services business : replace_table_token_8_th certain columns , rows or percentages may not sum or recalculate due to the use of rounded numbers . ( 1 ) on january 1 , 2018 , we adopted revenue from contracts with customers ( topic 606 ) using the cumulative effect method for those contracts that were not substantially completed as of january 1 , 2018. results related to performance obligations satisfied beginning on and after january 1 , 2018 are presented under topic 606 , while results related to the satisfaction of performance obligations in prior periods continue to be reported in accordance with our historical accounting under revenue recognition ( topic 605 ) . see notes 1 and 2 of the consolidated financial statements for further discussion of our adoption of topic 606 . ( 2 ) for the periods presented in the table above , adjusted operating income is defined as operating income before certain items which we do not believe are indicative of ordinary results , including a non-cash gain on changes in ownership interests and a net settlement gain . adjusted operating income as so defined is a non-gaap measure and is not intended as a substitute for gaap operating income . we have presented these adjusted amounts because management believes that these presentations enhance a user 's understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations . as a result , adjusting for these amounts allows for comparison to our normalized prior period results . revenues u.s. dialysis and related lab services revenues for 2018 increased by approximately $ 976 million , or 10.4 % , from 2017 .
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these statements are only predictions and involve known and unknown risks , uncertainties and other factors , which could cause our actual results to differ from those projected in any forward-looking statements we make . see `` risk factors '' in part i , item 1a of this annual report on form 10-k for a discussion of some of these risks and uncertainties . this discussion should be read with our financial statements and related notes included elsewhere in this report . we are the leading provider of natural gas as an alternative fuel for vehicle fleets in the united states and canada , based on the number of stations operated and the amount of gasoline gallon equivalents of compressed natural gas ( `` cng '' ) and liquefied natural gas ( `` lng '' ) delivered . we design , build , operate and maintain fueling stations and supply our customers with cng fuel for light , medium and heavy-duty vehicles and lng fuel for medium and heavy-duty vehicles . we also sell non-lubricated natural gas compressors and other equipment used in cng stations and lng stations , provide operation and maintenance services ( `` o & m '' ) to customers , offer solutions designed to provide operators with code-compliant maintenance facilities to service their natural gas vehicle fleets , produce renewable natural gas ( `` rng '' ) , which can be used as vehicle fuel or sold for renewable power generation , and sell tradable credits we generate by selling natural gas and rng as a vehicle fuel , including credits we generate under the california low carbon fuel standard ( `` lcfs credits '' ) and renewable identification numbers ( `` rin credits '' or `` rins '' ) we generate under the federal renewable fuel standard ( `` rfs '' ) phase 2. in addition , we help our customers acquire and finance natural gas vehicles and obtain local , state and federal grants and incentives . we previously owned baf technologies , inc. and its wholly owned subsidiary , servotech engineering , inc. ( baf technologies , inc. and servotech engineering inc. are collectively referred to as `` baf '' ) . baf converted light and medium duty vehicles to run on natural gas and provided design and engineering services for natural gas engine systems . on june 28 , 2013 , we sold baf to westport innovations ( u.s. ) holdings inc. , a wholly owned subsidiary of westport innovations inc. overview this overview discusses matters on which our management primarily focuses in evaluating our financial condition and operating performance . 42 sources of revenue . we generate revenues by selling cng and lng , providing o & m services to our vehicle fleet customers , designing and constructing fueling stations and selling those stations to our customers , selling rng , selling non-lubricated natural gas fueling compressors and other equipment for cng and lng fueling stations , providing maintenance services , offering solutions designed to provide operators with code-compliant maintenance facilities to service their natural gas vehicle fleets , providing financing for our customers ' natural gas vehicle purchases and selling tradable credits , including lcfs credits and rin credits . in addition , until june 28 , 2013 , we generated revenues , through baf , by selling converted natural gas vehicles and providing design and engineering services for natural gas engine systems . key operating data . in evaluating our operating performance , our management focuses primarily on : ( 1 ) the amount of cng and lng gasoline gallon equivalents delivered ( which we define as ( i ) the volume of gasoline gallon equivalents we sell to our customers , plus ( ii ) the volume of gasoline gallon equivalents dispensed to our customers at stations where we provide o & m services , but do not sell the cng or lng , plus ( iii ) our proportionate share of the gasoline gallon equivalents sold as cng by our joint venture in peru ( through march 2013 when we sold our interest in the joint venture in peru ) , plus ( iv ) our proportionate share of the gasoline gallon equivalents of rng produced and sold as pipeline quality natural gas by our rng production facilities , ( 2 ) our gross margin ( which we define as revenue minus cost of sales ) , and ( 3 ) net income ( loss ) attributable to us . the following table , which you should read in conjunction with our consolidated financial statements and notes contained elsewhere in this annual report on form 10-k , presents our key operating data for the years ended december 31 , 2011 , 2012 , and 2013 : gasoline gallon equivalents delivered replace_table_token_5_th ( 1 ) see discussion under `` operationsgovernment incentives '' below . key trends in 2011 , 2012 and 2013. according to the u.s. department of energy , energy information administration ( `` eia '' ) , demand for natural gas fuels in the united states increased by approximately 38 % during the period january 1 , 2011 through december 31 , 2013. we believe this growth in demand was attributable primarily to the rising prices of gasoline and diesel relative to cng and lng during this period , as well as increasingly stringent environmental regulations affecting vehicle fleets and increased availability of natural gas . the number of fueling stations we owned , operated , maintained and or supplied grew from 224 at january 1 , 2011 to 471 at december 31 , 2013 ( a 110.3 % increase ) . included in this number are all of the cng and lng fueling stations we own , maintain or with which we have a fueling supply contract . the amount of cng , rng , and lng gasoline gallon equivalents we delivered from 2011 to 2013 increased by 37.8 % . story_separator_special_tag we anticipate that , over the long term , the prices for gasoline and diesel will continue to be significantly higher than the price of natural gas as a vehicle fuel , which will continue to make natural gas vehicle fuel an attractive alternative to gasoline and diesel . our belief that natural gas will continue , over the long term , to be a cheaper vehicle fuel than gasoline or diesel is based in large part on the growth in united states natural gas production in recent years . we believe there will be significant growth in the consumption of natural gas as a vehicle fuel among vehicle fleets , and our goal is to capitalize on this trend and enhance our leadership position as this market expands . with our acquisitions in 2010 of the natural gas compressor development and manufacturing business of imw industries , ltd. ( `` imw '' ) and wyoming northstar incorporated ( `` northstar '' ) , a leading provider of lng station design , construction , operation and maintenance services , we are a fully integrated provider of advanced compression technology , cng and lng station design and construction , and cng and lng fueling . we anticipate expanding our sales of cng and lng in each of the markets in which we operate , including trucking , refuse hauling , airports , taxis and public transit , and plan to enter additional markets , including marine and rail . consistent with the anticipated growth of our business , we also expect that our operating costs and capital expenditures will increase , primarily from the anticipated expansion of our station network and lng production capacity , as well as the logistics of delivering more cng and lng to our customers . we also anticipate that we will continue to seek to acquire assets and or businesses that are in the natural gas fueling infrastructure or rng production business that may require us to raise and expend additional capital . additionally , we have increased , and will continue to increase , our sales and marketing team and other necessary personnel as we seek to expand our existing markets and enter new markets , which will also result in increased costs . we anticipate the commercial roll-out of natural gas engines that are well-suited for the u.s. heavy-duty truck market , together with the economic and environmental benefits of natural gas fuel , will result in increased adoption of natural gas fueled trucks by the u.s. trucking industry . we estimate that there are approximately three million heavy-duty trucks on the road in the u.s. , and that such trucks collectively consume approximately 25 billion gallons of fuel each year . as a result , we believe this market has the potential to become our largest . we have made a significant commitment of capital and other resources to build a nationwide network of natural gas truck fueling stations , which we refer to as `` america 's natural gas highway '' or `` angh , '' on the interstate highway system and near distribution centers , intermodal transportation facilities and manufacturing locations . our objective in building america 's natural gas highway is to enable natural gas fueled freight trucking coast to coast and border to border along key transportation corridors . as of december 31 , 2013 , we had completed 85 stations , 22 were open and selling natural gas fuel , and an additional 28 were under development . we plan to continue to open stations and build new stations as natural gas trucks are deployed in the geographic areas where the stations are located . our angh stations have primarily been initially built to provide lng . however , we believe operators will adopt heavy-duty trucks that run on both lng and cng , so to meet the needs of our customers , we have designed the angh stations to be capable of dispensing both fuels . we will need to invest additional capital in our angh stations to the extent 45 more cng than lng heavy-duty trucks are deployed and we decide to add cng or lcng fueling equipment to our angh stations . many angh stations are located at pilot flying j travel centers , one of the largest truck fueling operators in the u.s. under our agreement with pilot , we own the angh stations we build at pilot locations and pay rent to pilot for the use of its property . in addition , we are entitled to recoup all of our investments in angh stations we build at pilot locations plus a defined return , after which we share a portion of the station profits with pilot . sources of liquidity and anticipated capital expenditures . liquidity is the ability to meet present and future financial obligations either through operating cash flows , the sale or maturity of existing assets , or by the acquisition of additional funds through capital management . historically , our principal source of liquidity has consisted of cash provided by financing activities . our business plan calls for approximately $ 135.0 million in capital expenditures in 2014 , primarily related to construction of fueling stations , including stations along angh , expansion of our california lng plant , development of two new lng production facilities , expansion and construction of landfill gas processing plants , and the purchase of lng trailers . we may also elect to invest additional amounts in companies or assets in the natural gas fueling infrastructure , services and production industries , including rng production , and to make capital expenditures to build additional lng production facilities or to otherwise secure future lng supply . we will need to raise additional capital as necessary to fund any capital expenditures or investments that we can not fund through available cash or cash generated by operations . the timing and necessity of any future capital raise will depend on our rate of new station construction and potential merger or acquisition activity .
| results of operations fiscal year ended december 31 , 2013 compared to fiscal year ended december 31 , 2012 revenue . revenue increased by $ 18.5 million to $ 352.5 million in the year ended december 31 , 2013 , from $ 334.0 million in the year ended december 31 , 2012. a portion of this increase was the result of an increase in the number of gallons delivered between periods , from 194.9 million gasoline gallon equivalents to 214.4 million gasoline gallon equivalents . the increase in volume was primarily from an increase in cng sales of 13.4 million gallons . our net increase in cng volume was primarily from 28 new refuse customers , eight new airport customers , five new transit customers , and one new trucking customer , which together accounted for 7.1 million gallons of the cng volume increase . we also experienced an increase of 14.5 million gallons in cng volume between periods from our existing airport , refuse and trucking customers . these cng gallon increases were offset by a decline of 54 6.8 million gallons associated with the sale of our 49 % interest in our peruvian joint venture in march 2013 and 1.4 million gallons related to the loss of three cng o & m stations for one transit customer . further , we experienced an increase of 4.5 million gallons in lng volume between periods , which was primarily due to 1.1 million gallons from seven new refuse , transit , trucking and industrial customers , and 4.8 million gallons from existing trucking , refuse , transit and industrial customers . these lng gallon increases were offset by a decrease of 1.4 million gallons from one existing transit customer that is in the process of transitioning to cng buses , and who will continue to be our customer .
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in addition , we provide a number of building services and industrial services . our services are provided to a broad range of commercial , industrial , utility and institutional customers through approximately 80 operating subsidiaries and joint venture entities . our offices are located in the united states and the united kingdom . operating segments our reportable segments reflect certain reclassifications of prior year amounts from our united states mechanical construction and facilities services segment to our united states building services and our united states industrial services segments due to changes in our internal reporting structure . we have the following reportable segments , which provide services associated with the design , integration , installation , start-up , operation and maintenance of various systems : ( a ) united states electrical construction and facilities services ( involving systems for electrical power transmission and distribution ; premises electrical and lighting systems ; process instrumentation in the refining , chemical processing , food processing and mining industries ; low-voltage systems , such as fire alarm , security and process control ; voice and data communication ; roadway and transit lighting ; and fiber optic lines ) ; ( b ) united states mechanical construction and facilities services ( involving systems for heating , ventilation , air conditioning , refrigeration and clean-room process ventilation ; fire protection ; plumbing , process and high-purity piping ; controls and filtration ; water and wastewater treatment ; central plant heating and cooling ; cranes and rigging ; millwrighting ; and steel fabrication , erection and welding ) ; ( c ) united states building services ; ( d ) united states industrial services ; and ( e ) united kingdom building services . the “ united states building services ” and “ united kingdom building services ” segments principally consist of those operations which provide a portfolio of services needed to support the operation and maintenance of customers ' facilities , including commercial and government site-based operations and maintenance ; facility maintenance and services , including reception , security and catering services ; outage services to utilities and industrial plants ; military base operations support services ; mobile mechanical maintenance and services ; floor care and janitorial services ; landscaping , lot sweeping and snow removal ; facilities management ; vendor management ; call center services ; installation and support for building systems ; program development , management and maintenance for energy systems ; technical consulting and diagnostic services ; infrastructure and building projects for federal , state and local governmental agencies and bodies ; and small modification and retrofit projects , which services are not generally related to customers ' construction programs . the “ united states industrial services ” segment principally consists of those operations which provide industrial maintenance and services for refineries , petrochemical plants , and other customers within the oil and gas industry . services of this segment include refinery turnaround planning and engineering ; specialty welding ; overhaul and maintenance of critical process units ; specialty technical services ; on-site repairs , maintenance and service of heat exchangers , towers , vessels and piping ; design , manufacturing , repair , and hydro blast cleaning of shell and tube heat exchangers and related equipment ; and construction , maintenance , and other support services for customers within the upstream and midstream sectors . 2019 versus 2018 overview the following table presents selected financial data for the fiscal years ended december 31 , 2019 and 2018 ( in thousands , except percentages and per share data ) : replace_table_token_6_th 22 the results of our operations for 2019 set new company records in terms of revenues , operating income , net income attributable to emcor group , inc. , and diluted earnings per common share from continuing operations . operating margin ( operating income as a percentage of revenues ) for 2019 remained consistent with our previously established annual record of 5.0 % . revenues increased by 12.8 % from $ 8.1 billion for the year ended december 31 , 2018 to $ 9.2 billion for the year ended december 31 , 2019. operating income for 2019 of $ 460.9 million , or 5.0 % of revenues , increased by $ 57.8 million compared to operating income of $ 403.1 million , or 5.0 % of revenues , in 2018. the strong operating results were due to revenue growth and an increase in operating income within all of our reportable segments , as well as operating margin expansion across all such segments , except for our united states mechanical construction and facilities services segment due to a change in revenue mix compared to the prior year . impact of acquisitions in order to provide a more meaningful period-over-period discussion of our operating results , we may discuss amounts generated or incurred ( revenues , gross profit , selling , general and administrative expenses and operating income ) from companies acquired . the amounts discussed reflect the acquired companies ' operating results in the current reported period only for the time period these entities were not owned by emcor in the comparable prior reported period . during 2019 , we completed the acquisition of batchelor & kimball , inc. ( “ bki ” ) , a leading full service provider of mechanical construction and maintenance services . this acquisition strengthens our position and broadens our capabilities in the southern and southeastern regions of the united states , and the results of its operations have been included within our united states mechanical construction and facilities services segment . story_separator_special_tag in addition , the results for the year ended december 31 , 2019 benefited from a more normalized demand pattern for our turnaround services as compared to the prior year , which was negatively impacted by the lingering effects of hurricane harvey , which led to the cancellation or deferral of certain previously scheduled maintenance activities with our customers in the first half of 2018. the increased revenues for the 24 year ended december 31 , 2019 were partially offset by a decrease in revenues from our shop services operations , primarily as a result of a reduction in new build heat exchanger sales . our united kingdom building services segment revenues were $ 423.3 million in 2019 compared to $ 414.9 million in 2018. the increase in revenues within this segment was primarily the result of : ( a ) new contract awards within the commercial and institutional market sectors and ( b ) increased project activity with existing customers . unfavorable exchange rates for the british pound versus the united states dollar negatively impacted this segment 's revenues for the year ended december 31 , 2019 by $ 19.5 million . cost of sales and gross profit the following table presents cost of sales , gross profit ( revenues less cost of sales ) , and gross profit margin ( gross profit as a percentage of revenues ) for the years ended december 31 , 2019 and 2018 ( in thousands , except for percentages ) : replace_table_token_8_th our gross profit for the year ended december 31 , 2019 was $ 1,355.9 million , a $ 150.4 million increase compared to gross profit of $ 1,205.5 million for the year ended december 31 , 2018. our gross profit margin was 14.8 % for 2019 and 2018. the increase in consolidated gross profit was due to an increase in gross profit from all of our reportable segments , partially as a result of an increase in revenues within each segment during 2019. additionally , gross profit within our united states electrical construction and facilities services segment , our united states mechanical construction and facilities services segment , and our united states building services segment was favorably impacted by incremental gross profit generated by companies acquired . selling , general and administrative expenses the following table presents selling , general and administrative expenses and sg & a margin ( selling , general and administrative expenses as a percentage of revenues ) for the years ended december 31 , 2019 and 2018 ( in thousands , except for percentages ) : replace_table_token_9_th our selling , general and administrative expenses for the year ended december 31 , 2019 were $ 893.5 million , a $ 94.3 million increase compared to selling , general and administrative expenses of $ 799.2 million for the year ended december 31 , 2018. selling , general and administrative expenses as a percentage of revenues were 9.7 % and 9.8 % for 2019 and 2018 , respectively . the increase in selling , general and administrative expenses for the year ended december 31 , 2019 included $ 35.1 million of incremental expenses directly related to companies acquired in 2019 and 2018 , including amortization expense attributable to identifiable intangible assets of $ 4.5 million . in addition to the impact of acquisitions , selling , general and administrative expenses increased due to : ( a ) an increase in salaries and related employee benefit costs , partially as a result of an increase in headcount to support our revenue growth , ( b ) an increase in incentive compensation expense , due to higher annual operating results than in the prior year , ( c ) an increase in information technology costs related to various initiatives currently in process , and ( d ) an increase in certain non-income based taxes . the decrease in sg & a margin for the year ended december 31 , 2019 was primarily due to an increase in revenues without commensurate increases in our overhead cost structure . restructuring expenses restructuring expenses , primarily relating to employee severance obligations , were $ 1.5 million and $ 2.3 million for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 and 2018 , the balance of restructuring related obligations yet to be paid was $ 1.6 million . the obligations outstanding as of december 31 , 2019 will be paid pursuant to our contractual obligations throughout 2020 and 2021. no material expenses in connection with restructuring from continuing operations are expected to be incurred during 2020. impairment loss on goodwill and identifiable intangible assets no impairment of our identifiable intangible assets was recognized for the year ended december 31 , 2019. during 2018 , we recorded a $ 0.9 million non-cash impairment charge associated with a finite-lived subsidiary trade name within our united states industrial services segment . no impairment of our goodwill was recognized for the years ended december 31 , 2019 and 2018 . 25 operating income ( loss ) the following table presents by segment our operating income ( loss ) and each segment 's operating income ( loss ) as a percentage of such segment 's revenues from unrelated entities for the years ended december 31 , 2019 and 2018 ( in thousands , except for percentages ) : replace_table_token_10_th as described in more detail below , we had operating income of $ 460.9 million for the year ended december 31 , 2019 compared to operating income of $ 403.1 million for the year ended december 31 , 2018. operating margin was 5.0 % for both periods . operating income and operating margin increased within all of our reportable segments except , in the case of operating margin , our united states mechanical construction and facilities services segment , which experienced a 0.7 % decline in operating margin as a result of a change in revenue mix compared to the prior year .
| discussion and analysis of results of operations revenues the following table presents our revenues for each of our operating segments and the approximate percentages that each segment 's revenues were of total revenues for the years ended december 31 , 2018 and 2017 ( in thousands , except for percentages ) : replace_table_token_13_th as described in more detail below , revenues for 2018 were $ 8.1 billion compared to $ 7.7 billion for 2017. the increase in revenues was attributable to increased revenues from all of our reportable segments . companies acquired in 2018 and 2017 , which are reported in our united states electrical construction and facilities services segment , our united states mechanical construction and facilities services segment , and our united states building services segment , generated incremental revenues of $ 90.1 million in 2018. revenues of our united states electrical construction and facilities services segment were $ 1,954.3 million for the year ended december 31 , 2018 compared to revenues of $ 1,829.6 million for the year ended december 31 , 2017. the increase in revenues was attributable to an increase in activity within all of the market sectors in which we operate , except for the transportation market sector , as we approached substantial completion on several large multi-year transportation construction projects in 2018. in addition , the results for the year ended december 31 , 2018 included $ 20.2 million of incremental revenues generated by a company acquired in 2018. our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2018 were $ 2,962.8 million , an $ 82.7 million increase compared to revenues of $ 2,880.1 million for the year ended december 31 , 2017. the increase in revenues was primarily attributable to an increase in revenues from commercial and institutional construction projects , partially offset by a decrease in revenues from large projects within the manufacturing market sector .
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our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including , but not limited to , those disclosed in item 1a , “ risk factors ” elsewhere in this annual report on form 10-k and in other documents filed with the sec and otherwise publicly disclosed . please refer to “ forward-looking statements ” contained within this item 7 for additional information . this discussion also contains non-gaap financial measures . please refer to item 6 of this annual report on form 10-k for reconciliations of these non-gaap measures and additional information . for a complete description of our business including our operating policies , investment philosophy and strategy , financing and hedging strategies , and other important information , please refer to item 1 of part i of this annual report on form 10-k. executive overview our investment strategy of maintaining a diversified portfolio of residential and commercial mbs with higher liquidity and lower credit risk continued to benefit our shareholders in spite of a volatile and challenging global economic environment . during 2018 , we were able to maintain steady quarterly dividends for our shareholders as we generated solid cash flow from our investment portfolio despite the 100-basis point increase in the u.s. federal funds rate and corresponding increases in our funding costs . though we experienced a lower return environment and our book value declined throughout 2018 , we were able to raise new capital and maintain strong liquidity into the fourth quarter when the most recent return of market volatility led to opportunities to invest capital at wider credit spreads and higher expected returns . though interest rates along the entire curve increased during 2018 , longer-term interest rates were range bound while shorter-term interest rates rose in response to continued increases in the federal funds rate causing both the u.s. treasury and swap curves to flatten during the year . economic growth in the u.s. was steady and inflation remained well contained throughout the year , limiting the upward pressure on medium and long-term interest rates . in the fourth quarter of 2018 , market participants grew increasingly concerned over the potential negative impact on economic growth from u.s. monetary and fiscal policy , causing credit spreads on risk assets to widen while treasury and swap rates rallied . as a result of the wider credit spreads , the fair value of our mbs declined significantly late in the fourth quarter of 2018 , causing the majority of the company 's loss of $ ( 1.32 ) in its book value per common share during 2018 , which ended the year at $ 6.02 per common share compared to $ 7.34 as of december 31 , 2017 . 31 the chart below shows the highest and lowest rates during the year ended december 31 , 2018 as well as the rates as of december 31 , 2018 and december 31 , 2017 for the indicated u.s. treasury securities : the chart below shows the highest and lowest swap rates during the year ended december 31 , 2018 as well as the swap rates as of december 31 , 2018 and december 31 , 2017 : 32 a flattening yield curve puts pressure on our net interest spread because our repurchase agreement borrowing costs , which are based on short-term interest rates , increase faster than the interest income we earn on our investments . the table below shows the declines in net interest spread for the majority of our investments as a result of higher funding costs and the flatter yield curve : replace_table_token_6_th ( 1 ) includes agency rmbs and cmbs . ( 2 ) includes agency and non-agency issued securities . ( 3 ) excludes net periodic interest benefit/cost of interest rate swaps used to economically hedge the interest rate risk of using repurchase agreement borrowings to finance our investments . summary of 2018 results for the year ended december 31 , 2018 , we reported a comprehensive loss to common shareholders of $ ( 31.9 ) million , which consisted of net loss to common shareholders of $ ( 4.8 ) million and other comprehensive loss of $ ( 27.1 ) million . higher interest rates and wider credit spreads drove larger declines in the fair value of our mbs ( including tbas ) relative to the increases in the fair value of our derivative instruments used to hedge interest rate risk from our assets . net unrealized losses on mbs of $ ( 50.2 ) million and net realized losses on tba dollar roll positions of $ ( 10.7 ) million were partially offset by net realized gains of $ 7.3 million on our hedging instruments . net interest income declined during 2018 to $ 50.5 million compared to $ 58.3 million during 2017 as the impact of the higher interest rate environment on our repurchase agreement borrowing costs outpaced the benefits of increased leverage and having a larger investment portfolio during 2018. the remainder of our net loss for 2018 was primarily comprised of general and administrative expenses of $ ( 15.1 ) million and preferred dividends $ ( 11.8 ) million . please refer to “ results of operations ” within this item 7 for further discussion of these components of comprehensive loss . for the year ended december 31 , 2017 , we reported comprehensive income to common shareholders of $ 47.0 million , which was comprised of net income to common shareholders of $ 23.1 million and other comprehensive income of $ 23.9 million . because the fair value of our financial instruments is influenced by market factors outside of management 's control , it is difficult to compare our net income ( loss ) and comprehensive income ( loss ) with those same measures in other reporting periods , particularly those periods with significant market volatility . story_separator_special_tag to determine each security 's valuation , the primary pricing service uses either a market approach or income approach , both of which rely on observable market data . the market approach uses prices and other relevant information that is generated by market transactions of identical or similar securities , while the income approach uses valuation techniques to convert estimated future cash flows to a discounted present value . management reviews the assumptions and inputs utilized in the valuation techniques . examples of these observable inputs and assumptions include market interest rates , credit spreads , and projected prepayment speeds , among other things . the company compares the price received from its primary pricing service to other prices received from additional third-party pricing services and multiple broker quotes for reasonableness . 34 we typically receive a total of three to six bid-side prices from pricing services and brokers for each of our securities ; prices obtained from brokers are not binding on either the broker or us . management does not adjust the prices received , but , for securities on which we receive five or more prices , the high and low prices are excluded from the calculation of the average price . in addition , management reviews the prices received for each security by comparing those prices to actual purchase and sale transactions , our internally modeled prices that are calculated based on observable market rates and credit spreads , and the prices that our borrowing counterparties use in financing our securities . management reviews prices which vary significantly from the pricing service and may exclude such prices from its calculation of fair value . the decision to exclude any price from use in the calculation of the fair values used in our consolidated financial statements is reviewed and approved by management independent of the pricing process . the average of the remaining prices received is used for the fair values included in our consolidated financial statements . if the price of a security is obtained from quoted prices for similar instruments or model-derived valuations whose inputs are observable , the security is classified as a level 2 security . the security is classified as a level 3 security if the inputs are unobservable , resulting in an estimate of fair value based primarily on management 's judgment . as of december 31 , 2018 , less than 0.1 % of our mbs are level 3 securities . please refer to note 5 of the notes to our consolidated financial statements contained within part ii , item 8 of this annual report on form 10-k for additional information on fair value measurements . other-than-temporary impairments . when the fair value of an available-for-sale security is less than its amortized cost as of the reporting date , the security is considered impaired . we assess our securities for impairment on at least a quarterly basis and determine if the impairments are either temporary or other-than-temporary . we assess our ability to hold any agency mbs or non-agency mbs with an unrealized loss until the recovery in its value . our ability to hold any such mbs is based on our current investment strategy and significance of the related investment as well as our current leverage and anticipated liquidity . although fannie mae and freddie mac are not explicitly backed by the full faith and credit of the united states , given their guarantee and commitments for support received from the treasury as well as the credit quality inherent in agency mbs , we do not typically consider any of the unrealized losses on our agency mbs to be credit-related . for our non-agency mbs , we review the credit ratings of these mbs and the seasoning of the mortgage loans collateralizing these securities as well as the estimated future cash flows , which include any projected losses , in order to evaluate whether we believe any portion of the unrealized loss at the reporting date is related to credit losses . the determination as to whether an other-than-temporary impairment ( `` otti '' ) exists , as well as its amount , is subjective , as such determinations are based not only on factual information available at the time of assessment but also on management 's estimates of future performance and cash flow projections . as a result , the timing and amount of any otti may constitute a material estimate that is susceptible to significant change . our expectations with respect to our securities in an unrealized loss position may change over time , given , among other things , the dynamic nature of markets and other variables . for example , if the gses suffer losses or cease to exist , our view of the credit worthiness of our agency mbs could materially change , which may affect our assessment of otti for agency mbs in future periods . future sales or changes in our expectations with respect to agency or non-agency securities in an unrealized loss position could result in us recognizing other-than-temporary impairment charges or realizing losses on sales of mbs in the future . 35 financial condition our investment portfolio is comprised mostly of agency fixed-rate investments . as of december 31 , 2018 , approximately 65 % of our investments are 30-year agency rmbs including tba dollar roll positions , which we continue to invest in given their more favorable risk-return profile and current liquidity in the market versus other types of mbs . approximately 23 % of our investments are agency cmbs , mainly in the multifamily sector . relative to rmbs , cmbs have more predictable prepayment profiles and are therefore less costly to hedge . the following charts compare our portfolio investment allocations as of december 31 , 2018 to december 31 , 2017 : ( 1 ) includes securities pending settlement as of the periods indicated . ( 2 ) includes net long positions in tbas used for investment purposes at their implied market value as if settled .
| results of operations the discussions below provide information on certain items on our consolidated statements of comprehensive income . these discussions include both gaap and non-gaap financial measures which management utilizes in its internal analysis of financial and operating performance . please read the section “ non-gaap financial measures ” at the end of “ executive overview ” in item 2 of this annual report on form 10-k for additional important information about these measures . year ended december 31 , 2018 compared to year ended december 31 , 2017 net interest income for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 net interest income and net interest spread declined for the year ended december 31 , 2018 compared to the same period in 2017 due to higher borrowing costs as a result of significant increases in short-term interest rates and lower prepayment penalty compensation and discount accretion on our cmbs and cmbs io during the year ended december 31 , 2018 . the following table presents certain information about our interest-earning assets and interest-bearing liabilities and their performance for the year ended december 31 , 2018 and december 31 , 2017 : 42 replace_table_token_13_th ( 1 ) average balance for assets is calculated as a simple average of the daily amortized cost and excludes unrealized gains and losses as well as securities pending settlement if applicable . ( 2 ) average balance for liabilities is calculated as a simple average of the daily borrowings outstanding during the period . ( 3 ) effective yield is calculated by dividing the sum of gross interest income and scheduled premium amortization/discount accretion ( both of which are annualized for any reporting period less than 12 months ) and prepayment compensation and premium amortization/discount accretion adjustments ( collectively , `` prepayment adjustments '' ) , which are not annualized , by the average balance of asset type outstanding during the reporting period .
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although other trends , factors and uncertainties may impact our operations and financial condition , including many that we do not or can not foresee , we believe that our results of operations and financial condition for the foreseeable future will be affected by the following trends , factors and uncertainties : our primary focus continues to be our organic growth through exploration , development , construction of new projects and enhancements of existing power plants . we expect that this investment in organic growth will increase our total generating capacity , consolidated revenues and operating income attributable to our electricity segment from year to year . in addition , we routinely look at acquisition opportunities . we expect that the continued awareness of climate change may result in significant changes in the business and regulatory environments , which may create business opportunities for us . in 2011 , the first phase of the epa tailoring rule took effect . the tailoring rule sets thresholds addressing the applicability of the permitting requirements under the clean air act 's prevention of significant deterioration and title v programs to certain major sources of ghg emissions . federal legislation or additional federal regulations addressing climate change are possible . several states and regions are already addressing climate change . for example , california 's state climate change law , ab 32 , which was signed into law in september 2006 , regulates most sources of ghg emissions and aims to reduce ghg emissions to 1990 levels by 2020. in 2008 , the carb approved a scoping plan to carry out regulations implementing ab 32. in december 2010 , carb approved cap-and-trade regulations to reduce california 's ghg emissions under ab 32. the cap-and-trade regulation , the first phase of which is contemplated to be initiated in january of 2012 with compliance obligations commencing in january 2013 , will set a statewide limit on emissions from sources responsible for emitting 80 % of california 's ghgs , and , according to carb , will help establish a price signal needed to drive long-term investment in cleaner fuels and more efficient use of energy . however , implementation of this cap-and-trade program under ab 32 has been the subject of legal challenges that may hinder and or ultimately thwart its implementation . in september of 2006 , california also passed senate bill 1368 , which prohibits the state 's utilities from entering into long-term financial commitments for base-load generation with power plants that fail to meet a co 2 emission performance standard established by the california energy commission and the california public utilities commission . california 's long-term climate change goals are reflected in executive order s-3-05 , which requires a reduction in ghgs to : ( i ) 2000 levels by 2010 ; ( ii ) 1990 levels by 2020 ; and ( iii ) 80 % of 1990 levels by 2050. in addition to california , twenty-two other states have set ghg emissions targets or goals ( arizona , colorado , connecticut , florida , hawaii , illinois , maine , maryland , massachusetts , michigan , minnesota , montana , new hampshire , new jersey , new mexico , new york , oregon , rhode island , utah , vermont , virginia and washington ) . regional initiatives , such as the western climate initiative ( which includes seven u.s. states and four canadian 102 provinces ) and the midwest ghg reduction accord ( which includes six u.s. states and one canadian province ) , are also being developed to reduce ghg emissions and develop trading systems for renewable energy credits . in september 2008 , the first-in-the-nation auction of co 2 allowances was held under the rggi , a regional cap-and-trade system , which includes nine northeast and mid-atlantic states . under rggi , the participating states plan to stabilize power section carbon emissions at their capped level , and then reduce the cap by a total of 10 % at a rate of 2.5 % each year between 2015 and 2018. in addition , twenty-nine states and the district of columbia have adopted rps and eight other states have adopted renewable portfolio goals . on april 12 , 2011 , governor jerry brown signed california senate bill x1-2 ( sbx1-2 ) which increased california 's rps to 33 % by december 31 , 2020 and instituted a tradable rec program , according to which california utilities can purchase three products to comply with sbx1-2 : ( i ) bundled electricity and recs from electricity generators that interconnect with a california balancing authority , ( ii ) tradable recs that are purchased either from out-of-state electricity generators or in-state electricity generators that do not interconnect with a california balancing authority , and ( iii ) firmed and shaped transactions with out-of-state electricity generators . until december 31 , 2013 unbundled tradable recs may account for only 25 % of a utility 's annual rps , but this limit on unbundled recs does not apply to municipal utilities and other small entities . the percentage will be reduced after 2013. sbx1-2 is expected to foster a liquid tradable rec market and lead to more creative off-take arrangements . although we can not predict at this time whether the tradable rec program under sbx1-2 and its implementing regulations will have a significant impact on our operations or revenue , it may facilitate additional options when negotiating ppas and selling electricity from our projects . we expect that the additional demand for renewable energy from utilities in states with rps will outpace a possible reduction in general demand for energy ( if any ) due to the effect of economic conditions . story_separator_special_tag our foreign operations are subject to significant political , economic and financial risks , which vary by country . those risks include the partial privatization of the electricity sector in guatemala , labor unrest in nicaragua and the political uncertainty currently prevailing in some of the countries in which we operate . although we maintain political risk insurance for most of our foreign power plants to mitigate these risks , insurance does not provide complete coverage with respect to all such risks . the energy policy act of 2005 authorizes ferc to revise purpa so as to terminate the obligation to purchase the output of a qualifying facility if ferc finds that there is an accessible competitive market for energy and capacity from the qualifying facility . the legislation does not affect existing ppas . we do not expect this change in law to affect our u.s. power plants significantly , as all except one of our current contracts are long-term . the ferc recently granted the california investor-owned utilities a waiver of the mandatory purchase obligations from qualifying facilities above 20 mw . if the utilities in the regions in which our domestic power plants operate were to be relieved of the mandatory purchase obligation , they would not be required to purchase energy from us upon termination of the existing ppa , which could have an adverse effect on our revenues . 104 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 . revenues attributable to our electricity segment are relatively predictable as they are derived from the sale of electricity from our power plants pursuant to long-term ppas . however , we have variable price ppas in california and hawaii . our california ppas are subject to the impact of fluctuations in natural gas prices . the prices paid for electricity pursuant to the ppa of the puna complex for 25 mw in hawaii are impacted by the price of oil . accordingly , our revenues from those power plants may fluctuate . our electricity segment revenues are also subject to seasonal variations , as more fully described in the section entitled seasonality , and may also be affected by higher-than-average ambient temperature , which could cause a decrease in the generating capacity of our power plants , and by unplanned major maintenance activities related to our power plants . our ppas generally provide for the payment of 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 . some of our ppas provide for bonus payments in the event that we are able to exceed certain target capacity levels and the potential forfeiture of payments if we fail to meet certain minimum target capacity levels . energy payments , on the other hand , are payments calculated based on the amount of electrical energy delivered to the relevant power purchaser at a designated delivery point . the rates applicable to such payments are either fixed ( subject , in certain cases , to certain adjustments ) or are based on the relevant power purchaser 's short run avoided costs ( the incremental costs that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others ) . our more recent ppas generally provide for energy payments alone with an obligation to compensate the off-taker for its incremental costs as a result of shortfalls in our supply . revenues attributable to our product segment are generally less predictable than revenues from our electricity segment . this is because larger customer orders for our products are typically a result of our participating in , and winning , tenders or requests for proposals issued by potential customers in connection with projects they are developing . such projects often take a significant amount of time to design and develop and are often subject to various contingencies such as the customer 's ability to raise the necessary financing for a project . as a result , we are generally unable to predict the timing of such orders for our products and may not be able to replace existing orders that we have completed with new ones . as a result , our revenues from our product segment fluctuate ( at times , extensively ) from period to period . in 2011 , we experienced a significant increase in our product segment customer orders , which has increased our product segment backlog . we expect that our product segment revenues will increase over the next two years as a result of these new orders and increased backlog , which is described in item 1 business. the following table sets forth a breakdown of our revenues for the years indicated : replace_table_token_9_th 105 geographical breakdown of revenues the following table sets forth the geographic breakdown of the revenues attributable to our electricity and product segments for the periods indicated : replace_table_token_10_th seasonality the prices paid for the electricity generated by our domestic power plants pursuant to our ppas are subject to seasonal variations . the prices paid for electricity under the ppas with southern california edison for the heber 1 and 2 plants , the mammoth complex , the ormesa complex , and the north brawley plant are higher in the months of june through september . as a result , we receive , and will receive in the future , higher revenues during such months . the prices paid for electricity pursuant to the ppas of our power plants in nevada have no significant changes during the year . in the winter , due principally to the lower ambient temperature , our power plants produce more energy and as
| 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 the following : ( i ) our recent construction of new power plants and enhancement of acquired power plants ; and ( ii ) fluctuation in revenues from our product segment . replace_table_token_11_th 111 replace_table_token_12_th 112 comparison of the year ended december 31 , 2011 and the year ended december 31 , 2010 total revenues total revenues for the year ended december 31 , 2011 were $ 437.0 million , compared to $ 373.2 million for the year ended december 31 , 2010 , which represented a 17.1 % increase in total revenues . this increase is attributable to both our electricity and product segments whose revenues increased by 11.0 % and by 39.0 % , respectively , over the same period in 2010. electricity segment revenues attributable to our electricity segment for the year ended december 31 , 2011 were $ 323.8 million , compared to $ 291.8 million for the year ended december 31 , 2010 , which represented an 11.0 % increase in such revenues . this increase is due to : ( i ) an increase in the electricity rates in our amatitlan and puna power plants , which resulted in an increase in the average rate of our electricity portfolio from $ 78 per mwh in the year ended december 31 , 2010 to $ 83 per mwh in the year ended december 31 , 2011 ; and ( ii ) increased electricity generation of our power plants from 3,762,283 mwh in the year ended december 31 , 2010 to 3,918,156 mwh in the year ended december 31 , 2011 , an increase of 4.1 % .
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realized gains or losses on sales of securities , loans and derivatives are included in the `` net realized gain/ ( loss ) `` line item on the consolidated statement of operations . the cost of positions sold is calculated using a first in , first out ( `` fifo `` ) basis . realized gains and losses are recorded in earnings at the time of disposition . accounting for residential and commercial mortgage loans investments in mortgage loans are recorded in accordance with asc 310-10 story_separator_special_tag the following discussion contains forward-looking statements and should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements , which are included in this report . our company we are a hybrid mortgage reit that opportunistically invests in a diversified risk adjusted portfolio of agency rmbs and credit investments . our credit investments include residential investments and commercial investments . we are a maryland corporation and are externally managed by our manager , a wholly-owned subsidiary of angelo gordon , pursuant to a management agreement . our manager , pursuant to a delegation agreement dated as of june 29 , 2011 , has delegated to angelo gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement . we conduct our operations to qualify and be taxed as a real estate investment trust ( `` reit '' ) , for u.s. federal income tax purposes . accordingly , we generally will not be subject to u.s. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a reit . we also operate our business in a manner that permits us to maintain our exemption from registration under the investment company act of 1940 , as amended , or the investment company act . our common stock is traded on the new york stock exchange ( `` nyse '' ) under the symbol mitt . our 8.25 % series a cumulative redeemable preferred stock , our 8.00 % series b cumulative redeemable preferred stock , and our 8.000 % series c fixed-to-floating rate cumulative redeemable preferred stock trade on the nyse under the symbols mitt pra , mitt prb , and mitt prc , respectively . prior to december 31 , 2019 , we conducted our business through the following segments ; ( i ) securities and loans and ( ii ) single-family rental properties . on november 15 , 2019 , we sold our portfolio of single-family rental properties and no longer separate our business into segments . we reclassified the operating results of our single-family rental properties segment to discontinued operations and excluded the income associated with the portfolio from continuing operations for all periods presented . see note 14 to the `` notes to consolidated financial statements '' for additional financial information regarding our discontinued operations . market conditions s & p corelogic case-shiller reported a 3.3 % increase in national home prices year-over-year , up slightly from 3.2 % in the previous quarter and down from 5.3 % a year ago . new and existing home sales oscillated during the quarter as limited supply , particularly in the lower- and middle-price tiers , and affordability headwinds from rising prices continued to challenge homebuyers . on the other hand , a monthly survey of homebuilders , measuring sales expectations , current sale conditions and buyer traffic , reached its highest level since june 1999 , as relatively low mortgage rates , limited housing stock and a strong job market increased builders ' confidence . although the pace of home price appreciation has slowed , the continued positive trajectory in home prices has resulted in an annual 5.1 % increase of u.s. homeowner equity in the third quarter of 2019 according to corelogic 's homeowner equity report . at the same time , the total number of mortgaged residential properties with negative equity ( homes where the homeowner owes more on the home than the home is worth ) decreased 10 % on a year-over-year basis to two million homes . additionally , credit performance in terms of serious delinquencies and subsequent default rates continued to be stable-to-improving . according to corelogic 's loan performance insights report , the serious delinquency rate on residential mortgages , defined as 90 days or more past due including loans in foreclosure , was 1.7 % in september 2019 , down from 2.0 % in september 2018. this improvement has been driven primarily by the strengthening of borrower 's household balance sheets and the strength of the u.s. labor market . with unemployment and jobless claims remaining at or near historical lows , subdued inflation , and a belief that their prior interest rate cuts were sufficient insurance protection against a further weakening of economic data , the federal reserve unanimously voted to maintain the federal funds interest rate at its target range of 1.50 % -1.75 % at its december meeting . chairman powell expressed confidence in a favorable outlook for the economy and indicated that the fed is on hold for the foreseeable future and that a significant change in their outlook would be required for further rate cuts to occur . spreads for many mortgage sectors were stable during the fourth quarter of 2019 although agency mbs spreads tightened sharply versus benchmarks as headwinds from the prior two quarters turned to tailwinds . higher rates , decreased origination , lower implied volatility and favorable seasonals all helped improve valuations versus both benchmark interest rates and investment grade corporate credit . successful actions by the federal reserve to stabilize funding during the quarter further supported valuations through an improved carry profile . spreads for credit-risk transfer ( crt ) were relatively unchanged , in some instances a little tighter . supply was well-absorbed , and strong investor demand continuously reduced dealer balance sheets through the quarter . however , crt bonds that trade at large price premiums to par faced some moderate spread pressure before relief set in from higher 50 rates . story_separator_special_tag this increase in the fair value of the residential mortgage loans we own pertains to the purchase of residential mortgage loan pools in 2019. for the years ended december 31 , 2019 and december 31 , 2018 , our servicing fees increased primarily due to our purchases of residential mortgage loans during the period . equity in earnings/ ( loss ) from affiliates equity in earnings/ ( loss ) from affiliates represents our share of earnings and profits of investments held within affiliated entities . a majority of these investments are comprised of real estate securities , loans and our investment in ag arc . the decrease from the year ended december 31 , 2019 to the year ended december 31 , 2018 primarily pertains to our share of the unrealized losses on investments held within affiliated entities . discontinued operations on november 15 , 2019 , we sold our portfolio of single-family rental properties to a third party at a price of approximately $ 137 million . we recognized a gain of $ 0.2 million as a result of the transaction . we reclassified the operating results of the single-family rental properties segment to discontinued operations and excluded the income from continuing operations for all periods presented . 55 year ended december 31 , 2018 compared to the year ended december 31 , 2017 the table below presents certain information from our consolidated statements of operations for the years ended december 31 , 2018 and december 31 , 2017 ( in thousands ) : replace_table_token_10_th interest income interest income increased from december 31 , 2017 to december 31 , 2018 primarily due to an increase in the weighted average cost of our gaap investment portfolio and u.s. treasury securities , if any , period over period by $ 0.4 billion from $ 2.9 billion for the year ended december 31 , 2017 to $ 3.3 billion for the year ended december 31 , 2018 . additionally , there was an increase in the weighted average yield on our gaap investment portfolio and u.s. treasury securities , if any , during the period of 0.35 % from 4.45 % for the year ended december 31 , 2017 to 4.80 % for the year ended december 31 , 2018 . 56 interest expense interest expense increased from december 31 , 2017 to december 31 , 2018 primarily due to an increase in the weighted average financing rate on our gaap investment portfolio and u.s. treasury securities , if any , during the period , by 0.69 % from 1.86 % for the year ended december 31 , 2017 to 2.55 % for the year ended december 31 , 2018 . additionally , there was an increase in the weighted average financing balance on our gaap investment portfolio and u.s. treasury securities , if any , of $ 0.5 billion from $ 2.3 billion for the year ended december 31 , 2017 to $ 2.8 billion for the year ended december 31 , 2018 . for the year ended december 31 , 2018 , interest expenses includes $ 0.1 million of deferred financing costs that were excluded from core earnings in transaction related expenses . net realized gain/ ( loss ) the following table presents a summary of net realized gain/ ( loss ) for the years ended december 31 , 2018 and december 31 , 2017 ( in thousands ) : replace_table_token_11_th net interest component of interest rate swaps net interest component of interest rate swaps increased from december 31 , 2017 to december 31 , 2018 due to an increase in three-month libor , coupled with an increase in swap notional amount for the period . three-month libor increased from 1.694 % at december 31 , 2017 to 2.808 % at december 31 , 2018 . in addition , the weighted average swap notional increased from $ 1.4 billion for the year ended december 31 , 2017 to $ 2.3 billion for the year ended december 31 , 2018 . unrealized gain/ ( loss ) on real estate securities and loans , net for the year ended december 31 , 2018 , the $ ( 20.9 ) million loss was comprised of unrealized losses on securities of $ 20.0 million and unrealized losses on loans of $ 0.9 million during the year . unrealized gain/ ( loss ) on derivatives and other instruments , net for the year ended december 31 , 2018 , the $ ( 13.5 ) million loss was comprised of unrealized losses on certain derivatives of $ 13.4 million and unrealized losses on tbas of $ 0.1 million during the year . other income other income increased from december 31 , 2017 to december 31 , 2018 primarily as a result of a premium received on a credit default swap . management fee to affiliate our management fees decreased from december 31 , 2017 to december 31 , 2018 primarily due to the decrease in our stockholders ' equity as calculated pursuant to our management agreement . 57 other operating expenses the following table presents a summary of expenses within other operating expenses broken out between non investment portfolio related expenses and investment portfolio related expenses for the years ended december 31 , 2018 and december 31 , 2017 ( in thousands ) : replace_table_token_12_th ( 1 ) total corporate expenses and total investment expenses for the three months ended december 31 , 2018 were $ 2.7 million and $ 2.0 million , respectively . total corporate expenses and total investment expenses for the three months ended december 31 , 2017 were $ 2.3 million and $ 0.4 million , respectively . ( 2 ) for the years ended december 31 , 2018 and december 31 , 2017 , total transaction related expenses and deal related performance fees were $ 2.1 million and $ 0.1 million , respectively . for the year ended december 31 , 2018 , the $ 2.1 million was comprised of $ 1.8 million and $ 0.2 million per the above as well as $ 0.1 million of deferred financing costs that are included within interest expense .
| results of operations our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio , the level of our net interest income , the fair value of our assets and the supply of , and demand for , our target assets in the marketplace , which can be impacted by unanticipated credit events , such as defaults , liquidations or delinquencies , experienced by borrowers whose mortgage loans are included in our investment portfolio . our primary source of net income available to common stockholders is our net interest income , less our cost of hedging , which represents the difference between the interest earned on our investment portfolio and the costs of financing and hedging our investment portfolio . our net interest income varies primarily as a result of changes in market interest rates , prepayment speeds , as measured by the constant prepayment rate ( `` cpr '' ) on the agency rmbs in our investment portfolio , and our funding and hedging costs . 51 year ended december 31 , 2019 compared to the year ended december 31 , 2018 the table below presents certain information from our consolidated statements of operations for the years ended december 31 , 2019 and december 31 , 2018 ( in thousands ) : replace_table_token_7_th interest income interest income is calculated using the effective interest method for our gaap investment portfolio and calculated based on the actual coupon rate and the outstanding principal balance on our u.s. treasury securities , if any . interest income increased from december 31 , 2018 to december 31 , 2019 primarily due to an increase in the weighted average cost of our gaap investment portfolio and u.s. treasury securities , if any , period over period by $ 0.3 billion from $ 3.3 billion for the year ended december 31 , 2018 to $ 3.6 billion for the year ended december 31 , 2019 .
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management believes that the allowance for credit losses is adequate ; however , determination of the allowance is inherently subjective and requires significant estimates . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in economic conditions . evaluation of the potential effects of these factors on estimated losses involves a high degree of uncertainty , including the strength and timing of economic cycles and concerns over the effects of a prolonged economic downturn in the current cycle . in addition story_separator_special_tag the following discussion provides information about the results of operations , financial condition , liquidity , and capital resources of the company . the company 's primary subsidiary is the bank , and the company 's other direct and indirect operating subsidiaries are bethesda leasing , llc , eagle insurance services , llc , and ecv . this discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes thereto , appearing elsewhere in this report . caution about forward looking statements . 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 exchange act . these forward looking statements represent plans , estimates , objectives , goals , guidelines , expectations , intentions , projections and statements of our beliefs concerning future events , business plans , objectives , expected operating results and the assumptions upon which those statements are based . forward looking statements include without limitation , any statement that may predict , forecast , indicate or imply future results , performance or achievements , and are typically identified with words such as “ may , ” “ could , ” “ should , ” “ will , ” “ would , ” “ believe , ” “ anticipate , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” or words or phases of similar meaning . these forward looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are , in many instances , beyond our control . actual results , performance or achievements could differ materially from those contemplated , expressed , or implied by the forward looking statements . the following factors , among others , could cause our financial performance to differ materially from that expressed in such forward looking statements : ● the strength of the united states economy , in general , and the strength of the local economies in which we conduct operations ; ● geopolitical conditions , including acts or threats of terrorism , actions taken by the united states or other governments in response to acts or threats of terrorism and or military conflicts , which could impact business and economic conditions in the united states and abroad ; ● the effects of , and changes in , trade , monetary and fiscal policies and laws , including interest rate policies of the federal reserve board , inflation , interest rate , market and monetary fluctuations ; ● results of examinations of us by our regulators , including the possibility that our regulators may , among other things , require us to increase our allowance for credit losses , to write-down assets or to hold more capital ; ● our management of risks inherent in our real estate loan portfolio , and the risk of a prolonged downturn in the real estate market , which could impair the value of , and our ability to sell , properties which stand as collateral for loans we make ; ● changing bank regulatory conditions , policies or programs , whether arising as new legislation or regulatory initiatives , that could lead to restrictions on activities of banks generally , or our subsidiary bank in particular , more restrictive regulatory capital requirements , increased costs , including deposit insurance premiums , regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products ; ● the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers ; ● the willingness of customers to substitute competitors ' products and services for our products and services ; ● the impact of changes in financial services policies , laws and regulations , including laws , regulations and policies concerning taxes , banking , securities and insurance , and the application thereof by regulatory bodies ; 43 ● the effect of changes in accounting policies and practices , as may be adopted from time-to-time by bank regulatory agencies , the securities and exchange commission , the public company accounting oversight board or the financial accounting standards board ; ● technological and social media changes ; ● cybersecurity breaches , threats , and cyber-fraud that cause the bank to sustain financial losses ; ● the effect of acquisitions we may make , including , without limitation , the failure to achieve the expected revenue growth and or expense savings from such acquisitions ; ● the growth and profitability of noninterest or fee income being less than expected ; ● changes in the level of our nonperforming assets and charge-offs ; ● changes in consumer spending and savings habits ; ● unanticipated regulatory or judicial proceedings ; and ● the factors discussed under the caption “ risk factors ” in this report . if one or more of the factors affecting our forward looking information and statements proves incorrect , then our actual results , performance or achievements could differ materially from those expressed in , or implied by , forward looking information and statements contained in this report . you should not place undue reliance on our forward looking information and statements . we will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements . story_separator_special_tag political gridlock continued in washington , d.c. over concerns of public debt and deficits , tax policy and spending levels , although major corporate and personal tax reform was passed late in 2017 and benefited business earnings and consumer spending , while deficit spending continued and remains a point of serious concern . the company 's primary market , the washington , d.c. metropolitan area , has continued to perform well relative to other parts of the country , due to good growth in the private sector along with increased government spending , and this was no different in 2018. private sector growth was attributable in part to a diverse economy including a large healthcare component , substantial business services , and a highly educated work force . during 2018 , the company enhanced its marketplace positioning by remaining proactive in growing client relationships . the company has had the financial resources to meet , and has remained committed to meeting , the credit needs of its community , resulting in continued growth in the bank 's loan portfolio during 2018. furthermore , the company 's capital position was enhanced in 2018 by very strong and consistent earnings . the company believes its strategy of remaining growth-oriented , retaining talented staff and maintaining focus on seeking quality lending and deposit relationships has proven successful and is evidenced in its financial and performance ratios . additionally , the company believes such focus and strategy of relationship building has fostered future growth opportunities , as the company 's reputation in the marketplace has continued to grow . at december 31 , 2018 , the company had total assets of approximately $ 8.39 billion , total loans of $ 6.99 billion , total deposits of $ 6.97 billion and twenty branches in the washington , d.c. metropolitan area . operating in the more competitive economic environment of 2018 , the bank was able to produce solid growth in loans . additionally , the bank was able to grow its net interest spread earnings substantially , maintain an above average net interest margin , retain a strong position regarding asset quality , and generate enhanced operating leverage due to its seasoned and professional staff . the company increased its net income in each quarter of 2018 , continuing a trend of consecutive quarterly increases on an operating basis dating back to the first quarter of 2009. critical accounting policies the company 's consolidated financial statements are prepared in accordance with gaap and follow general practices within the banking industry . application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in the financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the consolidated financial statements ; accordingly , as this information changes , the consolidated financial statements could reflect different estimates , assumptions , and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and , as such , have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions , and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . 45 investment securities the fair values and the information used to record valuation adjustments for investment securities available-for-sale are based either on quoted market prices or are provided by other third-party sources , when available . the company 's investment portfolio is categorized as available-for-sale with unrealized gains and losses net of income tax being a component of shareholders ' equity and accumulated other comprehensive income ( loss ) . business combinations business combinations are accounted for by applying the acquisition method in accordance with accounting standards codification ( “ asc ” ) topic 805 , “ business combinations . ” under the acquisition method , identifiable assets acquired and liabilities assumed , and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date , and are recognized separately from goodwill . results of operations of the acquired entities are included in the consolidated statement of income from the date of acquisition . adjustments to fair value for credit and current interest rate considerations at the date of acquisition are subsequently amortized to interest income and interest expense based on the remaining life of the asset or liability . ongoing assessments of fair value are made at each balance sheet date . allowance for credit losses the allowance for credit losses is an estimate of the losses that may be sustained in our loan portfolio . the allowance is based on two principles of accounting : ( a ) asc topic 450 , “ contingencies , ” which requires that losses be accrued when they are probable of occurring and are estimable and ( b ) asc topic 310 , “ receivables , ” which requires that losses be accrued when it is probable that the company will not collect all principal and interest payments according to the contractual terms of the loan . the loss , if any , can be determined by the difference between the loan balance and the value of collateral , the present value of expected future cash flows , or values observable in the secondary markets . three components comprise our allowance for credit losses : a specific allowance , a formula allowance and a nonspecific or environmental factors allowance . each component is determined based on estimates that can and do change when actual events occur . the specific allowance allocates a reserve to identified impaired loans .
| results of operations overview for the year ended december 31 , 2018 , the company 's net income was $ 152.3 million , a 52 % increase ( 33 % increase on an operating basis ) over the $ 100.2 million ( $ 114.8 million on an operating basis ) for the year ended december 31 , 2017. for the year ended december 31 , 2017 , operating earnings exclude one time charges of $ 14.6 million ( $ 0.42 per diluted common share ) , required as a result of the 2017 tax act . where appropriate , parenthetical references refer to operating earnings , which the company believes are more relevant comparisons to current and historical period results of operations . reconciliations of 2017 gaap earnings to operating earnings are contained in the tables on page 42. net income per basic and diluted common share for the year ended december 31 , 2018 was $ 4.44 and $ 4.42 , respectively as compared to $ 2.94 per basic common share and $ 2.92 per diluted common share ( $ 3.36 per basic common share and $ 3.35 per diluted common share on an operating basis ) for 2017 , an increase of 51 % per basic and diluted common share ( 32 % on an operating basis per basic and diluted common share ) . 48 for the year ended december 31 , 2018 , the company reported a return on average assets , or roaa , of 1.91 % as compared to 1.41 % for the year ended december 31 , 2017 ( 1.62 % on an operating basis ) .
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on august 26 , 2015 , the company filed an amendment to its articles of incorporation increasing its authorized capital to one hundred million ( 100,000,000 ) shares with ninety million ( 90,000,000 ) shares designated as common stock , $ 0.001 par value and ten million ( 10,000,000 ) shares designated as preferred stock , $ 0.001 par value . in september 2015 , the company issued 7,200,000 shares of common stock to the founder/ceo for his $ 20,000 capital contributed in 2014 , and 1,800,000 shares of common stock to the new investor for his $ 15,000 capital contributed in april 2015. in november and december 2015 , the company issued 285,132 shares of common stock in exchange for $ 171,079 in cash . in january 2016 , the company issued 47,499 shares of common stock in exchange for $ 28,500 in cash . in december 2016 , the company issued 200,000 shares of common stock in exchange for $ 150,000 in cash . during december 2016 we sold 200,000 units at a price of $ 0.75 per unit . each unit consists of one ( 1 ) share of common stock and one warrant to purchase one ( 1 ) share of common stock at an exercise price of $ 1.00 . the warrants expire august 31 , 2019 . ( 4 ) income taxes the company recognizes deferred tax assets and liabilities for the tax effects of differences between the financial statements and tax basis of assets and liabilities . a valuation allowance is established to reduce the deferred tax assets if it is more likely than not that a deferred tax asset will not be realized . the components of income tax ( benefit ) provision related to continuing operations are as follows at december 31 : replace_table_token_6_th f-10 hd view 360 , inc. notes to consolidated financial statements ( 4 ) income taxes , continued the company 's effective income tax ( benefit ) expense differs from the statutory federal income tax amounts and rate of 35 % as follows at december 31 as follows : replace_table_token_7_th the company records a valuation allowance to reduce deferred tax assets it , if , based on the weight of the available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . in determining the need for a valuation allowance , an assessment of all available evidence both positive and negative was required . the company recorded a valuation allowance of $ 10,558 in 2014 , which was released in 2015. in accordance with the provisions of asc 740 : income taxes , the company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated . at december 31 , 2016 , the company has no liabilities for uncertain tax positions . the company continually evaluates expiring statutes of limitations , audits , proposed settlements , changes in tax law and new authoritative rulings . ( 5 ) commitments and contingencies a ) real property lease the company leases office and warehouse space with unrelated parties . during 2014 , the company executed a 1-year lease , with base rent of $ 2,200 per month , which was renewed on july 1 , 2015. this lease required a monthly base rent payments of $ 2,310 . this lease expired july 1 , 2016 , and was extended for one month . the company relocated under a new two year lease effective july 1 , 2016. the company received a three month abatement in rent payments in exchange for completing certain leasehold improvements . these improvements were completed and the company relocated on august 1 , 2016. this lease requires a base rent of $ 3,063 per month . rent expense of $ 33,936 and $ 31,110 was incurred during 2016 and 2015 , respectively . future minimum lease payments under the office lease agreement are as follows : for the years ending december 31 , 2017 $ 36,754 2018 $ 27,566 2019 $ - 2020 $ - thereafter $ - total minimum lease payments $ 64,320 less : amount representing interest $ - present value of net minimum lease payments $ 64,320 f-11 hd view 360 , inc. notes to consolidated financial statements ( 5 ) commitments and contingencies , continued b ) vehicle lease the company leased a certain vehicle under an agreement which is accounted for on the balance sheet as a capital lease . the lease called for monthly payments of $ 366 , commencing july 2015. in 2016 , the vehicle was damaged in an accident and declared a total loss . as a result the company recognized a gain on disposal . c ) other the company is subject to asserted claims and liabilities that arise in the ordinary course of business . the company maintains insurance policies to mitigate potential losses from these actions . in the opinion of management , the amount of the ultimate liability with respect to those actions will not materially affect the company 's financial position or results of operations . ( 6 ) concentrations of credit risk a ) cash the company maintains its cash in bank deposit accounts , which may , at times , may exceed federally insured limits . the company had cash balances in excess of fdic insured limits of $ 10,307 and zero at december 31 , 2016 and 2015 , respectively . story_separator_special_tag b ) purchases and payables during the year ended december 31 , 2016 , the company had inventory purchases from four ( 4 ) vendors , which comprised approximately 27.86 % , 14.20 % , 12.92 % and 12.79 % of the total such purchases . during the year ended december 31 , 2015 , the company had inventory purchases from three ( 3 ) vendors , which comprised approximately 42.83 % , 18.57 % and 18.55 % of the total such purchases . the company had no outstanding accounts payable to these story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and notes thereto included elsewhere in this prospectus . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus , particularly in risk factors . overview we were to provide security surveillance products and systems to commercial users . we have had increasing revenues . during the second quarter of 2016 , we incorporated three new wholly owned subsidiaries : hd view technologies inc. , hd view quick fix inc. and simplefone inc. hd view technologies inc. will be a credit card/debit card merchant processor . hd view quick fix inc. will be a combination of our installation company and a subscription based rapid response entity for computer/surveillance equipment repairs . simplefone inc. will lease a telephone switch and sell/lease telephone equipment and telephone service . we expect that our research , sales and marketing costs will continue to increase as a percentage of revenues in the short-term . liquidity and capital resources we derive revenues from the sale and installation of our security related surveillance system products and services . for the years ended december 31 , 2016 and 2015 , our net sales were $ 976,033 and $ 799,695 , respectively . 17 we have experienced and expect an increasing trend in sales due to our ability to fulfill more orders that will come from greater brand acceptance due to previous and continuing expenditures in marketing and sales . most of our revenues derive from the sale and installation of security and surveillance systems which are generally non-recurring . we sell surveillance products and install security systems primarily for commercial customers and generate revenues from the sale of these systems to our customers and , to a lesser extent , from maintenance of these systems for our customers . after we have installed a system at any particular customer site , we have generated the majority of revenues from that particular client location . we would not expect to generate significant revenues from any existing client in future years unless that client has additional installation sites for which our services might be required . therefore , in order to maintain a level of revenues each year that is at or in excess of the level of revenues we generated in prior years , we must identify and be retained by new clients . if our business development , marketing and sales techniques do not result in an equal or greater number of projects of at least comparable size and value for us in a given year compared to the prior year , then we may be unable to increase our revenues and earnings or even sustain current levels in the future . to address this issue , we plan to target businesses with multiple locations and which are franchises . to accomplish this we target franchisers with the goal of becoming a preferred provider to all of their franchisees . we do not anticipate any significant increase in the base cost of our products , ( except when moving to new improved equipment models ) , but do expect increased labor cost in proportion to an increase in revenues . costs and expenses for the years ended december 31 , 2016 and 2015 , our costs of sales was $ 767,885 and $ 409,204 , respectively . our cost of sales , as a percentage , was 7978 % for the year ended december 31 , 2016 and 51 % for the year ended december 31 , 2015. this percentage increase directly resulted from a combination of higher product cost due to utilizing improved equipment and greater cost of installation labor and travel expenses . our gross profit was $ 208,148 and $ 390,491 for the years ended december 31 , 2016 and 2015 , respectively . our gross profit as a percentage of net sales was 21 % and 49 % for the years ended december 31 , 2016 and 2015 , respectively . during the years ended december 31 , 2016 and 2015 , we spent $ 394,682 and $ 178,655 on general and administrative expenses . our general and administrative expenses increased $ 214,587 , or 120.9 , for the year ended december 31 , 2016 over the year ended december 31 , 2015 , because two significant categories increased : professional fees increased $ 54,978 , 125.6 % and our general and administrative expenses increased $ 154,639 , 123.9 % , both of which were related to the expense of being a public company and our research and development of our marketing efforts to expand revenue growth and entering several complementary new lines of business . we had net loss of ( $ 131,646 ) for the year ended december 31 , 2016 compared to a net income of $ 149,649 for year ended december 31 , 2015. as of december 31 , 2016 , we had cash on hand of $ 259,000 , which is sufficient to meet our operating expenses for approximately twelve ( 12 ) months . 18 story_separator_special_tag style= '' margin:0px '' > our financial instruments consist of
| results of operations the following tables set forth selected consolidated statement of operations data for each of the periods indicated : replace_table_token_1_th for the years ended december 31 2016 and 2015 , we sold approximately 230 and 215 units , respectively , at an approximate average sale price of $ 2,020 and $ 1,970. for the years ended december 31 , 2016 and 2015 , our costs of sales was $ 767,885 and $ 409,204 , respectively . our cost of sales , as a percentage , was 79 % for the year ended december 31 , 2016 and 51 % for the year ended december 31 , 2015. this percentage increase directly resulted from a combination of higher product cost due to utilizing improved equipment and greater cost of installation labor and travel expenses . our gross profit was $ 208,148 and $ 390,491 for the years ended december 31 , 2016 and 2015 , respectively . our gross profit as a percentage of net sales was 21 % and 49 % for the years ended december 31 , 2016 and 2015 , respectively . during the years ended december 31 , 2016 and 2015 , we spent $ 394,682 and $ 178,655 on general and administrative expenses . our general and administrative expenses increased $ 216,027 , or 120.9 % , for the year ended december 31 , 2016 over the year ended december 31 , 2015 , because two significant categories increased : professional fees increased $ 54,978 , 125.6 % and our general and administrative expenses increased $ 156,079 , 123.9 % , both of which were related to the expense of being a public company and our research and development of our marketing efforts to expand revenue growth and entering several complementary new lines of business . we had net loss of ( $ 131,646 ) for the year ended december 31 , 2016 compared to a net income of $ 149,649 for year ended december 31 , 2015.
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a summary of our significant accounting policies is detailed in note 1 – organization , operations and significant accounting policies in item 8 of this annual report on form 10-k. we have outlined below those policies identified as being critical to the understanding of our business and results of operations and that require the application of significant management judgment . oil and natural gas reserve estimates . our estimates of proved reserves are based on quantities of oil and natural gas reserves which current engineering data indicates are recoverable from known reservoirs under existing economic and operating conditions . estimates of proved reserves are critical estimates in determining our depreciation , depletion and amortization expense ( “ dd & a ” ) and our full cost ceiling limitation ( “ full cost ceiling ” ) . future cash inflows are determined by applying oil and natural gas prices , as adjusted for transportation , quality and basis differentials to the estimated quantities of proved reserves remaining to be produced as of the end of that period . future production and development costs are based on costs existing at the effective date of the report . expected cash flows are discounted to present value using a prescribed discount rate of 10 % per annum . 42 estimates of proved reserves are inherently imprecise because of uncertainties in projecting rates of production and timing of developmental expenditures , interpretations of geological , geophysical , engineering and production data and the quality and quantity of available data . changing economic conditions also may affect our estimates of proved reserves due to changes in developmental costs and changes in commodity prices that may impact reservoir economics . we utilize independent reserve engineers to estimate our proved reserves at the end of each fiscal quarter during the year . oil and natural gas properties . we follow the full cost method in accounting for our oil and natural gas properties . under the full cost method , all costs associated with the acquisition , exploration and development of oil and natural gas properties are capitalized and accumulated in a country-wide cost center . this includes any internal costs that are directly related to development and exploration activities , but does not include any costs related to production , general corporate overhead or similar activities . proceeds received from property disposals are credited against accumulated cost except when the sale represents a significant disposal of reserves , in which case a gain or loss is recognized . the sum of net capitalized costs and estimated future development and dismantlement costs for each cost center are amortized using the equivalent unit-of-production method , based on proved oil and natural gas reserves . the capitalized costs are amortized over the life of the reserves associated with the assets , with the dd & a recognized in the period that the reserves are produced . dd & a is calculated by dividing the period 's production volumes by the estimated volume of reserves associated with the investment and multiplying the calculated percentage by the sum of the capitalized investment and estimated future development costs associated with the investment . changes in our reserve estimates will therefore result in changes in our dd & a per unit . costs associated with production and general corporate activities are expensed in the period incurred . exploratory wells in progress are excluded from the dd & a calculation until the outcome of the well is determined . similarly , unproved property costs are initially excluded from the dd & a calculation . unproved property costs not subject to the dd & a calculation consist primarily of leasehold and seismic costs related to unproved areas . unproved property costs are transferred into the amortization base on an ongoing basis as the properties are evaluated and proved reserves are established or impairment is determined . unproved oil and natural gas properties are assessed quarterly for impairment to determine whether we are still actively pursuing the project and whether the project has been proven either to have economic quantities of reserves or that economic quantities of reserves do not exist . under the full cost method of accounting , capitalized oil and natural gas property costs less accumulated dd & a and net of deferred income taxes may not exceed the full cost ceiling . the full cost ceiling is equal to the present value , discounted at 10 % , of estimated future net revenues from proved oil and natural gas reserves plus the unimpaired cost of unproved properties not subject to amortization , plus the lower of cost or fair value of unproved properties that are subject to amortization . when net capitalized costs exceed the full cost ceiling , an impairment is recognized . derivative instruments . we use derivative instruments , typically costless collars and fixed-rate swaps , to manage price risk underlying our oil and natural gas production . we may also use puts , calls and basis swaps in the future . all derivative instruments are recorded in the consolidated balance sheets at fair value . we offset fair value amounts recognized for derivative instruments executed with the same counterparty . although we do not designate any of our derivative instruments as cash flow hedges , such derivative instruments provide an economic hedge of our exposure to commodity price risk associated with forecasted future oil and natural gas production . these contracts are accounted for using the mark-to-market accounting method and accordingly , we recognize all unrealized and realized gains and losses related to these contracts currently in earnings and they are classified as gain ( loss ) on oil price risk derivatives in our consolidated statements of operations . our board of directors sets all risk management policies and reviews the status and results of derivative activities , including volumes , types of instruments and counterparties . the master contracts with approved counterparties identify the ceo and cfo as representatives authorized to execute trades . 43 joint interest operations . story_separator_special_tag the loss was due to our stock price increasing during the period between the announcement of the debt for equity exchange transaction and the closing of the transaction . 46 during the year ended december 31 , 2018 , we recognized an unrealized loss on marketable securities of $ 0.3 million . we recognized rental and other expense of $ 0.1 million related to the operation of our building in riverton , wyoming . during the year ended december 31 , 2018 , we recognized a gain on the revaluation of our outstanding warrants of $ 0.8 million . interest expense decreased by $ 0.4 million during the year ended december 31 , 2018 compared to 2017 due to a reduction in debt as a result of the debt for equity exchange transaction . in addition , during 2018 , we repaid $ 0.6 million borrowed under our credit facility . non-gaap financial measures – adjusted ebitdax adjusted ebitdax represents income ( loss ) from continuing operations as further modified to eliminate impairments , depreciation , depletion , accretion and amortization , stock-based compensation expense , loss ( gain ) on marketable equity securities and non-operating income or expense , income taxes , unrealized derivative ( gains ) and losses , interest expense , and other items set forth in the table below . adjusted ebitdax excludes certain items that we believe affect the comparability of operating results and can exclude items that are generally one-time in nature or whose timing and or amount can not be reasonably estimated . adjusted ebitdax is a non-gaap measure that is presented because we believe it provides useful additional information to investors and analysts as a performance measure . in addition , adjusted ebitdax is widely used by professional research analysts and others in the valuation , comparison , and investment recommendations of companies in the oil and natural gas exploration and production industry , and many investors use the published research of industry research analysts in making investment decisions . adjusted ebitdax should not be considered in isolation or as a substitute for net income ( loss ) , income ( loss ) from operations , net cash provided by operating activities , or profitability or liquidity measures prepared under gaap . because adjusted ebitdax excludes some , but not all items that affect net income ( loss ) and may vary among companies , the adjusted ebitdax amounts presented may not be comparable to similar metrics of other companies . the following table provides reconciliations of net loss to adjusted ebitdax for the years ended december 31 , 2018 and 2017 , in thousands : replace_table_token_13_th 47 liquidity and capital resources the following table sets forth certain measures about our liquidity as of december 31 , 2018 and 2017 , in thousands : replace_table_token_14_th ( 1 ) working capital is computed by subtracting total current liabilities from total current assets . ( 2 ) the current ratio is computed by dividing total current assets by total current liabilities . ( 3 ) the debt to equity ratio is computed by dividing total debt by total shareholders ' equity . as of december 31 , 2018 , we had a working capital surplus of $ 2.0 million compared to a working capital surplus of $ 4.3 million as of december 31 , 2017 , a decrease of $ 2.3 million . this decrease was primarily attributable to ( i ) operating losses of $ 1.1 million , ( ii ) capital expenditures of $ 1.3 million , ( iii ) the reclassification of $ 0.9 million drawn on the credit facility to current liabilities , ( iv ) the reclassification of assets held for sale of $ 0.7 million to property and equipment , and ( v ) the reduction in fair value of marketable securities of $ 0.3 million , which decreases were partially offset by an increase of $ 1.7 million for proceeds from at-the-market offerings of common shares . our sole source of debt financing was a revolving credit facility with apeg ii , which we repaid in full in march 2019 and the credit facility matured on july 30 , 2019. the borrowing base was $ 6.0 million as of december 31 , 2018 and 2017. as of december 31 , 2018 , outstanding borrowings were $ 0.9 million and we had borrowing availability of $ 5.1 million . as of december 31 , 2018 , we were in compliance with all financial covenants associated with the credit facility . apeg ii was the secured lender under the credit facility and is currently involved in litigation with us , as described in item 1. business—litigation and liquidity—apeg ii litigation . as described above , the costs associated with the ongoing litigation have been a significant use of our existing cash . as of september 10 , 2019 , we have spent $ 1.0 million in cash in connection with such litigation . while we have historically funded all litigation costs out of operating cash flow , continued excessive legal fees associated with litigation could impair our liquidity profile and ability to fund significant drilling obligations . as of december 31 , 2018 , we had cash and equivalents of $ 2.3 million . as of september 10 , 2019 , we had cash and cash equivalents of $ 1.6 million and accounts payable of approximately $ 0.7 million . continued ongoing litigation could negatively affect our ability to raise both debt and equity capital going forward . as of september 10 , 2019 , we have spent approximately $ 1.0 million on litigation and the forensic accounting investigation .
| results of operations comparison of our statements of operations for the years ended december 31 , 2018 and 2017 during the year ended december 31 , 2018 , we recorded a net loss of $ 1.0 million as compared to a net loss of $ 1.4 million for the year ended december 31 , 2017. in the following sections we discuss our revenue , operating expenses , and non-operating income for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 . 44 revenue . presented below is a comparison of our oil and natural gas sales , production quantities and average sales prices for the years ended december 31 , 2018 and 2017 ( dollars in thousands , except average sales prices ) : replace_table_token_9_th the decrease in our oil sales of $ 0.4 million for the year ended december 31 , 2018 resulted from a 33 % decrease in production quantities , which was partially offset by a 36 % increase in the average sales price received during 2018 compared to 2017. the decrease in our production quantities for the year ended december 31 , 2018 was primarily attributable to a divestiture in october 2017 of properties operated by statoil oil and gas lp ( “ statoil ” ) in the williston basin , and the natural decline of production from existing wells . during 2018 , the average differential between wti quoted prices for crude oil and the prices we realize for sales in the williston basin was approximately $ 5.20 per barrel . we expect our price differentials relative to wti to strengthen going forward ( with the amount of the differential varying over time ) due to additional takeaway capacity opened to eastern canada and u.s. markets and transportation on rail gradually declining . the market optionality on the crude oil gathering systems allows operators to shift volumes between pipeline and rail markets to optimize price realizations .
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we pursue our business activities primarily through subsidiaries whose operations are organized into operating units and are supported by our insurance carrier subsidiaries . our insurance activities are organized by operating units into the following reportable segments : · specialty commercial segment . our specialty commercial segment includes the excess and surplus lines commercial property/casualty insurance products and services handled by our mga commercial products operating unit and the general aviation , satellite launch , commercial umbrella and primary/excess liability , medical professional liability and primary/excess commercial property insurance products and services handled by our specialty commercial operating unit . certain specialty programs are also managed by our specialty commercial operating unit . our mga commercial products operating unit is comprised of our hsu , paac and tgasri subsidiaries . our specialty commercial operating unit is comprised of our aerospace insurance managers , asri , acmg , hxs and hds subsidiaries . · standard commercial segment . the standard commercial segment includes the standard lines commercial property/casualty and occupational accident insurance products and services handled by our standard commercial p & c operating unit and the workers compensation insurance products handled by our workers compensation operating unit . effective june 1 , 2016 , we no longer market new or renewal occupational accident policies . effective july 1 , 2015 , the workers compensation operating unit no longer retains any risk on new or renewal policies . our standard commercial p & c operating unit is comprised of our american hallmark insurance services and ecm subsidiaries . our workers compensation operating unit is comprised of our tbic holdings , tbic and tbicrm subsidiaries . 39 · personal segment . our personal segment includes the non-standard personal automobile and renters insurance products and services handled by our specialty personal lines operating unit . during the fourth quarter of 2014 , our specialty personal lines operating unit discontinued the low value dwelling/homeowners and manufactured homes insurance products it previously offered . our specialty personal lines operating unit is comprised of our ahga and hcs subsidiaries . the retained premium produced by these reportable segments is supported by our american hallmark insurance company of texas , hallmark specialty insurance company , hallmark insurance company , hallmark national insurance company and texas builders insurance company insurance subsidiaries . in addition , control and management of hallmark county mutual is maintained through our wholly owned subsidiary , cyr insurance management company ( “ cyr ” ) . cyr has as its primary asset a management agreement with hcm which provides for cyr to have management and control of hcm . hcm is used to front certain lines of business in our specialty commercial and personal segments in texas . hcm does not retain any business . ahic , hic , hsic and hnic have entered into a pooling arrangement pursuant to which ahic retains 34 % of the net premiums written by any of them , hic retains 32 % of the net premiums written by any of them , hsic retains 24 % of the net premiums written by any of them and hnic retains 10 % of the net premiums written by any of them . neither hcm nor tbic is a party to the intercompany pooling arrangement . critical accounting estimates and judgments the significant accounting policies requiring our estimates and judgments are discussed below . such estimates and judgments are based on historical experience , changes in laws and regulations , observation of industry trends and information received from third parties . while the estimates and judgments associated with the application of these accounting policies may be affected by different assumptions or conditions , we believe the estimates and judgments associated with the reported consolidated financial statement amounts are appropriate in the circumstances . for additional discussion of our accounting policies , see note 1 to the audited consolidated financial statements included in this report . impairment of investments . we complete a detailed analysis each quarter to assess whether any decline in the fair value of any investment below cost is deemed other-than-temporary . all securities with an unrealized loss are reviewed . we recognize an impairment loss when an investment 's value declines below cost , adjusted for accretion , amortization and previous other-than-temporary impairments and it is determined that the decline is other-than-temporary . debt investments : we assess whether we intend to sell , or it is more likely than not that we will be required to sell , a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses . for fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell , we separate the amount of the impairment into the amount that is credit related ( credit loss component ) and the amount due to all other factors . the credit loss component is recognized in earnings and is the difference between the investment 's amortized cost basis and the present value of its expected future cash flows . the remaining difference between the investment 's fair value and the present value of future expected cash flows is recognized in other comprehensive income . equity investments : some of the factors considered in evaluating whether a decline in fair value for an equity investment is other-than-temporary include : ( 1 ) our ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value ; ( 2 ) the recoverability of cost ; ( 3 ) the length of time and extent to which the fair value has been less than cost ; and ( 4 ) the financial condition and near-term and long-term prospects for the issuer , including the relevant industry conditions and trends , and implications of rating agency actions and offering prices . story_separator_special_tag for purposes of evaluating goodwill for impairment , we have determined that our reporting units are the same as our operating units except for the specialty commercial operating unit for which reporting units are at the component level ( “ one level below ” ) . our consolidated balance sheet as of december 31 , 2016 includes goodwill of acquired businesses of $ 44.7 million that is assigned to our operating units as follows : standard commercial p & c operating unit - $ 2.1 million ; mga commercial products operating unit - $ 19.8 million ; specialty commercial operating unit - $ 17.4 million ( comprised of $ 7.7 million for the primary/excess & umbrella component and $ 9.7 million for the general aviation and satellite component ) ; and specialty personal lines operating unit - $ 5.4 million . this amount has been recorded as a result of prior business acquisitions accounted for under the acquisition method of accounting . under asc 350 , “ intangibles - goodwill and other , ” goodwill is tested for impairment annually . we completed our last annual test for impairment on the first day of the fourth quarter of 2016 and determined that there was no impairment . a significant amount of judgment is required in performing goodwill impairment tests . such tests include estimating the fair value of our reporting units . as required by asc 350 , we compare the estimated fair value of each reporting unit with its carrying amount , including goodwill . under asc 350 , fair value refers to the amount for which the entire reporting unit may be bought or sold . the determination of fair value was based on an income approach utilizing discounted cash flows . the valuation methodology utilized is subject to key judgments and assumptions . estimates of fair value are inherently uncertain and represent management 's reasonable expectation regarding future developments . these estimates and the judgments and assumptions upon which the estimates are based will , in all likelihood , differ in some respects from actual future results . declines in estimated fair value could result in goodwill impairments in future periods which could materially adversely affect our results of operations or financial position . the income approach to determining fair value computed the projections of the cash flows that the reporting unit is expected to generate converted into a present value equivalent through discounting . significant assumptions in the income approach model include income projections , discount rates and terminal growth values . the income projections reflect an improved premium rate environment across most of our lines of business that continued throughout 2016. the income projections also include loss and lae assumptions which reflect recent historical claim trends and the movement towards a more favorable pricing environment . the income projections also include assumptions for expense growth and investment yields which are based on business plans for each of our operating units . the discount rate was based on a risk free rate plus a beta adjusted equity risk premium and specific company risk premium . the assumptions were based on historical experience , expectations of future performance , expected market conditions and other factors requiring judgment and estimates . while we believe the assumptions used in these models were reasonable , the inherent uncertainty in predicting future performance and market conditions may change over time and influence the outcome of future testing . the fair values of each of our operating units were in excess of their respective carrying values , including goodwill , as a result of our annual test for impairment during the fourth quarter 2016. however , a 10 % decline in the fair value of our standard commercial p & c operating unit , a 7 % decline in the fair value of our mga commercial products operating unit , a 6 % decline in the fair value of our specialty personal lines operating unit , a 49 % decline in the fair value of our excess & umbrella component or a 16 % decline in the fair value of our general aviation and satellite component would have caused the carrying value of the respective reporting unit to be in excess of its fair value , resulting in the need to perform the second step of impairment testing prescribed by asc 350 , which could have resulted in an impairment to our goodwill . the market capitalization of hallmark 's common stock has been below book value during 2016. we consider our market capitalization in assessing the reasonableness of the fair values estimated for our operating units in connection with our goodwill impairment testing . we believe the current financial market conditions , as well as the limited daily trading volume of hallmark shares has resulted in a decrease in our market capitalization that is not representative of a long-term decrease in value . the valuation analysis discussed above supports our view that goodwill was not impaired at october 1 , 2016. through december 31 , 2016 , there were no indicators of impairment . 42 while we believe the estimates and assumptions used in determining the fair value of our operating units were reasonable , actual results could vary materially . if our actual results are not consistent with our estimates and assumptions used to calculate fair value , we may be required to perform the second step of impairment testing prescribed by asc 350 in future periods and impairment of goodwill could result . we can not predict future events that might impact the fair value of our operating units and goodwill impairment . such events include , but are not limited to , increased competition in insurance markets and global economic changes . deferred income tax assets and liabilities . we file a consolidated federal income tax return . deferred federal income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end .
| results of operations comparison of years ended december 31 , 2016 and december 31 , 2015 management overview . during fiscal 2016 , our total revenues were $ 376.0 million , which was $ 3.6 million more than the $ 372.4 million in total revenues for fiscal 2015. during the year ended december 31 , 2016 , our income before tax was $ 8.5 million as compared to $ 31.9 million during the same period of 2015. this increase in revenue was primarily attributable to higher net premiums earned , higher net investment income and higher commission and fee revenue , partially offset by realized losses recognized on our investment portfolio during the current period as compared to realized gains recognized during the same period the prior year and lower finance charges . 44 the increased net earned premiums were primarily attributable to higher net premiums written in our specialty commercial segment and the favorable impact of increased retention under a quota share reinsurance agreement in our personal segment effective october 1 , 2014 , partially offset by the adverse impact on the standard commercial segment of ceding substantially all unearned workers ' compensation premiums effective july 1 , 2015. the decrease in income before tax for the year ended december 31 , 2016 was due primarily to increased loss and lae of $ 23.5 million , higher operating expenses of $ 2.8 million and higher interest expense of $ 0.6 million , partially offset by the increased revenue discussed above . the increase in loss and lae was primarily the result of unfavorable net prior year loss reserve development and higher current accident year loss trends in our specialty commercial segment and personal segment , partially offset by higher favorable net prior year loss reserve development in our standard commercial segment .
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our results of operations and financial condition , as reflected in the accompanying consolidated financial statements and related footnotes , are subject to management 's evaluation and interpretation of business conditions , retailer performance , changing capital market conditions and other factors which could affect the ongoing viability of our tenants . executive overview weingarten realty investors is a reit organized under the texas business organizations code . we , and our predecessor entity , began the ownership of shopping centers and other commercial real estate in 1948 . our primary business is leasing space to tenants in the shopping centers we own or lease . we also provide property management services for which we charge fees to either joint ventures where we are partners or other outside owners . we operate a portfolio of rental properties , primarily neighborhood and community shopping centers , totaling approximately 41.3 million square feet of gross leaseable area , that is either owned by us or others . we have a diversified tenant base with our largest tenant comprising only 2.8 % of base minimum rental revenues during 2017 . at december 31 , 2017 , we owned or operated under long-term leases , either directly or through our interest in real estate joint ventures or partnerships , a total of 204 properties , which are located in 17 states spanning the country from coast to coast . we also owned interests in 25 parcels of land held for development that totaled approximately 18.0 million square feet at december 31 , 2017 . we had approximately 5,400 leases with 3,700 different tenants at december 31 , 2017 . leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants . rental revenues generally include minimum lease payments , which often increase over the lease term , reimbursements of property operating expenses , including real estate taxes , and additional rent payments based on a percentage of the tenants ' sales . our anchor tenants are supermarkets , value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services . although there is a broad shift in shopping patterns , including internet shopping that continues to affect our tenants , we believe our anchor tenants drive foot traffic , combined with convenient locations , attractive and well-maintained properties , high quality retailers and a strong tenant mix , should lessen the effects of these conditions and maintain the viability of our portfolio . our goal is to remain a leader in owning and operating top-tier neighborhood and community shopping centers in certain markets of the united states . our strategic initiatives include : ( 1 ) raising net asset value and cash flow through quality acquisitions , redevelopments and new developments , ( 2 ) maintaining a strong , flexible consolidated balance sheet and a well-managed debt maturity schedule , ( 3 ) growing net operating income from our existing portfolio by increasing occupancy and rental rates and ( 4 ) owning quality shopping centers in preferred locations that attract strong tenants . we believe these initiatives will keep our portfolio of properties among the strongest in our sector . due to current capitalization rates in the market along with the uncertainty of the impact of increasing interest rates and various other market conditions , we will continue to be very prudent in our evaluation of all new investment opportunities . we believe the pricing of assets that we would like to sell remains reasonably firm at the same time that the pricing of our common shares has dropped well below our net asset value . if this market phenomenon continues , our disposition activity could increase accordingly . in late august 2017 , the texas gulf coast , including the houston metropolitan area , was subjected to extensive flooding by hurricane harvey . additionally in september 2017 , much of florida was faced with the damaging winds of hurricane irma . we have assessed the impact of both hurricanes , which caused nominal damage to our properties within the affected areas and temporarily interrupted the operations of some of our tenants . as of december 31 , 2017 , we have recorded $ 1.8 million in costs related to the storms in operating expense . although most of our tenants ' operations have resumed and repairs are almost completed , we will continue to monitor and adjust earnings as needed for storm damage estimates related to insurance claims in future periods . 26 we intend to recycle non-core operating centers that no longer meet our ownership criteria and that will provide capital for growth opportunities . during 2017 , we disposed of real estate assets , which were owned by us either directly or through our interest in real estate joint ventures or partnerships , with our share of aggregate gross sales proceeds totaling $ 444.1 million . subsequent to december 31 , 2017 , we sold real estate assets with our share of aggregate gross sales proceeds totaling approximately $ 220.6 million . we have approximately $ 92 million of dispositions currently under contracts or letters of intent ; however , there are no assurances that these transactions will close at such prices or at all . for 2018 , we believe we will complete dispositions in amounts between $ 250 million and $ 450 million ; however , there are no assurances that this will actually occur , or at what values , or whether we may potentially exceed this range . we intend to continue to actively seek acquisition properties that meet our return hurdles and to actively evaluate other opportunities as they enter the market . for 2018 , we expect to invest in acquisition investments , which could potentially range from $ 50 million to $ 150 million ; however , there are no assurances that this will actually occur . story_separator_special_tag the availability of quality acquisition opportunities in the market remains sporadic in our targeted markets . intense competition , along with a decline in the volume of high-quality core properties on the market , has in many cases driven pricing to pre-recession highs . we intend to remain disciplined in approaching these opportunities , pursuing only those that provide appropriate risk-adjusted returns . dispositions dispositions are also a key component of our ongoing management process where we selectively prune properties from our portfolio that no longer meet our geographic or growth targets . dispositions provide capital , which may be recycled into properties that are high barrier-to-entry locations within high growth metropolitan markets , and thus have higher long-term growth potential . additionally , proceeds from dispositions may be used to reduce outstanding debt , further deleveraging our consolidated balance sheet or repurchasing our common shares , dependent upon our share price . summary of critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and contingencies as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an ongoing basis . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies require more significant judgments and estimates used in the preparation of our consolidated financial statements . property acquisitions of properties are accounted for utilizing the acquisition of an asset method and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements accounting policy . fair values are used to record the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , other identifiable intangibles and any goodwill or gain on purchase . other identifiable intangible assets and liabilities include the effect of out-of-market leases , the value of having leases in place ( “ as is ” versus “ as if vacant ” and absorption costs ) , out-of-market assumed mortgages and tenant relationships . depreciation and amortization is computed using the straight-line method , generally over estimated useful lives of 40 years for buildings and over the lease term which includes bargain renewal options for other identifiable intangible assets . the impact of these estimates , including incorrect estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and resulting depreciation or amortization . costs associated with the successful acquisition of an asset are capitalized as incurred . real estate joint ventures and partnerships to determine the method of accounting for partially owned real estate joint ventures and partnerships , management determines whether an entity is a variable interest entity ( “ vie ” ) and , if so , determines which party is the primary beneficiary by analyzing whether we have both the power to direct the entity 's significant economic activities and the obligation to absorb potentially significant losses or receive potentially significant benefits . significant judgments and assumptions inherent in this analysis include the design of the entity structure , the nature of the entity 's operations , future cash flow projections , the entity 's financing and capital structure , and contractual relationships and terms . we consolidate a vie when we have determined that we are the primary beneficiary . primary risks associated with our involvement with our vies include the potential funding of the entities ' debt obligations or making additional contributions to fund the entities ' operations or capital activities . 29 partially owned , non-variable interest real estate joint ventures and partnerships over which we have a controlling financial interest are consolidated in our consolidated financial statements . in determining whether we have a controlling financial interest , we consider factors such as ownership interest , authority to make decisions , kick-out rights and substantive participating rights . partially owned real estate joint ventures and partnerships where we do not have a controlling financial interest , but have the ability to exercise significant influence , are accounted for using the equity method . management continually analyzes and assesses reconsideration events , including changes in the factors mentioned above , to determine if the consolidation treatment remains appropriate . decisions regarding consolidation of partially owned entities frequently require significant judgment by our management . errors in the assessment of consolidation could result in material changes to our consolidated financial statements . impairment our property is reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property , including any capitalized costs and any identifiable intangible assets , may not be recoverable . if such an event occurs , a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future , with consideration of applicable holding periods , on an undiscounted basis to the carrying amount of such property . if we determine the carrying amount is not recoverable , our basis in the property is reduced to its estimated fair value to reflect impairment in the value of the asset .
| results of operations comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 the following table is a summary of certain items from our consolidated statements of operations , which we believe represent items that significantly changed during 2017 as compared to the same period in 2016 : replace_table_token_11_th revenues the increase in revenues of $ 23.6 million is primarily attributable to our acquisitions and new development completions that totaled $ 27.8 million . the existing portfolio and redevelopment properties contributed $ 18.1 million due to increases in rental rates and changes in occupancy , which is offset by our dispositions of $ 22.3 million . depreciation and amortization the increase in depreciation and amortization of $ 4.6 million is primarily attributable to our acquisitions and new development completions that totaled $ 11.7 million , which is offset by our dispositions and other capital activities . operating expenses the increase in operating expenses of $ 10.5 million is primarily attributable to our acquisitions and new development completions of $ 5.3 million , a $ 3.1 million lease termination fee paid in 2017 , insurance costs of $ 1.8 million primarily associated with hurricanes , an increase of $ 2.4 million in costs associated with our deferred compensation plan , and an overall increase at our existing portfolio and redevelopment properties associated primarily with the timing of repairs , which is offset by our dispositions of $ 4.0 million and a $ .9 million write-off of pre-development costs in 2016. real estate taxes , net the increase in net real estate taxes of $ 9.3 million is primarily attributable to rate and valuation changes for the portfolio , as well as our acquisitions and new development completions , which were offset by our dispositions of $ 2.7 million .
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we market and sell our contactless touch , touch , and gesture products and solutions using our zforce technology platform , and our in-cabin monitoring solutions using our multisensing technology platform . in 2010 , we began licensing to oems and tier 1 suppliers who embed our technology into products they develop , manufacture and sell . since 2010 , our licensing customers have sold approximately 79 million devices that use our technology . in october 2017 , we augmented our licensing business and began manufacturing and shipping sensor modules that incorporate our technology . we sell these embedded sensors modules to oems , odm 's and tier 1 suppliers for use in their products . to reduce time to market , we started selling airbar in the fourth quarter of 2016 , a neonode branded consumer product , which incorporates one of our sensor modules to enable laptop touchscreen functionalities , through distributors and directly to consumers . we have no current plans to develop new neonode branded products for the consumer markets . as of december 31 , 2020 and 2019 , respectively , we had entered into forty-two technology license agreements with global oems and tier 1 suppliers . during the year ended december 31 , 2020 , we had fourteen customers using our touch technology in products that were being shipped to their customers . the majority of our license fees earned in 2020 and 2019 were from customer shipments of printers . as of december 31 , 2020 , we had entered into eight agreements with value added resellers ( “ vars ” ) for integration of our sensor modules in the products they offer to global oems , odms and tier 1 suppliers . in addition to this , we distribute our embedded sensor modules through digi-key corporation and serial microelectronics hk ltd. as of december 31 , 2020 , our two distributors sold and shipped 5,397 sensor modules and related development kits . we anticipate our future revenue will be generated by a combination of royalties from our existing and new license customers plus sales of our sensor modules . 16 during 2020 and 2019 , we continued to focus our efforts on maintaining our current licensing customers and achieving design wins for new products both with current and future customers . we made investments enhancing the design of selected embedded sensor modules and setting-up partner networks for sales and distribution . we intend to continue expanding our sensor module product offerings in 2021 , including new sensor modules for delivery to our key markets . we expect that over time the sales of sensor modules may constitute the majority of our revenue . in 2020 , we participated in a swedish governmental program designed to support businesses during the covid-19 pandemic . under the program , we received tax credits , which were later repaid , reduced social charges and subsidies to staff during a four month period of reduced working hours . see note 6 to our consolidated financial statements for additional details . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and include the accounts of neonode inc. and its wholly owned subsidiaries , as well as pronode technologies ab ( sweden ) , a 51 % majority owned subsidiary of neonode technologies ab , one of our wholly owned subsidiaries . the non-controlling interests are reported below net loss including non-controlling interests under the heading “ net loss attributable to non-controlling interests ” in the consolidated statements of operations , below comprehensive loss under the heading “ comprehensive income loss attributable to non-controlling interests ” in the consolidated statements of comprehensive loss and shown as a separate component of stockholders ' equity in the consolidated balance sheets . see “ non-controlling interests ” for further discussion . all inter-company accounts and transactions have been eliminated in consolidation . the consolidated balance sheets at december 31 , 2020 and 2019 and the consolidated statements of operations , comprehensive loss , stockholders ' equity and cash flows for the years ended 2020 and 2019 include our accounts and those of our wholly owned subsidiaries as well as pronode technologies ab ( sweden ) . the accounting policies affecting our financial condition and results of operations are more fully described in note 2 to our consolidated financial statements . certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates , which inherently contain some degree of uncertainty . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . the historical experience and assumptions form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenue and expenses that may not be readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following are critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements . estimates the preparation of financial statements in conformity with u.s. gaap requires making estimates and judgments that affect , at the date of the financial statements , the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses . actual results could differ from these estimates and judgments . story_separator_special_tag we recognize revenue for airbar modules sold point-of-sale ( online sales and other direct sales to customers ) when we provide the promised product to the customer . because we generally use distributors to provide airbar and sensor modules to our customers , however , we analyze the terms of distributor agreements to determine when control passes from us to our distributors . for sales of airbar and sensor modules sold through distributors , revenues are recognized when our distributors obtain control over our products . control passes to our distributors when we have a present right to payment for products sold to distributors , the distributors have legal title to and physical possession of products purchased from us , and the distributors have significant risks and rewards of ownership of products purchased . distributors participate in various cooperative marketing and other incentive programs , and we maintain estimated accruals and allowances for these programs . if actual credits received by distributors under these programs were to deviate significantly from our estimates , which are based on historical experience , our revenue could be adversely affected . under u.s. gaap , companies may make reasonable aggregations and approximations of returns data to accurately estimate returns . our airbar and module returns and warranty experience to date has enabled us to make reasonable returns estimates , which are supported by the fact that our product sales involve homogenous transactions . the reserve for future sales returns is recorded as a reduction of our accounts receivable and revenue and was $ 78,000 as of december 31 , 2020 and was insignificant as of december 31 , 2019. the warranty reserve is recorded as an accrued expense and cost of sales and was $ 25,000 as of december 31 , 2020 and insignificant as of december 31 , 2019. if the actual future returns were to deviate from the historical data on which the reserve had been established , our revenue could be adversely affected . accounts receivable and allowance for doubtful accounts our accounts receivable is stated at net realizable value . our policy is to maintain allowances for estimated losses resulting from the inability of our customers to make required payments . inventory inventory is stated at the lower of cost or net realizable value , using the first-in , first-out method ( “ fifo ” ) valuation method . net realizable value is the estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period . in 2020 , after a comprehensive evaluation of our airbar business we recorded a $ 28,000 write-down for obsolete or slow moving airbar component and finished goods inventory which is included in our cost of goods sold . 19 as of december 31 , 2020 , our inventory consists primarily of components that will be used in the manufacturing of our sensor modules . we segregate inventory for reporting purposes by raw materials , work-in-process , and finished goods . investment in joint venture we invested $ 3,000 , a 50 % interest in neoeye ab , which was sold in november 2020. we accounted for our investment using the equity method of accounting since the investment provided us the ability to exercise significant influence , but not control , over the investee . we were not required to guarantee any obligations of the joint venture and there have been no operations of neoeye ab during 2020. projects in process projects in process consist of costs incurred during the completion of various projects for certain customers . these costs are primarily comprised of direct engineering labor costs and project-specific equipment costs . these costs are capitalized on our balance sheet as an asset and deferred until revenue for each project is recognized in accordance with our revenue recognition policy . there were no costs capitalized in projects in process as of december 31 , 2020 and $ 8,000 as of december 31 , 2019. property and equipment property and equipment are stated at cost , net of accumulated depreciation and amortization . depreciation and amortization are computed using the straight-line method based upon estimated useful lives of the assets as follows : estimated useful lives computer equipment 3 years furniture and fixtures 5 years equipment 7 years equipment purchased under a finance lease is depreciated over the term of the lease , if that lease term is shorter than the estimated useful life . upon retirement or sale of property and equipment , cost and accumulated depreciation and amortization are removed from the accounts and any gains or losses are reflected in the consolidated statement of operations . maintenance and repairs are charged to expense as incurred . long-lived assets we assess any impairment by estimating the future cash flows from the associated asset in accordance with relevant accounting guidance . if the estimated undiscounted future cash flow related to these assets decreases or the useful life is shorter than originally estimated , we may incur charges for impairment of these assets . as of december 31 , 2020 , we believe there was no impairment of our long-lived assets . there can be no assurance , however , that market conditions will not change or sufficient demand for our products and services will continue , which could result in impairment of long-lived assets in the future . research and development research and development ( “ r & d ” ) costs are expensed as incurred . r & d costs consist mainly of personnel related costs in addition to some external consultancy costs such as testing , certifying and measurements .
| results of operations a summary of our financial results for the years ended december 31 , is as follows ( in thousands , except percentages ) : replace_table_token_8_th 23 revenues all of our sales for the years ended december 31 , 2020 and 2019 were to customers located in the united states , europe and asia . the decrease in total net revenues by 10.0 % for the year ended december 31 , 2020 as compared to 2019 was primarily caused by lower licensing revenues , offset by higher sensor modules sales . the following tables present the net revenues distribution per business area and revenue stream for the years ended december 31 , 2020 and 2019 ( dollars in thousands ) : replace_table_token_9_th replace_table_token_10_th 24 the following table presents revenues by market and revenues from nre for the years ended december 31 , 2020 and 2019 ( dollars in thousands ) : replace_table_token_11_th replace_table_token_12_th license fees were the majority of our total revenue in the past three years and decreased by 23 % in 2020 as compared to 2019 , primarily due to a 27 % decrease in license fees earned from our customer within consumer electronics and 13 % decrease in license fees earned from our automotive customers . the decrease is related to the generally slower sales due to the covid-19 pandemic in combination with declining volumes from aging customer contracts . an increasing portion of our revenues for 2020 was attributable to embedded sensor modules , which we began selling in october 2017. we sold $ 950,000 and $ 560,000 of sensor modules in 2020 and 2019 , respectively . 25 while our revenues from license fees in 2020 were negatively impacted by the covid-19 pandemic , as the demand for our customer products decreased , revenues from our sensor module sales were positively impacted in 2020 due to the increased demand for contactless touch that they enable .
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actual results may differ materially from the results discussed in the forward-looking statements because of a number of risks and uncertainties , including the matters discussed in the “ special note regarding forward-looking statements ” below . in addition , please refer to the risks set forth under the caption “ risk factors ” included in our annual report for a further description of risks and uncertainties affecting our business and financial results . historical trends should not be taken as indicative of future operations and financial results . other than as required under the u.s. federal securities laws or the canadian securities laws , we do not assume a duty to update these forward-looking statements , whether as a result of new information , subsequent events or circumstances , changes in expectations or otherwise . we prepare our financial statements in accordance with accounting principles generally accepted in the united states ( “ u.s . gaap ” or “ gaap ” ) . however , this management 's discussion and analysis of financial condition and results of operations also contains certain non-gaap financial measures to assist readers in understanding our performance . non-gaap financial measures either exclude or include amounts that are not reflected in the most directly comparable measure calculated and presented in accordance with gaap . where non-gaap financial measures are used , we have provided the most directly comparable measures calculated and presented in accordance with u.s. gaap , a reconciliation to gaap measures and a discussion of the reasons why management believes this information is useful to it and may be useful to investors . unless the context otherwise requires , all references in this section to the “ company , ” “ we , ” “ us , ” or “ our ” are to restaurant brands international inc. and its subsidiaries , collectively . overview we are a canadian corporation originally formed on august 25 , 2014 to serve as the indirect holding company for tim hortons and its consolidated subsidiaries and for burger king and its consolidated subsidiaries . on march 27 , 2017 , we acquired popeyes louisiana kitchen , inc. and its consolidated subsidiaries . we are one of the world 's largest quick service restaurant ( “ qsr ” ) companies with more than $ 30 billion in system-wide sales and over 25,000 restaurants in more than 100 countries and u.s. territories as of december 31 , 2018 . our tim hortons ® , burger king ® , and popeyes ® brands have similar franchise business models with complementary daypart mixes and product platforms . our three iconic brands are managed independently while benefiting from global scale and sharing of best practices . tim hortons restaurants are quick service restaurants with a menu that includes premium blend coffee , tea , espresso-based hot and cold specialty drinks , fresh baked goods , including donuts , timbits ® , bagels , muffins , cookies and pastries , grilled paninis , classic sandwiches , wraps , soups and more . burger king restaurants are quick service restaurants that feature flame-grilled hamburgers , chicken and other specialty sandwiches , french fries , soft drinks and other affordably-priced food items . popeyes restaurants are quick service restaurants featuring a unique “ louisiana ” style menu that includes spicy chicken , chicken tenders , fried shrimp and other seafood , red beans and rice , and other regional items . we have three operating and reportable segments : ( 1 ) tim hortons ( “ th ” ) ; ( 2 ) burger king ( “ bk ” ) ; and ( 3 ) popeyes louisiana kitchen ( “ plk ” ) . our business generates revenue from the following sources : ( i ) franchise revenues , consisting primarily of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees ; ( ii ) property revenues from properties we lease or sublease to franchisees ; and ( iii ) sales at restaurants owned by us ( “ company restaurants ” ) . in addition , our tim hortons business generates revenue from sales to franchisees related to our supply chain operations , including manufacturing , procurement , warehousing and distribution , as well as sales to retailers . 28 recent events and factors affecting comparability transition to new revenue recognition accounting standard we transitioned to accounting standards codification topic 606 , revenue from contracts with customers ( “ asc 606 ” ) , effective january 1 , 2018 using the modified retrospective method . our consolidated financial statements for 2018 reflect the application of asc 606 guidance , while our consolidated financial statements for 2017 and 2016 were prepared under the guidance of previously applicable accounting standards . the most significant effects of this transition that affect comparability of our results of operations between 2018 and previous periods include the following : franchise fee revenue for franchise agreements entered into subsequent to the acquisitions of bk in 2010 , th in 2014 and plk in 2017 are deferred and amortized over the franchise agreement term beginning in 2018 compared to upfront recognition in 2017 and 2016 under previously applicable accounting standards . franchise fees associated with acquired franchise agreements are not included in franchise fee revenue under asc 606. consequently , we expect the impact to be greater in those periods in which more openings occur . advertising fund contributions and advertising fund expenses are reflected on a gross basis in our 2018 statement of operations and there may be a difference in timing for recognition of advertising fund contributions and advertising fund expenses beginning in 2018. under previously applicable accounting standards , our statement of operations did not reflect gross advertising fund contributions and advertising fund expenses and temporary net differences between contributions and expenses due to the timing of expenses were reflected as current assets or current liabilities on our consolidated balance sheet . the portion of gift cards sold to customers which are never redeemed is commonly referred to as gift card breakage . story_separator_special_tag prior to our transition to asc 606 on january 1 , 2018 , our statement of operations did not reflect advertising fund contributions or advertising fund expenses , since such amounts were netted under previously applicable accounting standards . segment sg & a excludes share-based compensation and non-cash incentive compensation expense , depreciation and amortization , plk transaction costs , corporate restructuring and tax advisory fees , office centralization and relocation costs and integration costs . during 2018 , th , bk and plk segment sg & a increased primarily due to the inclusion of advertising fund expenses from the application of asc 606 beginning january 1 , 2018. during 2017 , th segment sg & a increased primarily due to an increase in salaries and benefits and an unfavorable fx impact . during the same period , bk segment sg & a decreased primarily due to a decrease in salaries and benefits , partially offset by an unfavorable fx impact . during 2017 , the increase in share-based compensation and non-cash incentive compensation expense was due primarily to an increase of $ 4 million in equity award modifications and an increase due to additional equity awards granted during 2017 . 35 ( income ) loss from equity method investments ( income ) loss from equity method investments reflects our share of investee net income or loss , non-cash dilution gains or losses from changes in our ownership interests in equity method investees , and basis difference amortization . the change in ( income ) loss from equity method investments during 2018 was primarily driven by the current year recognition of a $ 20 million non-cash dilution gain on the initial public offering by one of our equity method investees , partially offset by an increase in equity method investment net losses that we recognized during 2018. the change in ( income ) loss from equity method investments during 2017 was primarily driven by the prior year recognition of a $ 12 million increase to the carrying value of our investment balance and a non-cash dilution gain included in ( income ) loss from equity method investments on the issuance of capital stock by one of our equity method investees , partially offset by improved results of our bk equity method investments in 2017. other operating expenses ( income ) , net our other operating expenses ( income ) , net were comprised of the following : replace_table_token_11_th net losses ( gains ) on disposal of assets , restaurant closures , and refranchisings represent sales of properties and other costs related to restaurant closures and refranchisings . gains and losses recognized in the current period may reflect certain costs related to closures and refranchisings that occurred in previous periods . litigation settlements and reserves , net primarily reflects accruals and proceeds received in connection with litigation matters . net losses ( gains ) on foreign exchange is primarily related to revaluation of foreign denominated assets and liabilities . other , net during 2018 is comprised primarily of a payment in connection with the settlement of certain provisions associated with the 2017 redemption of our preferred shares as a result of recently proposed treasury regulations . interest expense , net replace_table_token_12_th during 2018 , interest expense , net increased primarily due to higher outstanding debt from the incurrence of incremental term loans and the issuance of senior notes during 2017 , partially offset by a $ 60 million benefit during 2018 from our adoption of the new hedge accounting standard . please refer to note 2 , significant accounting policies - new accounting pronouncements , to the accompanying audited consolidated financial statements for further details of the effects of the adoption of the new hedge accounting standard . subject to foreign exchange rate movements and other factors , we expect a benefit to continue during 2019. during 2017 , interest expense , net increased primarily due to higher outstanding debt from the incurrence of incremental term loans and the issuance of senior notes during 2017 , partially offset by an increase in interest income and a lower weighted average interest rate . 36 loss on early extinguishment of debt during 2017 , we recorded a $ 122 million loss on early extinguishment of debt which primarily reflects the payment of premiums to fully redeem our second lien notes and the write-off of unamortized debt issuance costs and discounts in connection with the refinancing of our term loan facility . income tax expense the change in our effective income tax rate to 17.2 % in 2018 from ( 12.1 ) % in 2017 is primarily due to the impact of certain aspects of the tax act , realignment of certain intercompany financings and changes in foreign currency exchange rates , partially offset by the release of a valuation allowance related to use of capital losses . the change in our effective income tax rate to ( 12.1 ) % in 2017 from 20.3 % in 2016 is primarily due to provisional amounts recorded in 2017 for the tax act impact . our effective income tax rate in 2017 also includes a benefit from stock option exercises as a result of the required adoption of a new share-based compensation accounting standard , as well as differing tax rules applicable to certain subsidiaries outside canada . these factors were partially offset by a valuation allowance on foreign exchange capital losses . net income we reported net income of $ 1,144 million for 2018 compared to net income of $ 1,235 million for 2017. the decrease in net income is primarily due to a $ 372 million increase in income tax expense , a $ 23 million increase in interest expense , net , a $ 23 million increase in corporate restructuring and tax advisory fees , the inclusion of $ 20 million of office centralization and relocation costs , and a $ 9 million decrease in th segment income .
| results of operations tabular amounts in millions of u.s. dollars unless noted otherwise . segment income may not calculate exactly due to rounding . replace_table_token_6_th ( a ) we calculate the fx impact by translating prior year results at current year monthly average exchange rates . we analyze these results on a constant currency basis as this helps identify underlying business trends , without distortion from the effects of currency movements . 31 replace_table_token_7_th ( b ) segment depreciation and amortization consists of depreciation and amortization included in cost of sales and franchise and property expenses . ( c ) th segment income includes $ 15 million , $ 13 million and $ 12 million of cash distributions received from equity method investments for 2018 , 2017 and 2016 , respectively . replace_table_token_8_th ( d ) bk segment income includes $ 5 million and $ 1 million of cash distributions received from equity method investments for 2018 and 2017 , respectively . replace_table_token_9_th 32 ( e ) plk revenues and segment income from the acquisition date of march 27 , 2017 through december 31 , 2017 are included in our consolidated statement of operations for 2017. comparable sales th comparable sales were 0.6 % for 2018 , including canada comparable sales of 0.9 % . bk comparable sales were 2.0 % for 2018 , including u.s. comparable sales of 1.4 % . plk comparable sales were 1.6 % for 2018 , including u.s. comparable sales of 0.9 % . sales and cost of sales sales include th supply chain sales and sales from company restaurants . th supply chain sales represent sales of products , supplies and restaurant equipment , as well as sales to retailers . in periods prior to january 1 , 2018 , we classified revenues derived from sales of equipment packages at the establishment of a restaurant and in connection with renewal or renovation as franchise and property revenues .
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our primary market area includes the baltimore metropolitan area and its surrounding counties . our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits , together with funds generated from operations and borrowings , primarily in one- to four-family residential mortgage loans , nonresidential real estate loans , construction and land development loans , home equity loans and lines of credit , and , to a lesser extent , commercial business loans and consumer loans . we retain our loans in portfolio depending on market conditions . we sell a majority of our fixed-rate one- to four-family residential mortgage loans in the secondary market . we also invest in various investment securities . our revenue is derived principally from interest on loans and investments and loan sales . our primary sources of funds are deposits and principal and interest payments on loans and securities . we also have access to federal home loan bank advances which are available and may be utilized from time to time . our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities . our results of operations are also affected by our provisions for loan losses , non-interest income and non-interest expense . non-interest income currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market , fees and service charges on deposit accounts , income from bank-owned life insurance policies and sales of securities . non-interest expense currently consists primarily of expenses related to salaries and employee benefits , occupancy , data processing related operations , professional fees , real estate owned and other expenses . 35 an increase in interest rates will present us with a challenge in managing our interest rate risk . as a general matter , our interest-bearing liabilities may 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 increase . 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 and we are diversifying our loan portfolio by continuing to sell a portion of our longer term conforming fixed-rate one-to four-family residential real estate loans and increase nonresidential real estate lending with shorter repricing terms . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . we expect our return on equity to remain relatively low until we are able to leverage the additional capital we received from the stock offering . business strategy we intend to continue to operate as a well-capitalized and profitable community-oriented bank dedicated to providing exceptional personal service to our individual and business customers . we believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace , our presence in the communities we serve and our long-standing history of providing superior , relationship-based customer service . our core business strategies are discussed below . continue to originate and sell certain residential real estate loans . residential mortgage lending has historically been a significant part of our business , and we recognize that originating one- to four-family residential real estate loans is essential to our status as a community-oriented bank . during the year ended december 31 , 2019 , we originated $ 28.7 million in one- to four-family residential real estate loans , selling $ 8.9 million in one- to four-family residential real estate loans and recording gains of $ 215,000 on the sale of those loans . similarly , during the year ended december 31 , 2018 , we originated $ 18.0 million in one- to four-family residential real estate loans , selling $ 8.3 million in one- to four-family residential real estate loans and recording gains of $ 187,000 on the sale of those loans . we intend to continue to sell in the secondary market a portion of the long-term conforming fixed-rate one- to four-family residential real estate loans that we originate to increase non-interest income and manage the interest rate risk of our loan portfolio . increase nonresidential real estate lending . in order to increase the yield on our loan portfolio and reduce the term to repricing , we plan to increase our nonresidential real estate lending while maintaining what we believe are conservative underwriting standards . we will focus our nonresidential real estate lending on small businesses located in our market area , targeting owner-occupied businesses . maintain high asset quality . strong asset quality is critical to the long-term financial success of a community bank . we attribute our high asset quality to maintaining conservative underwriting standards , the diligence of our loan collection personnel and the stability of the local economy . at december 31 , 2019 , our non-performing assets to total assets ratio was 0.61 % . because substantially all of our loans are secured by real estate , and the level of our non-performing loans has been low in recent years , we believe that our allowance for loan losses is adequate to absorb the probable losses inherent in our loan portfolio . increase core deposits , with an emphasis on low-cost commercial demand deposits . deposits are the major source of balance sheet funding for lending and other investments . story_separator_special_tag we also estimate a reserve for deferred tax assets if , based on the available evidence , it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods . these estimates and judgments are inherently subjective . historically , our estimates and judgments to calculate our deferred tax accounts have not required significant revision . 37 in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including our past operating results and our forecast of future taxable income . in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies , these assumptions require us to make judgments about future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences . valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized . in evaluating the need for a valuation allowance , we must estimate our taxable income in future years and the impact of tax planning strategies . if we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is no valuation allowance , an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made . conversely , if we were to make a determination that it is more likely than not that the deferred tax assets for which we had established a valuation allowance would be realized , the related valuation allowance would be reduced and a benefit to earnings would be recorded . the outbreak of the recent coronavirus ( covid-19 ) , or an outbreak of another highly infectious or contagious disease , could adversely affect our business activities , financial condition and results of operations . our business is dependent upon the ability and willingness of our customers to conduct banking and other financial transactions . the spread of a highly infectious or contagious disease , such as covid-19 , could cause severe disruptions in the united states economy , which could in turn disrupt the business , activities , and operations of our customers , as well as our business and operations . moreover , since the beginning of january 2020 , the covid-19 outbreak has caused significant disruption in the financial markets both globally and in the united states . the spread of covid-19 , or an outbreak of another highly infectious or contagious disease , may result in a significant decrease in business and or cause our customers to be unable to meet existing payment of other obligations to us , particularly in the event of a spread of covid-19 or an outbreak of an infectious disease in our market area . although we maintain contingency plans for pandemic outbreaks , a spread of covid-19 , or an outbreak of another contagious disease , could also negatively impact the availability of key personnel necessary to conduct our business activities . such a spread or outbreak could also negatively impact the business and operations of third-party service providers who perform critical services for us . if covid-19 , or another highly infectious or contagious disease , spreads or the response to contain covid-19 is unsuccessful , we could experience a material adverse effect to our business , financial condition and results of operations . comparison of financial condition at december 31 , 2019 and december 31 , 2018 total assets . total assets increased $ 5.0 million , or 2.32 % , to $ 220.4 million at december 31 , 2019 from $ 215.4 million at december 31 , 2018. the increase in total assets was primarily the result of an increase in loans funded with growth in deposits and federal home loan bank borrowings , as discussed in more detail below . cash and cash equivalents . cash and cash equivalents decreased $ 12.8 million , or 68.09 % , to $ 6.0 million at december 31 , 2019 from $ 18.8 million at december 31 , 2018. the decrease in cash and cash equivalents was primarily driven by the increase in loans as discussed in more detail below . time deposits in other banks . time deposits in other banks increased by $ 1.0 million , or 14.49 % , to $ 7.9 million at december 31 , 2019 from $ 6.9 million at december 31 , 2018. this increase was due to purchases of time deposits in other banks in the amount of $ 2.5 million offset by maturities of $ 1.5 million . investment securities . investment securities decreased $ 356,000 to $ 37.1 million at december 31 , 2019 from $ 37.4 million at december 31 , 2018. purchases of investment securities of $ 17.6 million were offset by maturities and principal repayments of $ 18.6 million . all of our investment securities are currently classified as available for sale . net loans .
| general . net income was $ 908,000 for the year ended december 31 , 2019 compared to $ 673,000 for the year ended december 31 , 2018. the increase was due to several factors including an increase in net interest income of $ 911,000 , or 13.60 % , to $ 7.6 million for the year ended december 31 , 2019 from $ 6.7 million for the year ended december 31 , 2018 a decrease in provision for loan losses of $ 400,000 , or 69.57 % , to $ 175,000 for the year ended december 31 , 2019 from $ 575,000 for the year ended december 31 , 2018 , offset by increase in non-interest expense of $ 942,000 , or 16.24 % , to $ 6.8 million for the year ended december 31 , 2019 from $ 5.8 million for the year ended december 31 , 2018. interest income . interest and dividend income increased $ 1.3 million , or 16.88 % , to $ 9.0 million for the year ended december 31 , 2019 from $ 7.7 million for the year ended december 31 , 2018. the increase in interest income was due to a combination of the increase in average interest-earning assets and an increase in the average yield on interest-earning assets for year ended december 31 , 2019 compared to the average interest-earning assets and the average yield on interest-earning assets for the year ended december 31 , 2018. interest income on loans increased $ 526,000 , or 7.74 % , to $ 7.3 million for the year ended december 31 , 2019 from $ 6.8 million for the year end december 31 , 2018. the increase was attributed to not only an increase in the average yield of our loans , which is our primary source of interest income , but an increase in the average balance of our loans .
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on january 1 , 2012 , the company , as part of project renewal , implemented changes to its organizational structure that resulted in the consolidation of the company 's three operating groups into two and the consolidation of its 13 global business units ( “ gbus ” ) into nine . one of the two operating groups was consumer-facing ( “ newell consumer ” ) , while the other was commercial-facing ( “ newell professional ” ) . in addition , while not an operating group , the baby & parenting gbu was treated as a stand-alone operating segment . in october 2012 , the company committed to an expansion of project renewal , designed to further simplify and align the business around two key activities – brand & category development and market execution & delivery . as part of the expanded program , the company 's consumer and professional groups were eliminated and the company 's nine gbus were streamlined into six business segments . the six business segments and the key brands included in each of the six business segments are as follows : home solutions : rubbermaid ® , calphalon ® , levolor ® , kirsch ® and goody ® writing : sharpie ® , paper mate ® , expo ® , prismacolor ® , parker ® and waterman ® tools : irwin ® and lenox ® tools and dymo ® industrial commercial products : rubbermaid commercial products ® and rubbermaid ® healthcare baby & parenting : graco ® , aprica ® and teutonia ® specialty : bulldog ® , ashland , shur-line ® , dymo ® office , endicia ® and mimio ® the actions taken by the company in 2012 are intended to simplify the organization and free up resources to invest in growth initiatives and strengthened capabilities . these changes are considered key enablers to building a bigger , faster-growing , more global and more profitable newell rubbermaid . business strategy newell rubbermaid 's vision is to become a global company of brands that matter and great people , known for best-in-class results . the company is committed to building consumer-meaningful brands through understanding the needs of consumers and using those insights to create innovative , highly differentiated product solutions that offer superior performance and value . the transformation that began several years ago building brands that matter and insight-driven innovations that win in the marketplace has created a solid foundation . the company now has a stronger and more tightly focused portfolio of leading brands with a margin structure that allows for brand investment . the company has devised its new growth game plan , which is the strategy the company is implementing to fulfill its ambition to build a bigger , faster-growing , more global and more profitable company . the growth game plan encompasses the following aspects : business model ◦ a brand-led business with a strong home in the united states and global ambition . ◦ consumer brands that win at the point of decision through excellence in performance , design and innovation . ◦ professional brands that win the loyalty of the chooser by improving the productivity and performance of the user . ◦ collaboration with our partners across the total enterprise in a shared commitment to growth and creating value . ◦ delivering competitive returns to shareholders through consistent , sustainable and profitable growth . 21 where to play ◦ win bigger — deploying resources to businesses and regions with higher growth opportunities through investments in innovation and geographic expansion . ◦ win where we are — optimizing the performance of businesses and brands in existing markets by investing in innovation to increase market share and reducing structural spend within the existing geographic footprint . ◦ incubate for growth — investing in businesses that have unique opportunities for growth , with a primary focus on businesses that are in the early stages of the business cycle . 5 ways to win ◦ make the brands really matter — sharpening brand strategies on the highest impact growth levers and partnering to win with customers and suppliers . ◦ build an execution powerhouse — realigning the customer development organization and developing joint business plans for new channel penetration and broader distribution . ◦ unlock trapped capacity for growth — delivering savings from ongoing restructuring projects , working capital reductions and simplification of business processes . ◦ develop the team for growth — driving a performance culture aligned to the business strategy and building a more global perspective and talent base . ◦ extend beyond our borders — accelerating investments and growth in emerging markets . during 2012 , the company executed against the delivery phase of the growth game plan . in this phase , the company implemented structural changes in the organization while ensuring consistent execution and delivery . the company expects 2013 to be a transition year from the delivery phase to the strategic phase . in the strategic phase , the company expects to expand investment behind its win bigger businesses to drive accelerated growth . in 2013 , the company will continue implementing changes to drive the growth game plan into action . these changes are the foundation of the expansion of project renewal and are organized into the following five workstreams : ◦ organizational simplification : the company has de-layered its top structure by eliminating the two groups ( newell consumer and newell professional ) and further consolidating its businesses from nine gbus to six business segments . ◦ emea simplification : the company will focus its resources on fewer products and countries , while simplifying go-to-market , delivery and back office support structures . ◦ best cost finance : the company will deliver a simplified approach to decision support , transaction processing and information management by leveraging sap and the streamlined business segments to align resources with the growth game plan . ◦ best cost back office : the company will drive “ one newell rubbermaid ” efficiencies in customer and consumer services and sourcing functions . story_separator_special_tag repels water , rubbermaid ® bathroom scrubbers with four tools to choose from , and rubbermaid ® lunchblox – a collection of customizable , modular food storage containers that snap together to save space and stay organized in lunch bags . continued the execution of project renewal to simplify the business , reduce structural costs and increase investment in the most significant growth platforms within the business . completed the implementation of the european transformation plan , which includes projects designed to improve the financial performance of the european business and centralize decision-making in the geneva headquarters , and successfully went live with sap in europe in april 2012. improved the company 's capital structure by completing the offering and sale of $ 500.0 million unsecured senior notes , consisting of $ 250.0 million principal amount of 2.0 % notes due 2015 and $ 250.0 million principal amount of 4.0 % notes due 2022 , the aggregate proceeds of which were used in july 2012 to redeem the $ 436.7 million of outstanding 5.25 % junior convertible subordinated debentures due december 2027 , underlying the company 's 5.25 % convertible preferred securities . completed the offering and sale of $ 350.0 million 2.05 % unsecured senior notes due 2017 and used the proceeds together with cash on hand and short-term borrowings to repay the $ 500.0 million principal amount of the 5.50 % senior notes due april 2013 ( the “ 2013 notes ” ) , for which interest expense was previously recorded at a rate of approximately 3.5 % after contemplating the effects of the interest rate swaps related to the 2013 notes . retired $ 250.0 million principal amount of the 6.75 % medium-term notes due 2012 ( the “ 2012 notes ” ) upon maturity , for which interest expense was previously recorded at a rate of approximately 2.3 % after contemplating the effect of the terminated interest rate swaps related to the 2012 notes . continued the $ 300.0 million three-year share repurchase plan that expires in august 2014 , pursuant to which the company repurchased and retired an additional 4.9 million shares of common stock for $ 91.5 million during 2012. increased the company 's quarterly dividend by 88 % during 2012 , from $ 0.08 per share in the first quarter to $ 0.15 per share in the fourth quarter . 24 key initiatives project renewal in october 2011 , the company launched project renewal , a program designed to reduce complexity in the organization and increase investment in the most significant growth platforms within the business , funded by a reduction in structural selling , general & administrative ( ” sg & a ” ) costs . the consolidation of a limited number of manufacturing facilities and distribution centers was also initiated as part of the program , with the goal of increasing operational efficiency , reducing costs , and improving gross margin . in october 2012 , the company committed to an expansion of project renewal , designed to further simplify and align the business around two key activities — brand & category development and market execution & delivery . as expanded , project renewal encompasses projects centered around five workstreams , as follows : organizational simplification : the company has de-layered its top structure by eliminating the two groups ( newell consumer and newell professional ) and further consolidated its businesses from nine gbus to six business segments . emea simplification : the company will focus its resources on fewer products and countries , while simplifying go-to-market , delivery and back office support structures . best cost finance : the company will deliver a simplified approach to decision support , transaction processing and information management by leveraging sap and the streamlined business segments to align resources with the growth game plan . best cost back office : the company will achieve “ one newell rubbermaid ” efficiencies in customer and consumer services and sourcing functions . supply chain footprint : the company will further optimize manufacturing and distribution facilities across its global supply chain . the following table depicts estimated pre-tax restructuring and restructuring-related costs , annualized savings , and headcount impacts associated with project renewal ( dollars in millions ) : replace_table_token_5_th ( 1 ) restructuring and restructuring-related charges of $ 69 million and $ 10 million , respectively , have been incurred through december 31 , 2012 , the majority of which were employee-related cash costs , including severance , retirement , and other termination benefits and costs . restructuring-related charges represent incremental cost of products sold and sg & a expenses associated with the implementation of project renewal . ( 2 ) consists of approximately 80 % employee-related cash costs including severance , retirement , and other termination benefits and costs . project renewal in total is expected to be fully implemented by mid-2015 , with annualized savings of $ 90 to $ 100 million expected by the first half of 2013. the majority of the savings from project renewal will be invested in the business to unlock accelerated growth and to strengthen brand building and selling capabilities in priority markets around the world . since the inception of project renewal through december 31 , 2012 , the company has reduced structural overhead and consolidated three operating groups into two and 13 gbus into nine , which resulted in a headcount reduction of approximately 175 employees . in 2012 , the company completed the closure of the home solutions segment 's greenville , texas , manufacturing facility , aiming to consolidate operations of the facility into the company 's existing facilities in kansas and ohio . the company also began implementing a distribution center consolidation in the home solutions segment as well as a project to align the home solutions segment 's sales and marketing organizations with the company 's newly created customer development organization . in the tools and the commercial products segments , the company began reorganizing its sales and marketing functions and began a project to centralize commercial products ' distribution operations .
| business segment operating results : 2012 vs. 2011 business segment operating results net sales by segment were as follows for the years ended december 31 , ( in millions , except percentages ) : replace_table_token_9_th the following table sets forth an analysis of changes in net sales in each segment for 2012 as compared to 2011 : replace_table_token_10_th operating income ( loss ) by segment was as follows for the years ended december 31 , ( in millions , except percentages ) : replace_table_token_11_th nmf - not meaningful ( 1 ) for 2012 , includes restructuring-related costs associated with project renewal of $ 4.9 million and $ 1.2 million attributable to the home solutions and writing segments , respectively . ( 2 ) includes restructuring-related costs of $ 24.3 million and $ 37.4 million for 2012 and 2011 , respectively , associated with the european transformation plan and $ 4.1 million of restructuring-related costs associated with project renewal for 2012. the 2011 operating income also includes $ 6.3 million of incremental costs associated with the company 's chief executive officer transition in 2011 . 29 home solutions net sales for 2012 were $ 1,644.0 million , a decrease of $ 66.2 million , or 3.9 % , from $ 1,710.2 million for 2011. core sales declined 3.6 % , primarily due to continuing challenges in the décor business and also due to a change in merchandising strategy by a significant retail customer in north america , which impacted the décor and culinary businesses . excluding the impacts of currency , sales at the segment 's north american and international businesses declined 3.6 % and 1.5 % , respectively . foreign currency had an unfavorable impact of 0.3 % .
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in the event of a sale or other disposition of all of the assets of any guarantor , by way of merger , consolidation or otherwise , or a sale or other disposition of all of the equity interests of any guarantor then story_separator_special_tag overview and outlook industry conditions 2018 was a year of growth and transition for the real estate and homebuilding industries , as they benefited through the first half of the year from strong underlying economic and housing market fundamentals , but that strong demand waned in the second half of 2018 as rising interest rates and home prices caused buyers to delay their home purchasing decisions . this pause in homebuyer activity was most prevalent among move up-buyers , hesitant to sell their existing homes and potentially purchase a new home with a higher underlying interest rate . with the meaningful re-entry of millennials into the home buying market and the desire to downsize in the baby boomer generation , combined with plentiful mortgage availability and improving economic metrics for most segments of the population , we believe this pause is temporary and demand will continue for new homes . homebuilders with attractive , lower price-point product in desirable locations should be poised to capture this pent-up demand for nicely appointed but affordable homes , as buyers in this environment are primarily motivated by affordability . we believe the longer-term economic data supports continued growth in the current homebuilding cycle , although the outlook of the next several quarters is uncertain as the market absorbs the psychological impact of higher home prices and increasing interest rates . at meritage , we continue to focus on our pivot to the first-time and first move-up buyer through our commitment to simplification and our key strategic initiatives of home closing gross margin improvement , selling , general and administrative cost control and community count stability . we believe the successful execution of these initiatives will position us to improve profitability , as we continue our transition . we have made considerable progress as one-third of our current communities are targeted to first-time buyers and those buyers represented approximately 40 % of our orders in 2018. we expect to continue to deliver on our initiatives as we are opening an increasing number of communities that target the first-time buyer as well as the first move-up buyer . we believe this strategy will allow us to achieve higher gross margins and better opportunities to leverage our overhead costs . story_separator_special_tag that offer our buyers their desired features and amenities ; expanding market share in our smaller markets ; continuing to innovate and promote our energy efficiency program and our m.connected ® automation suite to create differentiation for the meritage brand ; managing construction efficiencies and costs through national and regional vendor relationships with a focus on quality construction and warranty management ; carefully managing our liquidity and a strong balance sheet , as we ended the year with $ 311.5 million in cash and cash equivalents with a 43.2 % debt-to-capital ratio and a 36.7 % net debt-to-capital ratio and through the expansion and extension of our credit facility ; maximizing returns to our shareholders , most recently through our share repurchase program ; and promoting a positive environment for our employees in order to develop and motivate them and to minimize turnover and to maximize recruitment efforts . critical accounting policies we have established various accounting policies that govern the application of united states generally accepted accounting principles ( “ gaap ” ) in the preparation and presentation of our consolidated financial statements . our significant accounting policies are described in note 1 of the consolidated financial statements included in this form 10-k. certain of these policies involve significant judgments , assumptions and estimates by management that may have a material impact on the carrying value of certain assets and liabilities , and revenue and costs . we are subject to uncertainties such as the impact of future events , economic , environmental , political and regulatory factors and changes in our business environment ; therefore , actual results could differ from these estimates . accordingly , the accounting estimates used in the preparation of our financial statements may change as new events occur , as more experience is acquired , as additional information is obtained and as our operating environment changes . changes in estimates are revised when circumstances warrant . such changes in estimates and refinements in methodologies are reflected in our reported results of operations and , if material , the effects of changes in estimates are disclosed in the notes to our consolidated financial statements . the judgments , assumptions and estimates we use and believe to be critical to our business are based on historical experience , knowledge of the accounts , industry practices , and other factors , which we believe to be reasonable under the circumstances . because of the nature of the judgments and assumptions we have made , actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations . the accounting policies that we deem most critical to us and involve the most difficult , subjective or complex judgments are as follows : 27 revenue recognition we recognize revenue in accordance with asc 606 revenue from contracts with customers , by applying the following steps in determining the timing and amount of revenue to recognize : ( 1 ) identify the contract with our customer ; ( 2 ) identify the performance obligation ( s ) in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to the performance obligations in the contract , if applicable ; and ( 5 ) recognize revenue when ( or as ) we satisfy the performance obligation . story_separator_special_tag if the qualitative analysis determines that additional impairment testing is required , the two-step impairment testing in accordance with asc 350 would be initiated . we continually evaluate our qualitative inputs to assess whether events and circumstances have occurred that indicate the goodwill balance may not be recoverable . warranty reserves we use subcontractors for nearly all aspects of home construction . although our subcontractors are generally required to repair and replace any product or labor defects and cover any resultant damages , we are , during applicable warranty periods , ultimately responsible to the homeowner for making such repairs . as such , warranty reserves are recorded to cover our exposure to costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims subsequent to the delivery of a home to the homeowner . reserves are reviewed on a regular basis and , with the assistance of an actuary for the structural warranty , we determine their sufficiency based on our and industry-wide historical data and trends . these reserves are subject to variability due to uncertainties regarding structural defect claims for the products we build , the markets in which we build , claim settlement history , insurance , legal interpretations and expected recoveries , among other factors . at december 31 , 2018 , our warranty reserve was $ 24.6 million , reflecting an accrual of 0.1 % to 0.6 % of a home 's sale price depending on our loss history in the geographic area in which the home was built . a 10 % increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by approximately $ 1.6 million in 2018. there were no adjustments to our reserve in 2018 and we recorded net favorable adjustments to our reserve of $ 1.6 million in 2017. these adjustments were based on historical trends of actual claims paid combined with our success in recovery of expended amounts and the composition of the homes covered under warranty . while we believe that the warranty reserve is sufficient to cover our projected costs , there can be no assurances that historical data and trends will accurately predict our actual warranty costs . furthermore , there can be no assurances that future economic , financial or legislative developments might not lead to a significant change in the reserve . valuation of deferred tax assets we account for income taxes using the asset and liability method , which requires that deferred tax assets and liabilities be recognized based on future tax consequences of both temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted . on december 22 , 2017 , the president signed into law the tax act . in accordance with asc 740-10-25-47 , we recognized the effects of the new legislation in the period that included the date of enactment . the tax act 's impact on 2017 was to reduce the value of our net deferred tax balances by $ 19.7 million at december 31 , 2017 , which was estimated due to the change in the federal tax rate and has been reflected in our financial statements . at december 31 , 2018 , we have completed our accounting for the income tax effects of the tax act on our deferred tax assets . in accordance with sec staff accounting bulletin no . 118 and asc 740 , we have revised the valuation of our 2017 deferred tax assets for the impact of the tax act based on completion of our 2017 income tax returns . accordingly , in 2018 we recorded a favorable adjustment of $ 2.7 million which has been reflected in our financial statements . in accordance with asc 740-10 , income taxes , we evaluate our deferred tax assets by tax jurisdiction , including the benefit from net operating losses ( `` nols '' ) by tax jurisdiction , to determine if a valuation allowance is required . companies must assess , using significant judgments , whether a valuation allowance should be established based on the consideration of all available evidence using a “ more likely than not ” standard with significant weight being given to evidence that can be objectively verified . this assessment considers , among other matters , the nature , frequency and severity of current and cumulative losses , forecasts of future profitability , the length of statutory carryforward periods , experience with operating 29 losses and experience of utilizing tax credit carryforwards and tax planning alternatives . we have no valuation allowance on our deferred tax assets and nol carryovers at december 31 , 2018 . 30 home closing revenue , home orders and order backlog - segment analysis the composition of our closings , home orders and backlog is constantly changing and is based on a dissimilar mix of communities between periods as new projects and product lines open and existing projects wind down . further , individual homes within a community can range significantly in price due to differing square footage , option selections , lot sizes and quality and location of lots ( e.g . cul-de-sac , view lots , greenbelt lots ) . these variations result in a lack of meaningful comparability between our home orders , closings and backlog due to the changing mix between periods . the tables on the following pages present operating and financial data that we consider most critical to managing our operations ( dollars in thousands ) : replace_table_token_2_th 31 replace_table_token_3_th 32 replace_table_token_4_th ( 1 ) home orders for any period represent the aggregate sales price of all homes ordered , net of cancellations .
| summary company results total home closing revenue increased by 9.0 % to $ 3.5 billion for the year ended december 31 , 2018 from $ 3.2 billion in 2017. total home closing revenue for the year ended december 31 , 2017 was 6.1 % higher than the $ 3.0 billion recorded for the year ended december 31 , 2016. home closing gross margin for the year ended december 31 , 2018 improved by 60 basis points to 18.2 % while gross margin for both of the years ended december 31 , 2017 and 2016 was 17.6 % . the improved margin in 2018 reflects efficiencies in our construction process and effective cost controls despite an inflationary cost environment . improved revenue from higher closing volume resulted in pre-tax net earnings of $ 283.3 million in 2018 as compared to $ 247.5 million in 2017 and $ 218.1 million in 2016. our 2018 post-tax results benefited significantly from the tax act that was enacted in 2017 and became effective beginning in 2018. the result was a 19.7 % effective tax rate in 2018 as compared to a 42.1 % effective tax rate in 2017. our effective tax rate in 2016 was 31.4 % . the lower rate in 2018 reflects a lower corporate tax rate as a result of the tax act as well as additional energy credits captured on homes closed in prior years . the higher rate in 2017 reflects a $ 19.7 million revaluation of our deferred tax asset for the impact of new corporate tax rates . refer to note 11 for additional information related to income taxes . net income for the year ended december 31 , 2018 was $ 227.3 million compared to $ 143.3 million in 2017 and $ 149.5 million in 2016. companywide , we experienced increases in closings and orders in 2018 compared to prior year . we ended 2018 with 8,531 closings , a 10.7
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the following discussion may contain predictions , estimates , and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under risk factors and elsewhere in this annual report on form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . overview we are a medical device company that develops , manufactures , and markets medical devices and implants for the treatment of peripheral vascular disease . we also provide processing and cryopreservation services of human tissue for implantation to patients . our principal product offerings are sold throughout the world , primarily in the united states , europe and , to a lesser extent , asia and the pacific rim . we estimate that the annual worldwide market for all peripheral vascular devices approximates $ 4 billion , within which our core product lines address roughly $ 840 million . we have grown our business by using a three-pronged strategy : 1 ) pursuing a focused call point , 2 ) competing for sales of low-rivalry niche products , and 3 ) expanding our worldwide direct sales force while acquiring and developing complementary vascular devices . we have used acquisitions as a primary means of further accessing the larger peripheral vascular device market , and we expect to continue to pursue this strategy in the future . additionally , we have increased our efforts to expand our vascular device offerings through new product development . we currently manufacture most of our product lines at our burlington , massachusetts headquarters . our products are used primarily by vascular surgeons who treat peripheral vascular disease through both open surgical methods and endovascular techniques . in contrast to interventional cardiologists and interventional radiologists , neither of whom are certified to perform open surgical procedures , vascular surgeons can perform both open surgical and minimally invasive endovascular procedures , and are therefore uniquely positioned to provide a wider range of treatment options to patients . our principal product lines include the following : valvulotomes , biologic vascular patches , carotid shunts , balloon catheters , biologic vascular grafts , anastomotic clips , radiopaque marking tape , powered phlebectomy devices , laparoscopic cholecystectomy devices , prosthetic vascular grafts , and remote endarterectomy devices . with the november 10 , 2016 acquisition of the restoreflow allografts business from restore flow allografts , llc , we also provide services related to the processing and cryopreservation of human vascular tissue . to assist us in evaluating our business strategies , we regularly monitor long-term technology trends in the peripheral vascular device market . additionally , we consider the information obtained from discussions with the medical community in connection with the demand for our products , including potential new product launches . we also use this information to help determine our competitive position in the peripheral vascular device market and our manufacturing capacity requirements . 41 our business opportunities include the following : the long-term growth of our direct sales force in north america , europe , asia and the pacific rim ; the addition of complementary products through acquisitions ; the updating of existing products and introduction of new products through research and development ; the introduction of our products in new territories upon receipt of regulatory approvals or registrations in these territories ; and the consolidation of product manufacturing into our facilities in our burlington , massachusetts corporate headquarters . we sell our products and services primarily through a direct sales force . as of december 31 , 2016 our sales force was comprised of 96 sales representatives in north america , europe , japan , china , australia and new zealand . we also sell our products in other countries through distributors . our worldwide headquarters is located in burlington , massachusetts . our international operations are headquartered in sulzbach , germany . we also have sales offices located in tokyo , japan ; mississauga , canada ; madrid , spain ; milan , italy ; shanghai , china ; and north melbourne , australia , and we have a processing facility in fox river grove , illinois and a manufacturing facility in north melbourne , australia . during both of the years ended december 31 , 2016 and 2015 , approximately 92 % of our net sales were generated in territories in which we employ direct sales representatives . historically we have experienced success in lower-rivalry niche product segments , for example the market segments for biologic vascular patches and valvulotome devices . in the biologic vascular patch market segment the number of competitors is limited , and we believe that we have been able to increase segment share and to a lesser extent increase selling prices , mainly due to strong sales service . in the valvulotome market segment , we believe we have been able to materially increase our selling prices without losing significant market share . in contrast , we have experienced less success in highly competitive segments such as laparoscopic cholecystectomy devices and polyester grafts , where we face stronger competition from larger companies with greater resources and lower production costs . we have also experienced less success in segments such as carotid shunts , where unit sales in the overall market may be declining . while we believe that these challenging market dynamics can be mitigated by our strong relationships with vascular surgeons , there can be no assurance that we will be successful in these highly competitive market segments . in recent years we have also experienced success in geographic markets outside of the united states , such as europe , where we generally offer comparatively lower average selling prices . if we continue to seek growth opportunities outside of the united states , we will likely experience downward pressure on our gross margin . story_separator_special_tag we believe the cost of the facility renovation will be approximately $ 2.0 million . our execution of these business opportunities may affect the comparability of our financial results from period to period and may cause substantial fluctuations from period to period as we incur related process engineering and other charges , as well as longer term impacts to revenues and operating expenditures . fluctuations in the rate of exchange between the u.s. dollar and foreign currencies , primarily the euro , affect our financial results . for the year ended december 31 , 2016 , approximately 44 % of our sales took place outside the united states . we expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future . selling , marketing , and administrative costs related to these sales are largely denominated in the same respective currency , thereby partially mitigating our exposure to exchange rate fluctuations . however , as most of our foreign sales are denominated in local currency , if there is an increase in the rate at which a foreign currency is exchanged for u.s. dollars , it will require more of the foreign currency to equal a specified amount of u.s. dollars than before the rate increase . in such cases we will receive less revenue in u.s. dollars than we did before the rate increase went into effect . for the year ended december 31 , 2016 , we estimate that the effects of changes in foreign exchange rates decreased sales by approximately $ 0.2 million , as compared to rates in effect for the year ended december 31 , 2015. net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products and services , less discounts and returns . net sales include the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily generated by shipments to distributors , who in turn sell to hospitals and clinics . in certain cases our products are held on consignment at a hospital or clinic prior to purchase ; in those instances we recognize revenue at the time the product is used in surgery rather than at shipment . cost of sales . we manufacture nearly all of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at medical society meetings , training programs , advertising and product promotions , direct mail and other marketing costs . 44 general and administrative . general and administrative expense consists primarily of executive , finance and human resource expense , stock based compensation , legal and accounting fees , information technology expense , intangible asset amortization expense and insurance expense . research and development . research and development expense includes costs associated with the design , development , testing , enhancement and regulatory approval of our products , principally salaries , laboratory testing and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned foreign subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states and foreign subsidiaries , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . story_separator_special_tag principally foreign net operating loss and capital loss carry-forwards ; based on the weight of available evidence , we believe it is more likely than not that such assets will not be realized . we expect our effective tax rate to decrease slightly in 2017 , as audit adjustments and uncertain tax positions normalize . the state rate increased in 2016 because there was a release of valuation allowance in 2015. we expect the state rate to normalize in 2017. in 2016 , a federal tax audit resulted in a $ 0.2 million tax adjustment , which also required a $ 0.2 million increase to our uncertain tax positions for a massachusetts tax credit . comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percentage increase or decrease : replace_table_token_10_th net sales . net sales increased 10 % to $ 78.4 million in 2015 from $ 71.1 million in 2014. sales from newly acquired product lines contributed 4.5 % to the sales growth . the increase in net sales of $ 7.3 million in 2015 was primarily driven by increased sales in biologic vascular patches of $ 2.9 million , valvulotomes of $ 1.7 million and powered phlebectomy systems of $ 0.8 million .
| results of operations comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percentage increase or decrease : replace_table_token_7_th net sales . net sales increased 14 % or $ 10.8 million to $ 89.2 million for the year ended december 31 , 2016 , compared to $ 78.4 million for the year ended december 31 , 2015. sales increases were primarily driven by increased sales of our biologic vascular patches of $ 5.2 million ( of which we estimate that $ 2.3 million was related to a safety alert initiated by a competitor ) , valvulotomes of $ 1.9 million , vessel closure systems of $ 1.5 million and our recently acquired procol biologic vascular graft of $ 1.0 million . we also had human tissue cryopreservation service revenues from our recently acquired restoreflow allograft business of $ 0.5 million . these and other product line increases were partially offset by decreased sales of radiopaque tape of $ 0.4 million ( related primarily to the inclusion in 2015 of $ 0.6 million of oem tape sales ) . direct-to-hospital net sales were 92 % for both of the years ended december 31 , 2016 and december 31 , 2015. net sales by geography . net sales in the americas increased $ 5.7 million for the year ended december 31 , 2016. the increase was primarily driven by biologic vascular patches , valvulotomes , vessel closure systems and our recently acquired procol biologic vascular graft , and was partially offset by decreased sales of carotid shunts and radiopaque tape . we also had human tissue cryopreservation service revenues in the u.s. from our recently acquired restoreflow allograft business of $ 0.5 million .
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the discount rate is an estimate of the cost of capital , based on previous long-term debt the company has issued . no share grants were granted in 2014. as of december 31 , 2014 , there were no unrecognized compensation costs related to unvested share grants . 9.3. summary of stock-based compensation expenses a summary of stock-based compensation expense for the respective reporting periods is presented in the following table : replace_table_token_20_th 10. warrants on may 6 , 2011 , upon completion of a public offering , the company issued 44,450,500 unit warrants and 1,333,515 agent warrants . the unit warrants are exercisable until may 6 , 2014 and the agent warrants until may 6 , 2013 , respectively . in accordance with asc 815 , the company determined that the unit warrants and the agent warrants are to be classified in stockholders ' equity due to the fact that there are no cash settlement provisions , no re-set provisions or any other provisions that would require liability accounting . 10.1. warrant activity the following tables summarize the company 's warrant activities for the years ended december 31 , 2014 and 2013 : warrants 2014 number of warrants weighted average exercise price outstanding at december 31 , 2013 44,450,500 usd 0.70 granted - - exercised - - forfeit or expired ( 44,450,500 ) usd 0.70 outstanding at december 31 , 2014 - - replace_table_token_21_th 51 10.2. warrants outstanding as of december 31 , 2014 , the company had no warrants outstanding to purchase common stock . as of december 31 , 2013 there were 44,450,500 warrants outstanding . each warrant entitled the holder to purchase one share of the company 's common stock . the following table summarizes information about the company 's warrants outstanding as of december 31 , 2013 : warrant series 2013 number of warrants strike price grant date expiry date unit warrants 44,450,500 usd 0.70 may 6 , 2011 may 6 , 2014 total warrants outstanding 44,450,500 11. investment in petromanas on february 12 , 2010 , the company 's wholly-owned subsidiary dwm petroleum , signed a share purchase agreement and completed the sale of all of the issued and outstanding shares of manas adriatic to petromanas energy inc. ( petromanas ) . after closing , the share purchase agreement was amended by an amending agreement dated may 25 , 2010. as a result of this transaction , the company acquired 200,000,000 common shares of petromanas . 100,000,000 of these were issued on march 3 , 2010 pursuant to the original terms of the share purchase agreement ; the additional 100,000,000 were received on may 26 , 2010 , pursuant to the amending agreement . the shares were subject to a hold period expiring september 24 , 2011 and bore a legend to that effect . in addition , all of these shares were deposited into an escrow pursuant to the requirements of the tsx venture exchange which provides for the release of the shares from escrow according to the following schedule : replace_table_token_22_th on july 6 , 2012 , dwm petroleum sold 10,000,000 of these shares to one unrelated party at a price of cad 0.17 per common share for gross proceeds of cad 1,700,000 ( usd 1,670,598 ) . on august 17 , 2012 , pursuant to agreements dated august 13 , 2012 , dwm petroleum sold an additional 90,000,000 of these petromanas shares to twelve purchasers at a price of cad 0.115 per common share for gross proceeds of cad 10,350,000 ( usd 10,445,050 ) together with the right to receive 22.5 % of the performance shares if and when any performance shares are issued by petromanas . as of december 31 , 2012 no proceeds were allocated to these performance shares as they are only issuable upon achievement of certain conditions and the likelihood of the contingent event is not reasonably determined . during the period of october 18 , 2013 to october 29 , 2013 , dwm petroleum sold 1,000,000 shares at a price of cad 0.12 per common share for gross proceeds of cad 120,000 ( usd 114,900 ) on the open market . on october 25 , 2013 , dwm petroleum sold an additional 3,000,000 shares at a price of cad 0.10 per common shares for gross proceeds of cad 300,000 ( usd 288,510 ) on the open market . on november 8 , 2013 , dwm petroleum sold an additional 46,000,000 shares at a volume weighted price of cad 0.12 per common shares for gross proceeds of cad 5,595,710 ( usd 5,366,286 ) on the open market . since the shares were subject to a hold period of thirty months until february 24 , 2013 , and because the shares were also deposited into escrow and subject to a fixed escrow release schedule , the company deemed them to have a level 2 input for the calculation of the fair value in accordance with asc 820 ( fair value measurements and disclosures ) . the company had applied an annual discount rate of 12 % on the quoted market price based on the time before the shares become freely tradable . the discount rate was an estimate of the cost of capital , based on previous long-term debt the company has issued . 52 since february 25 , 2013 the fair value of the investment in petromanas has been reclassified to level 1 and no additional discount rate is being used for the current calculation of the investment . effective from and after august 14 , 2013 all petromanas shares held by the company were free of any restrictions and are eligible for resale . story_separator_special_tag as is equal to the amount of interest payable in interest warrant shares ( as contemplated by the terms of each of the first debenture and the second debenture ( as defined below ) ) on that interest payment date , at an exercise price of us $ 0.70 per interest warrant share ; and on the four-month anniversary of the stockholder approval of the private placement , one non-transferable convertible debenture ( the second debenture ) in the principal amount of us $ 25,000,000 . - 31 - the purchase price for the first debenture and the interest warrant will be us $ 25,000,000 and the purchase price for the second debenture will be us $ 25,000,000. each of the first debenture and the second debenture ( the debentures ) will have a maturity date of five years from the date of issuance . we must pay all or any part of the principal amounts outstanding under the debentures by way of conversions into shares of our common stock at a conversion price of us $ 0.70 per share . at any time after the date of issuance and until the maturity date , vagobel will be entitled to convert some or all of the outstanding principal amounts under the debentures into shares of our common stock at a conversion price of us $ 0.70 per share . all principal that remains outstanding on the maturity date will be automatically converted on the maturity date . outstanding principal under the debentures will bear interest at the rate of 3 % per annum , with interest payable annually within 30 days after each anniversary of issuance of the debentures . 2 % of the interest is to be paid through exercise of the interest warrant providing for the purchase of up to an aggregate of up to 7,142,857 interest warrant shares at an exercise price of us $ 0.70 per interest warrant share for a period coterminous with the debentures and the residual of 1 % is to be paid in cash . the right to purchase interest warrant shares will vest only as and when interest becomes payable under the debentures and the number of such vested interest warrant shares will be determined by dividing the amount of interest accrued and unpaid on each anniversary of issuance of the debentures by an exercise price of us $ 0.70 per interest warrant share . if we are not able to raise the required funds , we would consider farming-out projects in order to reduce our financial commitments . if the company is unable to obtain such funding , or complete farming-out projects , the company will not be able to continue its business . any additional equity financing may be dilutive to shareholders , and debt financing , if available , will increase expenses and may involve restrictive covenants . the company will be required to raise additional capital on terms which are uncertain , especially under the current capital market conditions . under these circumstances , if the company is unable to obtain capital or is required to raise it on undesirable terms , it may have a material adverse effect on the company 's financial condition . application of critical accounting policies our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the united states of america . preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses . these estimates and assumptions are affected by management 's application of accounting policies . we believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements . we base our assumptions and estimates on historical experience and other sources that we believe to be reasonable at the time . actual results may vary from our estimates due to changes in circumstances , weather , politics , global economics , mechanical problems , general business conditions and other factors . our significant estimates are related to the going concern , the valuation of options and oil and gas properties . there are accounting policies that we believe are significant to the presentation of our financial statements . the most significant of these are described below . exploration and evaluation costs the company uses the successful efforts method of accounting for oil and natural gas producing activities . under this method , acquisition costs for proved and unproved properties are capitalized when incurred . exploration costs , including geological and geophysical costs , the costs of carrying and retaining unproved properties and exploratory dry hole drilling costs , are expensed . exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves . if a well is determined to be successful , the capitalized drilling costs will be reclassified as part of the cost of the well . if a well is determined to be unsuccessful , the capitalized drilling costs will be charged to expense in the period the determination is made . - 32 - stock-based compensation we account for all of our stock-based payments and awards applying the fair value method . stock-based payments to non-employees are measured at the fair value of the consideration received , or the fair value of the equity instruments issued , or liabilities incurred , whichever is more reliably measurable . the fair value of stock-based payments to non-employees is periodically re-measured until the counterparty performance is complete , and any change therein is recognized over the vesting period of the award and in the same manner as if we had paid cash instead of paying with or using equity based instruments . the costs of the stock-based payments to non-employees that are fully vested and non-forfeitable as at the grant date is measured and recognized at
| results of operations net income/net loss net loss for the year ended december 31 , 2014 , was usd 6,562,089 compared to a net loss of usd 10,961,113 for the same period in 2013. this decrease of usd 4,399,024 was mainly due to a change in fair value in investment in associate . operating expenses operating expenses for the year ended december 31 , 2014 , increased to usd 6,898,661 from usd 6,542,669 reported for the same period in 2013. this increase of 5 % in our total operating expenses is mainly due to an increase in exploration activities . personnel costs for the year ended december 31 , 2014 , personnel costs decreased to usd 2,075,805 from usd 2,301,938 for the same period in 2013. this decrease of 10 % is mainly attributable to lower expenses related to equity awards under the stock compensation and stock option plans as well as a continued wind down of activity in mongolia . exploration costs for the year ended december 31 , 2014 , we incurred exploration costs of usd 1,813,475 as compared to usd 1,146,948 for the same period in 2013. this is an increase of 58 % and is primarily related to increased exploration activity at our project in tajikistan . consulting fees for the year ended december 31 , 2014 , we incurred consulting fees of usd 1,516,416 as compared to consulting fees of usd 1,838,909 for the same period in 2013. this is a decrease of 18 % and is due to lower expenses related to investor relation activities .
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item 14. principal accounting fees and services the information required by this item will be set forth in the proxy statement of the company relating to the 2012 annual meeting of stockholders to be held on may 22 , 2012 and is incorporated herein by reference . part iv item 15. exhibits , financial statement schedules ( a ) ( 1 ) financial statements required by item 15 are included and indexed in part ii , item 8 ( a ) ( 2 ) financial statement schedules included in part iv of this report . schedule ii is omitted because information is included in notes to financial statements . all other schedules under the accounting regulations of the sec are not required under the related instructions and are inapplicable and , thus have been omitted . ( a ) ( 3 ) see “ exhibit index ” included elsewhere in this report . 31 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . psychemedics corporation date : march 9 , 2012 by : raymond c. kubacki raymond c. kubacki chairman , president and chief executive officer pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . power of attorney know all persons by these presents , that each person whose signature appears below appoints jointly and severally , raymond c. kubacki and neil lerner and each one of them , his attorneys-in-fact , each with the power of substitution for him in any and all capacities , to sign any and all amendments to this annual report on form 10-k and to file the same , with exhibits thereto and other documents in connection therewith , with the sec , hereby ratifying and confirming all that each attorneys-in-fact , or his substitute or substitutes , may do or cause to be done by virtue hereof . raymond c. kubacki raymond c. kubacki chairman , president and chief executive officer , director ( principal executive officer ) march 9 , 2012 neil lerner neil lerner vice president- finance ( principal financial and accounting officer ) march 9 , 2012 harry connick harry connick director march 9 , 2012 walter s. tomenson , jr. walter s. tomenson , jr. director march 9 , 2012 fred j. weinert fred j. weinert director march 9 , 2012 32 exhibit index exhibit number description 3.1 amended and restated certificate of incorporation filed on august 1 , 2002 — ( incorporated by reference from the registrant 's quarterly report on form 10-q for the quarter ended september 30 , 2002 ) . 3.2 by-laws of the company — ( incorporated by reference from the registrant 's annual report on form 10-k for the fiscal year ended december 31 , 2001 ) . 4.1 specimen stock certificate — ( incorporated by reference from the registrant 's registration statement on form 8-a filed on july 31 , 2002 ) . 10.1 license agreement with werner baumgartner , ph.d. and annette baumgartner dated january 17 , 1987 — ( incorporated by reference from the registrant 's registration statement on form s-18 , file no . 33-10186 la ) . 10.2.1 lease dated october 6 , 1992 with mitchell h. hersch , et . al with respect to premises in culver city , california — ( incorporated by reference from the registrant 's annual report on form 10-ksb for the fiscal year ended december 31 , 1992 ) . 10.2.2 security agreement dated october 6 , 1992 with mitchell h. hersch et . al — ( incorporated by reference from the registrant 's annual report on form 10-ksb for the fiscal year ended december 31 , 1992 ) . 10.2.3 first amendment to lease dated with mitchell h. hersch , et.al california — ( incorporated by reference from the registrant 's annual report on form 10-k for the fiscal year ended december 31 , 1997 ) . 10.2.4 second amendment to lease dated with mitchell h. hersch , et.al . california — ( incorporated by reference from the registrant 's annual report on form 10-k for the fiscal year ended december 31 , 1997 ) . 10.2.5 third amendment to lease dated december 31 , 1997 with mitchell h. hersch , et.al . california — ( incorporated by reference from the registrant 's annual report on form 10-k for the fiscal year ended december 31 , 1997 ) . 10.2.6 fourth amendment to lease dated may 24 , 2005 with mitchell h. hersch , et.al . california — ( incorporated by reference from the registrant 's annual report on form 10-k for the fiscal year ended december 31 , 2005 ) . 10.2.7 fifth amendment to lease dated november 22 , 2011 with mitchell h. hersch , et.al . california 10.3 * 2000 stock option plan , — ( incorporated by reference from the registrant 's quarterly report on form 10-q for the quarter ended september 30 , 2002 ) . 10.4 * amended and restated change in control severance agreement with raymond c. kubacki story_separator_special_tag the management 's discussion and analysis of financial condition and results of operations should be read together with the more detailed business information and financial statements and related notes that appear elsewhere in this annual report on form 10-k. this annual report may contain certain “ forward-looking ” information within the meaning of the private securities litigation reform act of 1995. this information involvesrisks and uncertainties . story_separator_special_tag contractual obligations as of december 31 , 2011 were as follows : replace_table_token_4_th purchase commitment the company has a supply agreement with a vendor which requires the company to purchase isotopes used in its drug testing procedures from this sole supplier at prices based upon prior year purchase levels . purchases amounted to $ 527,000 , $ 432,000 , and $ 584,000 in 2011 , 2010 and 2009 respectively . the company expects to purchase $ 610,000 in 2012. in exchange for exclusivity , the supplier has provided the company with the right to purchase the isotope technology at fair market value under certain conditions , including the failure to meet the company 's purchase commitments . this agreement does not include a fixed termination date ; however , it is cancelable upon mutual agreement by both parties or after six months termination notice by the company of its intent to use a different technology in connection with its drug testing procedures . critical accounting policies the company 's significant accounting policies are described in note 2 to the financial statements included in item 8 of this form 10-k. management believes the most critical accounting policies are as follows : revenue recognition the company is in the business of performing drug testing and reporting the results thereof . the company 's drug testing services include training for collection of samples and storage of positive samples for its customers for an agreed-upon fee per unit tested of samples . the revenues are recognized when the predominant deliverable , drug testing , is provided and reported to the customer . the company recognizes revenue in accordance with accounting standards codification “ asc ” 605 , “ revenue recognition . ” in accordance with asc 605 , the company considers testing , training and storage elements as one unit of accounting for revenue recognition purposes , as the training and storage costs are de minimis and do not have stand-alone value to the customer . the company recognizes revenue as the service is performed and reported to the customer , since the predominant deliverable in each arrangement is the testing of the units . the company also provides expert testimony , when and if necessary , to support the results of the tests , which is generally billed separately and recognized as the services are provided . estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates , including bad debts and income tax valuation , and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . actual results could differ from those estimates . 13 capitalized software development costs we capitalize costs related to significant software projects developed or obtained for internal use in accordance with u.s. generally accepted accounting standards . costs incurred during the preliminary project work stage or conceptual stage , such as determining the performance requirements , system requirements and data conversion , are expensed as incurred . costs incurred in the application development phase , such as coding , testing for new software and upgrades that result in additional functionality , are capitalized and are amortized using the straight-line method over the useful life of the software for 5 years . costs incurred during the post-implementation/operation stage , including training costs and maintenance costs , are expensed as incurred . we capitalized internally developed software costs of $ 387,000 and $ 85,000 during the years ended december 31 , 2011 and 2010 , respectively . determining whether particular costs incurred are more properly attributable to the preliminary or conceptual stage , and thus expensed , or to the application development phase , and thus capitalized and amortized , depends on subjective judgments about the nature of the development work , and our judgments in this regard may differ from those made by other companies . general and administrative costs related to developing or obtaining such software are expensed as incurred . allowance for doubtful accounts the allowance for doubtful accounts is based on management 's assessment of the ability to collect amounts owed to it by its customers . management reviews its accounts receivable aging for doubtful accounts and uses a methodology based on calculating the allowance using a combination of factors including the age of the receivable along with management 's judgment to identify accounts that may not be collectible . the company routinely assesses the financial strength of its customers and , as a consequence , believes that its accounts receivable credit risk exposure is limited . the company maintains an allowance for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area . bad debt expense has been within management 's expectations . income taxes the company accounts for income taxes using the liability method , which requires the company to recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences between the financial statement and tax reporting bases of assets and liabilities to the extent that they are realizable . deferred tax expense ( benefit ) results from the net change in deferred tax assets and liabilities during the year . a deferred tax valuation allowance is required if it is more likely than not that all or a portion of the recorded deferred tax assets will not be realized . the company had net deferred tax liabilities in the amount of $ 167,000 at december 31 , 2011 , which primarily relate to timing differences . the company operates within multiple taxing jurisdictions and could be subject to audit in these jurisdictions . these audits may involve complex
| overview psychemedics corporation is the world 's largest provider of hair testing for drugs of abuse , utilizing a proprietary hair analysis method involving radioimmunoassay technology and confirmation by mass spectrometry to analyze human hair to detect abused substances . the company 's customers include fortune 500 companies , as well as small to mid-size corporations , schools and governmental entities located primarily in the united states . during the year ended december 31 , 2011 , the company generated $ 24.1 million in revenue , while maintaining a gross margin of 60 % and pre-tax margins of 24 % . at december 31 , 2011 , the company had $ 5.6 million of cash , and cash equivalents . during 2011 , the company had operating cash flow of $ 3.9 million and it distributed approximately $ 2.5 million or $ 0.48 per share of cash dividends to its shareholders . to date , the company has paid sixty-one consecutive quarterly cash dividends . the following table sets forth , for the periods indicated , the selected statements of operations data as a percentage of total revenue : replace_table_token_3_th results for the year ended december 31 , 2011 compared to results for the year ended december 31 , 2010 revenue increased $ 4.0 million or 20 % to $ 24.1 million in 2011 compared to $ 20.1 million in 2010. this increase was due to an increase in volume from new and existing clients . average revenue per sample decreased 1 % between 2011 and 2010. gross profit increased $ 2.5 million to $ 14.5 million in 2011 compared to $ 12.0 million in 2010. direct costs increased by 19 % from 2010 to 2011 , mainly associated with the direct cost of materials resulting from higher volumes .
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f- 10 note 2 – going concern the accompanying consolidated financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the company sustained a net loss and used cash in operating activities for the years ended december 31 , 2019 and december 31 , 2018. the company also has a working capital deficit and an accumulated deficit at december 31 , 2019. these factors raise substantial doubt about the ability of the company to continue as a going concern for a reasonable period of time . the company 's continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital to sustain its current level of operations . management plans to continue raising additional capital through private placements and is exploring additional avenues for future fund-raising through both public and private sources . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern . note 3 – promissory notes and factor advance the $ 700,000 fms note to a related party has an interest rate of ten percent ( 10 % ) per annum for a period of two ( 2 ) years and fully amortizes during the third ( 3rd ) year . the related party is the company 's chief technology officer . the note can be converted at any time , at the option of the holder , into shares of the company 's stock at a conversion price of $ 1.00 per share . on october 31 , 2016 , the holder of the fms note converted $ 200,000 of the note for 200,000 shares of common stock . the company has recorded loss on conversion of debt of $ 72,000 . on november 15 , 2017 , the board of directors approved an amendment to the fms note changing the conversion provision from $ 3.00 per share to $ 1.00 per share . on december 31 , 2017 , the holder of the fms note converted $ 25,000 of interest due for 25,000 shares of common stock . on june 30 , 2018 , september 30 , 2018 , and december 31 , 2018 , the holder of the fms note converted $ 33,038 of interest due for each period to additional principal on the fms note accruing at six percent ( 6.0 % ) annual interest . on june 30 , 2019 , the fms note was amended to change the beginning repayment period from june 30 , 2019 to september 30 , 2019 for 3 quarterly installments thereafter . the payments due on september 30 , 2019 and december 31 , 2019 were not paid and the noteholder has not notified the company of any event of default . the company issued a three ( 3 ) year convertible promissory note ( the “ emrg note ” ) for two hundred thousand dollars ( $ 200,000 ) . the emrg note has an interest rate of eight percent ( 8 % ) per annum for a period of one ( 1 ) years and fully amortizes during the next two ( 2 ) years . the note is secured with a pledge of forty percent ( 40 % ) of the membership interests acquired . the note can be converted at any time , at the option of the holder , into shares of the company 's stock at a conversion price of $ 3 per share . on december 29 , 2017 , the emrg note was amended to change the beginning repayment period from december 31 , 2017 to march 31 , 2018 for $ 50,000 and 7 equal quarterly installments of $ 25,000 each thereafter and the interest rate was increased from 6 % to 8 % annually . on march 31 , 2018 , the emrg note was amended to change the beginning repayment period from march 31 , 2018 to october 1 , 2018 for $ 100,000 and 4 equal quarterly installments of $ 25,000 each thereafter . on september 30 , 2018 , the emrg note was amended to change the beginning repayment period from march 31 , 2018 to january 1 , 2019 for $ 125,000 and 3 equal quarterly installments of $ 25,000 each thereafter . effective january 1 , 2019 , the emrg note was amended to change the beginning repayment period from january 1 , 2019 to june 30 , 2019 for $ 125,000 and 2 equal quarterly installments of $ 37,500 each thereafter . on june 30 , 2019 , the emrg note was amended to change the principal payment of $ 200,000 and accrued interest to october 31 , 2019. the payments due on october 31 , 2019 were not paid and the noteholder has not notified the company of any event of default . the company issued a three ( 3 ) year unsecured convertible promissory note ( the “ eti note story_separator_special_tag this form 10-k and other reports filed by the company from time to time with the sec ( collectively , the “ filings ” ) contain or may contain forward-looking statements and information that are based upon beliefs of , and information currently available to , the company 's management as well as estimates and assumptions made by company 's management . story_separator_special_tag the company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future . there can be no assurance that financing will be available in amounts or terms acceptable to the company , if at all . the accompanying financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . these financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the company be unable to continue as a going concern . off-balance sheet arrangements as of december 31 , 2019 , the company had no off-balance sheet arrangements . critical accounting policies we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “ management 's discussion and analysis of financial condition and results of operation. ” 14 revenue recognition the company accounts for revenue in accordance with topic 606 , which the company adopted on january 1 , 2018 , using the modified retrospective method . the adoption of topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position , results of operations , equity or cash flows as of the adoption date or for the year ended december 31 , 2019. the company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial . also , the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods . revenues are recognized when the company satisfies a performance obligation by transferring control of the promised goods or services to our customers at a point in time , in an amount specified in the contract with our customer and that reflects the consideration the company expect to be entitled to in exchange for those goods or services . the company also assesses our customer 's ability and intention to pay , which is based on a variety of factors including our customer 's historical payment experience and financial condition . the company derives revenue from the sale of software licenses when the products are installed and all required post implementation services are completed . the company recognizes revenue from consulting services as the services are performed . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer under topic 606. a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . the majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services . for contracts with multiple performance obligations , we allocate revenue to each performance obligation based on its relative standalone selling price . in accordance with topic 606 , we do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer . the timing of our performance often differs from the timing of invoicing , which results in the recording of deferred revenue . deferred revenue will be recognized when performance obligation is satisfied . use of estimates in preparing financial statements in conformity with generally accepted accounting principles , management is required 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 revenues and expenses during the reported period . actual results could differ from those estimates . significant estimates include the allocation of purchase price to fair value of assets acquired , allowance for bad debt , determination of useful lives , impairment of intangible assets , valuation of deferred taxes , and stock-based compensation . recent accounting pronouncements we have implemented all new accounting standards that are in effect and may impact our audited condensed consolidated financial statements and do not believe that there are any other new accounting standards that have been issued that might have a material impact on our financial position or results of operations . in february 2016 , the fasb issued asu 2016-02 “ leases , ” which will amend current lease accounting to require lessees to recognize ( i ) a lease liability , which is a lessee 's obligation to make lease payments arising from a lease , measured on a discounted basis , and ( ii ) a right-of-use asset , which is an asset that represents the lessee 's right to use , or control the use of , a specified asset for the lease term . asu 2016-02 does not significantly change lease accounting requirements applicable to lessors ; however , certain changes were made to align , where necessary , lessor accounting with the lessee accounting model . this standard was effective for fiscal years beginning after december 15 , 2018 , including interim periods within those fiscal years . the adoption of this asu has no material impact on our results of operations , cash flows , or financial condition because the company 's leases are less than 12 months . in september 2018 , the fasb issued asu 2018-07 “ compensation – stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting. ” this asu relates to the accounting for non-employee share-based payments . the amendment in this update expands the scope of topic 718 to include all share-based payment transactions in which a grantor acquired goods or services to be used or consumed in a grantor 's own operations by issuing share-based payment awards . the asu excludes
| results of operations summary of statements of operations for the years ended december 31 , 2019 and december 31 , 2018. replace_table_token_0_th revenues revenues of $ 566,877 for the year ended december 31 , 2019 , decreased by $ 167,674 over revenues of $ 734,551 for the year ended december 31 , 2018. the decrease in revenues was primarily attributable to a $ 86,087 decrease in one-time revenues due to fewer physician clients required to report certain patient care results to the centers for medicare & medicaid services , and a decrease of $ 81,587 in recurring revenues . 12 cost of revenues cost of revenues of $ 76,322 for the year ended december 31 , 2019 , decreased by $ 94,958 over cost of revenues of $ 171,280 for the year ended december 31 , 2018. this was primarily attributable to the reduced revenues described above and reduced co-location facilities expense . selling , general and administrative expenses selling , general and administrative expenses of $ 824,177 for the year ended december 31 , 2018 , decreased by $ 20,994 over selling , general and administrative expenses of $ 845,171 for the year ended december 31 , 2018. the decrease in selling , general and administrative expenses was primarily attributable to a decrease in accounting fees of $ 24,900 , cost of financing of $ 18,200 , legal fees of $ 33,000 , stock option expense of $ 48,500 , and offset by increases in director fees of $ 27,000 , employee bonuses of $ 16,200 , and payroll tax penalties of $ 34,500. amortization and impairment expense amortization and impairment expense of $ 542,881 for the for the year ended december 31 , 2019 , decreased by $ 701,678 over amortization and impairment expense of $ 1,244,649 for the year ended december 31 , 2018. these decreases were primarily attributable to a reduced basis for amortization due to an impairment charge of $ 345,000
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you should read the information in this section in conjunction with our consolidated financial statements and accompanying notes to the consolidated financial statements beginning on page f-1 of this form 10-k , and the other statistical data provided in this form 10-k. important note regarding forward-looking statements certain statements in this annual report are “ forward-looking ” within the meaning of the private securities litigation reform act of 1995 , which statements generally can be identified by the use of forward-looking terminology , such as “ may , ” “ will , ” “ expect , ” “ estimate , ” “ anticipate , ” “ believe , ” “ target , ” “ plan , ” “ project ” or “ continue ” or the negatives thereof or other variations thereon or similar terminology , and are made on the basis of management 's current plans and analyses of our business and the industry in which we operate as a whole . these forward-looking statements are subject to risks and uncertainties , including , but not limited to , economic conditions , competition , interest rate sensitivity and exposure to regulatory and legislative changes , and the other risks and uncertainties identified in part i , item 1a “ risk factors. ” these factors in some cases have affected , and in the future could affect , our financial performance and could cause actual results to differ materially from those expressed in or implied by such forward-looking statements . we do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized . general our results of operations depend primarily on our net interest income , which is the difference between the interest income we earn on loans and investments and the interest expense we pay on deposits and other interest-bearing liabilities . net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on these balances . our operations are also affected by non-interest income , such as service fees and gains and losses on the sales of securities and loans , our provision for loan losses and non-interest expenses which include salaries and employee benefits , occupancy and equipment costs , professional fees and other general and administrative expenses . financial institutions like us , in general , are significantly affected by economic conditions , competition , and the monetary and fiscal policies of the federal government . lending activities are influenced by the demand for and supply of housing , competition among lenders , interest rate conditions , and funds availability . our operations and lending are principally concentrated in the western new york area , and our operations and earnings are influenced by local economic conditions . deposit balances and cost of funds are influenced by prevailing market rates on competing investments , customer preferences , and levels of personal income and savings in our primary market area . despite the fact that the western new york market area has been economically stagnant , we have more than doubled our asset size since december 31 , 2000. beginning in the latter half of 2007 and to a certain extent continuing into 2011 , there were a number of unprecedented developments in the capital and credit markets . while the recession is officially over , continued weakness in the housing markets and high unemployment remain . these weaknesses can have a negative effect on a bank 's earnings and liquidity . the federal reserve is still actively working on keeping interest rates at very low levels . the fed funds rate has remained at 0.00 % -0.25 % for the last three years . the federal reserve recently started to become more open and transparent in regards to the discussions held in their meetings , resulting in recent indications that the fed funds rate will remain low and will not increase until 2014 , a year longer than previously anticipated . 50 as discussed further above in part i , item 1 “ business - supervision and regulation ” , since october 2008 , numerous legislative actions , including the recently passed dodd-frank act , have been taken in response to the financial crisis affecting the banking system and financial markets . while we do not know all the possible outcomes from these initiatives , we can anticipate that the company will need to dedicate more resources to ensure compliance with the new legislation , which may impact profitability . there can be no assurance as to the actual impact any governmental program will have on the financial markets or our financial condition and results of operations . we remain active in monitoring these developments and supporting the interests of our shareholders . management strategy our reputation . our primary management strategy has been to retain our perceived image as one of the most respected and recognized community banks in western new york with over 120 years of service to our community . our management strives to accomplish this goal by continuing to emphasize our high quality customer service and financial strength . branching . in april 2010 , we opened our newest branch office in depew , new york . this is our fifth branch in erie county , new york and our tenth overall . this office had generated deposits of $ 23.6 million as of december 31 , 2011. our offices are located in dunkirk , fredonia , jamestown , lakewood and westfield in chautauqua county , new york and in depew , east amherst , hamburg , kenmore and orchard park in erie county , new york . saturation of the market in chautauqua county led to our expansion plan in erie county which is a critical component of our future profitability and growth . an important strategic objective is to continue to evaluate the technology supporting our customer service . story_separator_special_tag critical accounting policies it is management 's opinion that accounting estimates covering certain aspects of our business have more significance than others due to the relative importance of those areas to overall performance , or the level of subjectivity required in making such estimates . management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance for loan losses required for probable credit losses and the material effect that such judgments can have on the results of operations . management 's quarterly evaluation of the adequacy of the allowance considers our historical loan loss experience , review of specific loans , current economic conditions , and such other factors considered appropriate to estimate loan losses . management uses presently available information to estimate probable losses on loans ; however , future additions to the allowance may be necessary based on changes in estimates , assumptions , or economic conditions . significant factors that could give rise to changes in these estimates include , but are not limited to , changes in economic conditions in our local area , concentrations of risk and decline in local property values . refer to note 5 of the notes to consolidated financial statements for more information on the allowance for loan losses . 52 in management 's opinion , the accounting policy relating to the valuation of investments is a critical accounting policy . the fair values of our investments are determined using public quotations , third party dealer quotes , pricing models , or discounted cash flows . thus , the determination may require significant judgment or estimation , particularly when liquid markets do not exist for the item being valued . the use of different assumptions for these valuations could produce significantly different results which may have material positive or negative effects on the results of our operations . refer to note 14 of the notes to consolidated financial statements for more information on fair value . management also considers the accounting policy relating to the impairment of investments to be a critical accounting policy due to the subjectivity and judgment involved and the material effect an impairment loss could have on the consolidated results of income . the credit portion of a decline in the fair market value of investments below cost deemed to be an other-than-temporary impairment ( “ otti ” ) may be charged to earnings resulting in the establishment of a new cost basis for an asset . management continually reviews the current value of its investments for evidence of otti . refer to notes 3 and 7 of the notes to consolidated financial statements for more information on otti . these critical policies and their application are reviewed periodically by our audit committee and our board of directors . all accounting policies are important , and as such , we encourage the reader to review each of the policies included in the notes to the consolidated financial statements to better understand how our financial performance is reported . other than temporary impairment on investment during the fourth quarter of 2011 , a $ 500,000 otti write-down was recorded by the company on an investment made in the common stock of a small , local payment processing company during 2007 and 2008. during the fourth quarter of 2011 , management concluded that there was substantial doubt about the ability of this entity to perform as expected in accordance with its original business plan by which the decision was made to invest in the company . this conclusion was reached through discussion with the entity 's owners and review of the entity 's operations and financial statements . management determined that the entity 's cash flows and equity position was significantly limited by lack of capital or revenue , making it difficult to generate and solicit new business opportunities . furthermore , management noted a significant deterioration in the business prospects of the entity as certain deals , capital infusions , loans , grants or partnerships were not materializing as expected . refer to note 7 of the notes to consolidated financial statements for more information on otti . analysis of net interest income net interest income represents the difference between the interest we earn on our interest-earning assets , such as mortgage loans and investment securities , and the expense we pay on interest-bearing liabilities , such as time deposits and borrowings . net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on them . 53 average balances , interest and average yields . the following table sets forth certain information relating to our average balance sheets and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities , interest earned and interest paid for the years indicated . such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities , respectively , for the years presented . average balances are derived from daily balances over the years indicated . the average balances for loans are net of allowance for loan losses , but include non-accrual loans . interest income on securities does not include a tax equivalent adjustment for bank qualified municipals .
| general . net income was $ 3.0 million for the year ended december 31 , 2010 , or $ 0.53 per diluted share , an increase of 40.8 % , compared to net income of $ 2.2 million , or $ 0.37 per diluted share , for the year ended december 31 , 2009. the increase in net income was primarily due to a $ 1.6 million decrease in interest expenses and a $ 1.2 million gain on the sale of investments , offset by a $ 1.9 million increase in the provision for loan losses . net interest income . net interest income increased by $ 1.8 million , or 15.7 % , to $ 13.6 million for the year ended december 31 , 2010 compared to the year ended december 31 , 2009. interest income increased by $ 233,000 and interest expense decreased by $ 1.6 million for the year ended december 31 , 2010 when compared to the year ended december 31 , 2009. net interest spread and net interest margin were 2.98 % and 3.21 % , respectively , for the year ended december 31 , 2010 compared to 2.70 % and 3.03 % , respectively , for the year ended december 31 , 2009. interest income . interest income increased by $ 233,000 , or 1.2 % , from $ 19.7 million for the year ended december 31 , 2009 to $ 19.9 million for the year ended december 31 , 2010. loan interest income remained static during the year ended december 31 , 2010 compared to the year ended december 31 , 2009. loan interest income was positively impacted by a $ 7.3 million increase in average loans receivable in 2010 which was offset by a 20 basis point decline in the average yield earned on our average loan portfolio .
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goodwill is the only intangible asset with an indefinite life on story_separator_special_tag the following discussion and analysis provides information about the major components of the results of operations and financial condition , liquidity , and capital resources of the company and its subsidiaries . this discussion and analysis should be read in conjunction with the “ consolidated financial statements ” and the “ notes to the consolidated financial statements ” presented in item 8 “ financial statements and supplementary data ” contained in this form 10-k. critical accounting policies general the accounting and reporting policies of the company and its subsidiaries are in accordance with gaap and conform to general practices within the banking industry . the company 's financial position and results of operations are affected by management 's application of accounting policies , including estimates , assumptions , and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues , expenses , and related disclosures . different assumptions in the application of these policies could result in material changes in the company 's consolidated financial position and or results of operations . the more critical accounting and reporting policies include the company 's accounting for the allowance for loan losses , acquired loans , and goodwill and intangible assets . the company 's accounting policies are fundamental to understanding the company 's consolidated financial position and consolidated results of operations . accordingly , the company 's significant accounting policies are discussed in detail in note 1 “ summary of significant accounting policies ” in the “ notes to the consolidated financial statements ” contained in item 8 of this form 10-k. the following is a summary of the company 's critical accounting policies that are highly dependent on estimates , assumptions , and judgments . allowance for loan losses the provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance that management considers adequate to absorb probable losses in the portfolio . loans are charged against the allowance when management believes the collectability of the principal is unlikely . recoveries of amounts previously charged-off are credited to the allowance . management 's determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio , the value and adequacy of collateral , current economic conditions , historical loan loss experience , and other risk factors . management believes that the allowance for loan losses is adequate . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in economic conditions , particularly those affecting real estate values . in addition , regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses . such agencies may require the company to make adjustments to the allowance based on their judgments about information available to them at the time of their examination . the company performs regular credit reviews of the loan portfolio to review the credit quality and adherence to its underwriting standards . the credit reviews consist of reviews by its loan review group and reviews performed by an independent third party . upon origination , each commercial loan is assigned a risk rating ranging from one to nine , with loans closer to one having less risk . this risk rating scale is the company 's primary credit quality indicator . consumer loans are generally not risk rated ; the primary credit quality indicator for this portfolio segment is delinquency status . the company has various committees that review and ensure that the allowance for loan losses methodology is in accordance with gaap and loss factors used appropriately reflect the risk characteristics of the loan portfolio . the company 's all consists of specific , general , and qualitative components . specific reserve component - the specific reserve component relates to impaired loans . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . upon being identified as impaired , for loans not considered to be collateral dependent , an allowance is established when the discounted cash flows of the impaired loan are lower than the carrying value of that loan . the impairment of collateral dependent loans is measured based on the fair value of the underlying collateral ( based on independent appraisals ) , less selling costs , compared to the carrying value of the loan . if the company determines that the value of an impaired collateral dependent loan is less than the recorded investment in the loan , it either recognizes an impairment reserve as a specific component to be provided for in the allowance for loan losses or charges off the deficiency if it is determined that such amount represents a confirmed loss . typically , a loss is confirmed when the company is moving towards foreclosure ( or final disposition ) of the underlying collateral , the collateral deficiency has not improved for two consecutive quarters , or when there is a payment default of 180 days , whichever occurs first . - 26 - the company obtains independent appraisals from a pre-approved list of independent , third party appraisal firms located in the market in which the collateral is located . the company 's approved appraiser list is continuously maintained to ensure the list only includes such appraisers that have the experience , reputation , character , and knowledge of the respective real estate market . at a minimum , it is ascertained that the appraiser is currently licensed in the state in which the property is located , experienced in the appraisal of properties similar to the property being appraised , has knowledge of current real estate market conditions and financing trends , and is reputable . story_separator_special_tag goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed . the company has selected april 30 th as the date to perform the annual impairment test . intangible assets with definite useful lives are amortized over their estimated useful lives , which range from 4 to 14 years , to their estimated residual values . goodwill is the only intangible asset with an indefinite life on the company 's consolidated balance sheets . long-lived assets , including purchased intangible assets subject to amortization , such as the core deposit intangible asset , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell , and are no longer depreciated . management concluded that no circumstances indicating an impairment of these assets existed as of the balance sheet date . the company performed its annual impairment testing on april 30 , 2015 and determined that there was no impairment to its goodwill or intangible assets . - 28 - story_separator_special_tag 0.5 % . this decrease is primarily driven by a decrease in salaries and benefits expenses , oreo and credit-related expenses , and amortization of core deposit intangibles , which were partially offset by increases in technology expenses , marketing costs , professional fees , and fraud-related expenses . 2014 compared to 2013 net income for the year ended december 31 , 2014 increased $ 17.8 million , or 51.8 % , from $ 34.4 million to $ 52.2 million and represented earnings per share of $ 1.13 compared to $ 1.37 for 2013. the $ 17.8 million increase in net income included the full-year impact of the stellarone acquisition . excluding after-tax acquisition-related expenses of $ 13.7 million and $ 2.0 million for the years ended december 31 , 2014 and 2013 , respectively , operating earnings were $ 65.9 million and $ 36.4 million . operating earnings per share were $ 1.43 for the year ended december 31 , 2014 compared to $ 1.45 for the year ended december 31 , 2013. operating return on average tangible common equity ( which excludes after-tax acquisition-related expenses ) for the year ended december 31 , 2014 was 10.13 % compared to 10.05 % for the prior year , while operating return on average assets was 0.91 % compared to 0.90 % for 2013. net interest income increased $ 103.4 million from 2013 , largely a result of an increase of $ 2.7 billion in average interest-earning assets and $ 2.1 billion in average interest-bearing liabilities resulting from the stellarone acquisition . the provision for loan losses increased $ 1.7 million from $ 6.1 million in 2013 to $ 7.8 million in 2014 due to increases in specific reserves on impaired loans and loan growth in the fourth quarter of 2014. noninterest income increased $ 22.6 million from $ 38.7 million in 2013 to $ 61.3 million in 2014. the majority of the increase was driven by customer-related noninterest income ( services charges on deposit accounts , debit card and atm interchange income , and income from fiduciary and asset management services ) and is primarily due to the acquisition of stellarone . additionally , income related to bank owned life insurance policies and gains on sale of securities increased from 2013. offsetting these increases , mortgage banking income declined as a result of a reduction in origination volume . the significant decline in origination volume was primarily driven by lower refinance volume as well as lower purchased volume . noninterest expense increased $ 101.2 million , or 73.8 % , from $ 137.0 million in 2013 to $ 238.2 million in 2014 , and included the full-year impact of the stellarone acquisition . excluding acquisition-related costs of $ 2.1 million and $ 20.3 million incurred in 2013 and 2014 , respectively , noninterest expense increased $ 83.0 million , or 61.5 % , compared to 2013. the increase was primarily driven by the addition of stellarone . net interest income net interest income , which represents the principal source of revenue for the company , is the amount by which interest income exceeds interest expense . the net interest margin is net interest income expressed as a percentage of average earning assets . changes in the volume and mix of interest-earning assets and interest-bearing liabilities , as well as their respective yields and rates , have a significant impact on the level of net interest income , the net interest margin , and net income . the decline in the general level of interest rates over the last several years has placed downward pressure on the company 's earning asset yields and related interest income . the decline in earning asset yields , however , has been partially offset by the re-pricing of money market deposit accounts and certificates of deposits and lower borrowing costs . the company believes that its net interest margin will continue to decline modestly as decreases in earning asset yields are projected to outpace declines in rates paid on interest-bearing liabilities .
| results of operations executive overview · the company reported net income of $ 67.1 million and earnings per share of $ 1.49 for the year ended december 31 , 2015. these results represent an increase of $ 14.9 million , or 28.6 % , from $ 52.2 million and earnings per share of $ 1.13 for the year ended december 31 , 2014 . · the company 's community banking segment reported net income of $ 67.3 million for the year ended december 31 , 2015 , an increase of $ 11.6 million from the prior year , and earnings per share of $ 1.49 , an increase of $ 0.28 per share from the prior year . · the company 's mortgage segment reported a net loss of $ 202,000 , an improvement of $ 3.3 million , from a net loss of $ 3.5 million , or $ 0.08 per share , in the prior year . · the company experienced continued improvement in asset quality . nonaccrual loans , past due loans , and oreo balances declined from december 31 , 2014 . · on october 16 , 2015 , the company entered into an agreement to sell its credit card portfolio , approximating $ 26.4 million in outstanding balances , and entered into an outsourcing partnership with elan financial services . the company sold these loans at a premium . the sale of the credit card portfolio resulted in an after-tax benefit of $ 805,000 on the company 's consolidated statement of income in 2015. as part of the agreement , the company will continue to share in interchange fee income and finance charges . · loans held for investment , net of deferred fees and costs , were $ 5.7 billion at december 31 , 2015 , an increase of $ 325.5 million , or 6.1 % , from december 31 , 2014. the increase was primarily driven by an 8.5 % growth in the commercial loan portfolio .
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pricewaterhousecoopers llp philadelphia , pennsylvania february 25 , 2015 f-2 report of independent registered public accounting firm to the board of directors and stockholder of select medical corporation : in our opinion , the consolidated financial statements listed in the accompanying index present fairly , in all material respects , the financial position of select medical corporation and its subsidiaries at december 31 , 2014 and december 31 , 2013 , and the results of their operations and story_separator_special_tag you should read this discussion together with the `` selected financial data '' and consolidated financial statements and accompanying notes included elsewhere herein . overview we began operations in 1997 , and we are now one of the largest operators of both specialty hospitals and outpatient rehabilitation clinics in the united states based on number of facilities . as of december 31 , 2014 , we operated 129 specialty hospitals in 28 states , and 1,023 outpatient rehabilitation clinics in 31 states and the district of columbia . we also provide medical rehabilitation services on a contracted basis to nursing homes , hospitals , assisted living and senior care centers , schools and work sites . as of december 31 , 2014 , we had operations in 41 states and the district of columbia . we manage our company through two business segments , our specialty hospital segment and our outpatient rehabilitation segment . we had net operating revenues of $ 3,065.0 million for the year ended december 31 , 2014. of this total , we earned approximately 73 % of our net operating revenues from our specialty hospitals and approximately 27 % from our outpatient rehabilitation business . our specialty hospital segment consists of hospitals designed to serve the needs of long term stay acute patients and hospitals designed to serve patients that require intensive medical rehabilitation care . patients are typically admitted to our specialty hospitals from general acute care hospitals . these patients have specialized needs , and serious and often complex medical conditions such as respiratory failure , neuromuscular disorders , traumatic brain and spinal cord injuries , strokes , non-healing wounds , cardiac disorders , renal disorders and cancer . our outpatient rehabilitation segment consists of clinics and contract services that provide physical , occupational and speech rehabilitation services . our outpatient rehabilitation patients are typically diagnosed with musculoskeletal impairments that restrict their ability to perform normal activities of daily living . significant 2014 events dividend payments holdings paid four cash dividends of $ 0.10 per common share totaling $ 53.4 million to our common stockholders during the year ended december 31 , 2014. stock repurchase program the company 's board of directors has authorized a common stock repurchase program to repurchase up to $ 500.0 million worth of shares of its common stock . the program will remain in effect until december 31 , 2016 , unless extended or earlier terminated by the board of directors . during the year ended december 31 , 2014 , the company repurchased a total of 11,285,714 shares of common stock at a total cost of $ 127.5 million , or an average price $ 11.30 per share . the shares were repurchased from welsh , carson , anderson & stowe ix , l.p. and wcas capital partners iv , l.p. two of our directors , russell l. carson and thomas a. scully , are affiliated with these entities . see the section titled `` capital resources '' for additional discussion related to our stock repurchase program . 49 financing transactions senior secured credit facilities on march 4 , 2014 , select amended its senior secured credit facilities in order to , among other things : convert the remaining series b term loan to a new series d term loan , and lower the interest rate payable on the series d term loan from adjusted libo plus 3.25 % , or alternate base rate plus 2.25 % , to adjusted libo plus 2.75 % , or alternate base rate plus 1.75 % ; set the maturity date of the series d term loan at december 20 , 2016 ; convert the remaining series c term loan to a new series e term loan , and lower the interest rate payable on the series e term loan from adjusted libo plus 3.00 % ( subject to an adjusted libo rate floor of 1.00 % ) , or alternate base rate plus 2.00 % , to adjusted libo plus 2.75 % ( subject to an adjusted libo rate floor of 1.00 % ) , or alternate base rate plus 1.75 % ; set the maturity date of the series e term loan at june 1 , 2018 ; beginning with the quarter ending march 31 , 2014 , increase the quarterly compliance threshold set forth in the leverage ratio financial maintenance covenant to a level of 5.00 to 1.00 from 4.50 to 1.00 ; provide for a prepayment premium of 1.00 % if the senior secured credit facilities are amended at any time prior to march 4 , 2015 in the case of the series e term loans and such amendment reduces the yield applicable to such loans ; and amend the definition of `` available amount '' in a manner the effect of which was to increase the amount available for investments , restricted payments and the payment of specified indebtedness . on october 23 , 2014 , select entered into two additional credit extension amendments , one of which extended the maturity date on $ 6.75 million in aggregate principal of revolving commitments from june 1 , 2016 to march 1 , 2018 , the second of which added $ 50.0 million in incremental revolving commitments that mature on march 1 , 2018. senior notes on march 11 , 2014 select issued $ 110.0 million of 6.375 % senior notes due june 1 , 2021 , at 101.50 % of the aggregate principal amount resulting in the receipt of gross proceeds of $ 111.7 million . see the section titled `` capital resources '' for additional discussion related to our financing activities . story_separator_special_tag two different standard federal rates applied during fiscal year 2013. the standard federal rate for discharges on or after october 1 , 2012 and before december 29 , 2012 was set at $ 40,916 and the standard federal rate for discharges on or after december 29 , 2012 for the remainder of fiscal year 2013 was $ 40,398 , both of which were an increase from the fiscal year 2012 standard federal rate of $ 40,222. the update to the standard federal rate for fiscal year 2013 through december 28 , 2012 included a market basket increase of 2.6 % , less a productivity adjustment of 0.7 % , and less an additional reduction of 0.1 % mandated by the aca . the standard federal rate for the period of december 29 , 2012 through the remainder of fiscal 2013 was further reduced by a portion of the one-time budget neutrality adjustment of 1.266 % , as discussed below . the final rule established a fixed-loss amount for high cost outlier cases for fiscal year 2013 of $ 15,408 , which was a decrease from the fixed-loss amount in the 2012 fiscal year of $ 17,931. fiscal year 2014. on august 19 , 2013 , cms published the final rule updating the policies and payment rates for ltch-pps for fiscal year 2014 ( affecting discharges and cost reporting periods beginning on or after october 1 , 2013 through september 30 , 2014 ) . the standard federal rate was set at $ 40,607 , an increase from the standard federal rate applicable during the period from december 29 , 2012 through september 30 , 2013 of $ 40,398. the update to the standard federal rate for fiscal year 2014 included a market basket increase of 2.5 % , less a productivity adjustment of 0.5 % , less a reduction of 0.3 % mandated by the aca , and less a budget neutrality adjustment of 1.266 % , as discussed below . the fixed-loss amount for high cost outlier cases was set at $ 13,314 , which was a decrease from the fixed-loss amount in the 2013 fiscal year of $ 15,408. fiscal year 2015. on august 22 , 2014 , cms published the final rule updating policies and payment rates for ltch-pps for fiscal year 2015 ( affecting discharges and cost reporting periods beginning on or after october 1 , 2014 through september 30 , 2015 ) . the standard federal rate was set at $ 41,044 , an increase from the standard federal rate applicable during fiscal year 2014 of $ 40,607. the update to the standard federal rate for fiscal year 2015 includes a market basket increase of 2.9 % , less a productivity adjustment of 0.5 % , less an additional reduction of 0.2 % mandated by the aca , and less a budget neutrality adjustment of 1.266 % , as discussed below . the fixed-loss amount for high cost outlier cases is set at $ 14,972 , which was an increase from the fixed-loss amount in the 2014 fiscal year of $ 13,314. patient criteria the bba of 2013 , enacted december 26 , 2013 , establishes new payment limits for medicare patients who do not meet specified criteria . specifically , for medicare patients discharged in cost reporting periods beginning on or after october 1 , 2015 , ltchs will be reimbursed under ltch-pps only if , immediately preceding the patient 's ltch admission , the patient was discharged from a general acute care hospital paid under ipps and the patient 's stay included at least three days in an intensive care unit ( icu ) or coronary care unit ( ccu ) or the patient is assigned to an ms-ltc-drg for cases receiving at least 96 hours of ventilator services in the ltch . in addition , to be paid under ltch-pps the patient 's discharge from the ltch may not include a principal diagnosis relating to psychiatric or rehabilitation services . for any medicare patient who does not meet the new criteria , the ltch will be paid a lower `` site-neutral '' payment rate , which will be the lower of ( 1 ) the ipps comparable per-diem payment rate capped at the ms-drg including any outlier payments , or ( 2 ) 100 percent of the estimated costs for services . the bba of 2013 provides for a transition to the site-neutral payment rate for those patients not paid under ltch-pps . during the transition period ( cost reporting periods beginning on or after october 1 , 2015 through september 30 , 2017 ) , a blended rate will be paid for medicare patients not meeting the new 52 criteria . the blended rate will comprise half the site-neutral payment rate and half the ltch-pps payment rate . for discharges in cost reporting periods beginning on or after october 1 , 2017 , only the site-neutral payment rate will apply for medicare patients not meeting the new criteria . in addition , for cost reporting periods beginning on or after october 1 , 2019 , qualifying discharges from an ltch will continue to be paid at the ltch-pps payment rate , unless the number of discharges for which payment is made under the site-neutral payment rate is greater than 50 % of the total number of discharges from the ltch . if the number of discharges for which payment is made under the site-neutral payment rate is greater than 50 % , then beginning in the next cost reporting period all discharges from the ltch will be reimbursed at the site-neutral payment rate . the bba of 2013 requires cms to establish a process for an ltch subject to the site-neutral payment rate to re-qualify for payment under ltch-pps . medicare market basket adjustments the aca instituted a market basket payment adjustment to ltchs . in fiscal years 2015 and 2016 the market basket update will be reduced by 0.2 % . in fiscal years 2017 through 2019 , the market basket update will be reduced by 0.75 % .
| results of operations the following table outlines , for the periods indicated , selected operating data as a percentage of net operating revenues : replace_table_token_12_th replace_table_token_13_th 64 the following tables summarize selected financial data by business segment , for the periods indicated : replace_table_token_14_th 65 replace_table_token_15_th n/m not meaningful . ( 1 ) cost of services includes salaries , wages and benefits , operating supplies , lease and rent expense and other operating costs . 66 ( 2 ) other includes our corporate services and certain other non-consolidating joint ventures and minority investments in other healthcare related businesses . ( 3 ) we define adjusted ebitda as net income before interest , income taxes , depreciation and amortization , gain ( loss ) on early retirement of debt , stock compensation expense , equity in earnings ( losses ) of unconsolidated subsidiaries , and other income ( expense ) . we believe that the presentation of adjusted ebitda is important to investors because adjusted ebitda is commonly used as an analytical indicator of performance by investors within the healthcare industry . adjusted ebitda is used by management to evaluate financial performance and determine resource allocation for each of our operating units . adjusted ebitda is not a measure of financial performance under u.s. generally accepted accounting principles . items excluded from adjusted ebitda are significant components in understanding and assessing financial performance . adjusted ebitda should not be considered in isolation or as an alternative to , or substitute for , net income , cash flows generated by operations , investing or financing activities , or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity . because adjusted ebitda is not a measurement determined in accordance with u.s. generally accepted accounting principles and is thus susceptible to varying calculations , adjusted ebitda as presented may not be comparable to other similarly titled measures of other companies .
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the partnership agreement requires the next cash distribution to be paid by may 15 , 2013. f - 11 dorchester minerals , l.p. ( a delaware limited partnership ) supplemental oil and natural gas data ( unaudited ) december 31 , 2012 , 2011 , and 2010 unaudited oil and natural gas reserve and standardized measure information the npis represent net profits overriding royalty interests in various properties owned by the operating partnership . the royalty properties consist of producing and nonproducing mineral , royalty , overriding royalty , net profits , and leasehold interests located in 574 counties and parishes in 25 states . amounts set forth herein attributable to the npis reflect our 96.97 % net share . the estimated quantities at the end of 2011 included for the first time 5,888 mmcf of natural gas and 223 mbbls of oil which is 96.97 % of the minerals npi reserves . at the end of 2012 , 96.97 % of the minerals npi reserves were 5,579 mmcf of natural gas and 244 mbbls of oil . although new activity has occurred on certain of the royalty properties , based on engineering studies available to date , no events have occurred since december 31 , 2012 that would have a material effect on our estimated proved developed reserves . in accordance with fasb asc 932 and securities and exchange commission rules and regulations , the following information is presented with regard to the royalty properties and npis oil and natural gas reserves , all of which are proved , developed and located in the united states . these rules require inclusion as a supplement to the basic financial statements a standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves . the standardized measure , in management 's opinion , should be examined with caution . the basis for these disclosures are petroleum engineers ' reserve studies which contain imprecise estimates of quantities and rates of production of reserves . revision of prior year estimates can have a significant impact on the results . also , exploration and production improvement costs in one year may significantly change previous estimates of proved reserves and their valuation . values of unproved properties and anticipated future price and cost increases or decreases are not considered . therefore , the standardized measure is not necessarily a best estimate of the fair value of oil and natural gas properties or of future net cash flows . the following summaries of changes in reserves and standardized measure of discounted future net cash flows were prepared from estimates of proved reserves . the production volumes and reserve volumes included for properties formerly owned by dorchester hugoton are wellhead volumes , which differ from sales volumes shown in “ item 7 . — management 's discussion and analysis of financial condition and results of operations ” because of fuel , shrinkage and pipeline loss . the standardized measure of discounted future net cash flows reflects adjustments for such fuel , shrinkage and pipeline loss . replace_table_token_24_th ( 1 ) changes in oil reserves for the year ended december 31 , 2010 include an upward revision of 230 mbbls predominately due to ongoing development on our royalty properties and well performance exceeding previous projections in various areas . changes in oil reserves for the year ended december 31 , 2011 include an upward revision of 600 mbbls predominately due to the inclusion of the minerals npi reserves , ongoing development on our royalty properties and well performance exceeding previous projections in various areas . changes in oil reserves for the year ended december 31 , 2012 include an upward revision of 520 mbbls predominantly due to increased activity on our bakken shale properties , ongoing development on our royalty properties and well performance exceeding previous projections in various areas . changes in natural gas reserves for the year ended december 31 , 2010 include an upward revision of 8,993 mmcf predominately due to ongoing development on our royalty properties and well performance exceeding previous projections in various areas . changes in natural gas reserves for story_separator_special_tag 2012 overview our results during 2012 were strong despite continued low natural gas prices and reduced drilling activity in many of our producing areas . significant results include the following : · net income of $ 38.0 million ; · distributions of $ 54.9 million to our limited partners ; · identification of 404 new wells completed on our royalty properties in eight states , and 86 new wells completed on our npi properties in six states . included in these totals are wells in which we own both a royalty interest and a net profits interest . wells with such overlapping interests are counted in both categories . · consummation of 66 leases , pooling elections or lease amendments of our mineral interest in undeveloped properties located in 24 counties and parishes in seven states , and · lease bonus income of $ 4.5 million dollars . critical accounting policies we utilize the full cost method of accounting for costs related to our oil and natural gas properties . under this method , all such costs are capitalized and amortized on an aggregate basis over the estimated lives of the properties using the units-of-production method . these capitalized costs are subject to a ceiling test that limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 % plus the lower of cost or market value of unproved properties . our partnership did not assign any book or market value to unproved properties , including nonproducing royalty , mineral and leasehold interests . story_separator_special_tag in addition to the measuring and reporting requirements , the epa issued an `` endangerment finding '' under section 202 ( a ) of the clean air act , concluding greenhouse gas pollution threatens the public health and welfare of future generations and has indicated that it will use data collected through the reporting rules to decide whether to promulgate future greenhouse gas emission limits . the current state of development of many state and federal climate change regulatory initiatives makes it difficult to predict with certainty the future impact on us , including accurately estimating the related compliance costs that the operating partnership and oil and natural gas operators that develop our properties may incur . see item 1a . risk factors – “ environmental costs and liabilities and changing environmental regulation could affect our cash flow ” and “ the adoption of climate change legislation by congress could result in increased operating costs and reduced demand for the oil and natural gas production from our properties. ” texas margin tax texas imposes a franchise tax ( commonly referred to as the texas margin tax ) at a rate of 1 % on gross revenues less certain deductions , as specifically set forth in the texas margin tax statute . the texas margin tax applies to corporations and limited liability companies , general and limited partnerships ( unless otherwise exempt ) , limited liability partnerships , trusts ( unless otherwise exempt ) , business trusts , business associations , professional associations , joint stock companies , holding companies , joint ventures and certain other business entities having limited liability protection . limited partnerships that receive at least 90 % of their gross income from designated passive sources , including royalties from mineral properties and other non-operated mineral interest income , and do not receive more than 10 % of their income from operating an active trade or business , are generally exempt from the texas margin tax as “ passive entities. ” we believe our partnership meets the requirements for being considered a “ passive entity ” for texas margin tax purposes and , therefore , it is exempt from the texas margin tax . if the partnership is exempt from texas margin tax as a passive entity , each unitholder that is considered a taxable entity under the texas margin tax would generally be required to include its portion of partnership revenues in its own texas margin tax computation . the texas administrative code provides such income is sourced according to the principal place of business of the partnership , which would be the state of texas . each unitholder is urged to consult an independent tax advisor regarding the requirements for filing state income , franchise and texas margin tax returns . 25 liquidity and capital resources capital resources our primary sources of capital are our cash flow from the royalty properties and the npis . we are not directly liable for the payment of any exploration , development or production costs . we do not have any transactions , arrangements or other relationships that could materially affect our liquidity or the sustainability of capital resources . pursuant to the terms of our partnership agreement , we can not incur indebtedness , other than trade payables , ( i ) in excess of $ 50,000 in the aggregate at any given time or ( ii ) which would constitute `` acquisition indebtedness '' ( as defined in section 514 of the internal revenue code of 1986 , as amended ) . our only cash requirements are the distributions of all our net cash flow to our unitholders , the payment of oil and natural gas production and property taxes not otherwise deducted from gross production revenues and general and administrative expenses incurred on our behalf and allocated in accordance with our partnership agreement . since the distributions to our unitholders are , by definition , determined after the payment of all expenses actually paid by us , the only cash requirements that may create liquidity concerns for us are the payments of expenses . since many of these expenses vary directly with oil and natural gas prices and sales volumes , such as production taxes , we anticipate that sufficient funds will be available at all times for payment of these expenses . of the expenses that do not vary with oil and natural gas prices and sales volumes , most are reimbursements to our general partner for allocable general and administrative costs including home office rent , salaries , and employee benefit plans . such reimbursements are generally limited to 5 % of an amount primarily based on annual distributions to our limited partners . historically , all such reimbursements have been substantially below the 5 % limit established by the partnership agreement . consequently , even during the 2008 economic downturn , our business risks were essentially limited to distribution amount decreases . see “ item 1. business – credit facilities and financing plans. ” see “ item 1a . risk factors – risks related to our business – cash distributions are affected by production and other costs , some of which are outside of our control. ” see “ item 1a . risk factors – risks inherent in an investment in our common units – cost reimbursement due our general partner may be substantial and reduce our cash available to distribute to our unitholders . '' see `` notes to consolidated financial statements – note 3 – related party transactions . ''
| results of operations normally , our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices , and to a lesser extent , by capital expenditures deducted under the npi calculation . our portion of oil and natural gas sales volumes and weighted average sales prices are shown in the following table . replace_table_token_13_th ( 1 ) provided to assist in determination of revenues ; applies only to net profits interests sales volumes prices . comparison of the twelve-month periods ended december 31 , 2012 , 2011 and 2010 royalty properties ' oil sales volumes increased 1.6 % from 322 mbbls during 2010 to 327 mbbls during 2011 , and then increased 10.7 % to 362 mbbls during 2012. the increases are primarily due to activity in the bakken and rockies region . royalty properties ' gas sales volumes increased 24.6 % from 4,987 mmcf during 2010 to 6,212 mmcf during 2011 , and then decreased 3.3 % to 6,007 mmcf during 2012. the increases in natural gas volumes between 2010 and 2011 were primarily due to increased activity in the fayetteville shale and barnett shale , while the decreases in natural gas volumes between 2011 and 2012 were primarily due to reduced activity in those same areas . beginning in the third quarter of 2011 oil and gas sales volumes attributable to our npis included volumes attributable to the minerals npi . the minerals npi had cumulative revenues in excess of cumulative operating and development costs during the period ending september 30 , 2011. sales volumes and prices attributable to the minerals npi during periods prior to the third quarter of 2011 are excluded from the above table because the partnership did not receive any payments from such npi sales volumes during those prior periods .
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” actual results could differ materially from those discussed below . overview we are one of the largest providers of highly engineered thermal solutions for process industries . for more than 60 years , we have served a diverse base of thousands of customers around the world in attractive and growing markets , including energy , chemical processing and power generation . we are a global leader and one of the few thermal solutions providers with a global footprint and a full suite of products and services required to deliver comprehensive solutions to complex projects . we serve our customers locally through a global network of sales and service professionals and distributors in more than 30 countries and through our four manufacturing facilities on three continents . these global capabilities and longstanding relationships with some of the largest multinational energy , chemical processing , power and epc companies in the world have enabled us to diversify our revenue streams and opportunistically access high growth markets worldwide . for fiscal 2015 , approximately 63 % of our revenues were generated outside of the united states . revenue . our revenues are derived from providing customers with a full suite of innovative and reliable heat tracing solutions , including electric and steam heat tracing , tubing bundles , control systems , design optimization , engineering services and installation services . our sales are primarily to industrial customers for petroleum and chemical plants , oil and gas production facilities and power generation facilities . our petroleum customers represent a significant portion of our business . we serve all three major categories of customers in the petroleum industry - upstream exploration/production , midstream transportation and downstream refining . overall , demand for industrial heat tracing solutions falls into two categories : ( i ) new facility construction , which we refer to as greenfield projects , and ( ii ) recurring maintenance , repair and operations and facility upgrades or expansions , which we refer to as mro/ue . greenfield construction projects often require comprehensive heat tracing solutions . we believe that greenfield revenue consists of sales revenues by customer in excess of $ 1 million annually ( excluding sales to resellers ) , and typically includes most orders for projects related to facilities that are new or that are built independent of existing facilities . we refer to sales revenues by customer of less than $ 1 million annually , which we believe are typically derived from mro/ue , as mro/ue revenue . based on our experience , we believe that $ 1 million in annual sales is an appropriate threshold for distinguishing between greenfield revenue and mro/ue revenue . however , we often sell our products to intermediaries or subcontract our services ; accordingly , we have limited visibility into how our products or services may ultimately be used and can provide no assurance that our categorization may accurately reflect the sources of such revenue . furthermore , our customers do not typically enter into long-term forward maintenance contracts with us . in any given year , certain of our smaller greenfield projects may generate less than $ 1 million in annual sales , and certain of our larger plant expansions or upgrades may generate in excess of $ 1 million in annual sales , though we believe that such exceptions are few in number and insignificant to our overall results of operations . we believe that our pipeline of planned projects , in addition to our backlog of signed purchase orders , provides us with strong visibility into our future revenue , as historically we have experienced few order cancellations , and the cancellations that have occurred in the past have not been material compared to our total contract volume or total backlog . the small number of order cancellations is attributable in part to the fact that a large portion of our solutions are ordered and installed toward the end of greenfield project construction . our backlog at march 31 , 2015 was $ 75.7 million , as compared to $ 84.8 million at march 31 , 2014 . the year-over-year decline in backlog of $ 9.1 million is mostly attributable to the depreciation of most foreign currencies against the u.s. dollar , which negatively impacted backlog by $ 7.0 million . our backlog was also adversely 27 impacted by several large greenfield projects that were nearing their completion as of the end of fiscal 2015 which have not been replaced . the timing of recognition of revenue out of backlog is not always certain , as it is subject to a variety of factors that may cause delays , many of which are beyond our control ( such as customers ' delivery schedules and levels of capital and maintenance expenditures ) . when delays occur , the recognition of revenue associated with the delayed project is likewise deferred . cost of sales . our cost of revenues includes primarily the cost of raw material items used in the manufacture of our products , cost of ancillary products that are sourced from external suppliers and construction labor cost . additional costs of revenue include contract engineering cost directly associated to projects , direct labor cost , shipping and handling costs , and other costs associated with our manufacturing/fabrication shops . the other costs associated with our manufacturing/fabrication shops are mainly indirect production costs , including depreciation , indirect labor costs , and the costs of manufacturing support functions such as logistics and quality assurance . key raw material costs include polymers , copper , stainless steel , insulating material , and other miscellaneous parts related to products manufactured or assembled as part of our heat tracing solutions . historically , the costs of our primary raw materials have been stable and readily available from multiple suppliers , and we have been generally successful with passing along raw material cost increases to our customers . therefore , increases in the cost of key raw materials of our products have not generally affected our gross margins . story_separator_special_tag greenfield revenue is an indicator of both our ability to successfully compete for new contracts as well as the economic health of the industries we serve . furthermore , greenfield revenue is an indicator of potential mro/ue revenue in future years . for mro/ue orders , the sale of our manufactured products typically represents a higher proportion of the overall revenues associated with such order than the provision of our services . greenfield projects , on the other hand , require a higher level of our services than mro/ue orders , and often require us to purchase materials from third party vendors . therefore , we typically realize higher margins from mro/ue revenues than greenfield revenues . large and growing installed base . customers typically use the incumbent heat tracing provider for mro/ue projects to avoid complications and compatibility problems associated with switching providers . therefore , with the significant greenfield activity we have experienced in recent years , our installed base has continued to grow , and we expect that such installed base will continue to generate ongoing high margin mro/ue revenues . for fiscal 2015 , mro/ue sales comprised approximately 59 % of our consolidated revenues . seasonality of mro/ue revenues . revenues realized from mro/ue orders tend to be less cyclical than greenfield projects and more consistent quarter over quarter , although mro/ue revenues are impacted by seasonal factors . mro/ue revenues are typically highest during the second and third fiscal quarters , as most of our customers perform preventative maintenance prior to the winter season . 29 story_separator_special_tag to $ 135.2 million in fiscal 2014 , an increase of $ 19.5 million , or 14 % . as a percentage of revenues , gross profit increased to 50 % in fiscal 2015 from 49 % in fiscal 2014 . our gross margin improvement is largely due to favorable sales mix , especially related to sales of our manufactured products which typically contribute higher margins than products we outsource from third party manufacturers . furthermore , our gross margins were also favorably impacted from operating efficiencies realized at our new and expanded manufacturing facilities in san marcos , texas . marketing , general and administrative and engineering . marketing , general and administrative and engineering costs were $ 76.9 million in fiscal 2015 , compared to $ 65.5 million in fiscal 2014 , an increase of $ 11.4 million , or 17 % . as a percentage of total revenues , marketing , general and administrative and engineering costs were 24.9 % and 23.6 % in fiscal 2015 and 2014 , respectively . the primary driver of the increase is due to an increase in our annual incentive bonus expense which increased $ 9.5 million as we exceeded our internal targets established by our board of directors in fiscal 2015 , whereas in fiscal 2014 we did not meet our established targets . our base personnel wages and benefits increased $ 4.0 million due to additional hires of sales and engineering personnel . stock compensation expense increased $ 1.0 million in fiscal 2015 as compared to fiscal 2014 due to the issuance of additional equity awards in fiscal 2015 , which generated incremental stock compensation expense . amortization of intangible assets . amortization of intangible assets was $ 10.8 million in fiscal 2015 , compared to $ 11.1 million in fiscal 2014 . the decrease is attributed to foreign currency translation adjustments . interest expense , net . interest income , interest expense and loss on redemptions of debt totaled $ 4.1 million in fiscal 2015 , compared to $ 25.3 million in fiscal 2014 , a decrease of $ 21.2 million . in fiscal 2014 , we redeemed all $ 118.1 million of the outstanding aggregate principal amount of our 9.5 % senior secured notes . in connection with the redemption , we incurred accelerated amortization of deferred debt issuance costs of $ 4.0 million and a loss on retirement of debt of $ 15.5 million . interest expense on outstanding principal was $ 4.1 million and $ 5.5 million in fiscal 2015 and 2014 respectively . the decrease of interest expense on outstanding principal is due both to a $ 13.5 million reduction of principal on the outstanding balance of our senior secured debt in addition to a reduction of our interest rate . during fiscal 2015 , our interest rate on our secured term loan facility ranged from 3.12 % to 3.62 % , whereas in fiscal 2014 the interest rate was 3.62 % . excluding the impact of the accelerated amortization of deferred debt issuance costs , we recognized interest expense of $ 0.5 million and $ 0.6 million associated with deferred debt issuance costs amortization . other expense . other expense was $ 0.4 million in fiscal 2015 , compared to $ 0.6 million in fiscal 2014 , a decrease of $ 0.2 million . we experienced foreign currency exchange transaction losses of $ 1.3 million and $ 0.6 million in fiscal 2015 and fiscal 2014 , respectively . see note 2 , `` fair value measurements '' to our consolidated financial statements included elsewhere in this annual report for further discussion of our foreign currency exchange transactions . in fiscal 2015 , our foreign currency losses were partially offset by a $ 0.9 million gain as a result of the settlement of monies that were held in escrow in connection with the chs transactions . the non-recurring gain was recognized as the consideration received was in excess of our estimated outstanding liabilities . income taxes . we reported an income tax expense of $ 13.2 million in fiscal 2015 , compared to $ 7.0 million in fiscal 2014 , an increase of $ 6.2 million or 89 % . our effective tax rates were 21.1 % in fiscal 2015 and 21.3 % in fiscal 2014 , respectively .
| results of operations the following table sets forth data from our statements of operations as a percentage of sales for the periods indicated . replace_table_token_6_th ( 1 ) interest expense for fiscal 2014 included a $ 4.0 million acceleration of the amortization of our deferred debt issuance costs as we redeemed all $ 118.1 million of aggregate outstanding principal on our 9.5 % senior secured notes . during the period we incurred an additional $ 0.6 million of amortized deferred debt issuance costs . interest expense for fiscal 2013 included a $ 2.3 million acceleration of the amortization of our deferred debt issuance costs due to partial redemptions of our senior secured notes and a refinancing of our prior revolving credit facility . $ 1.0 million of additional amortized deferred debt issuance costs were recorded in fiscal 2013. further reductions in our fiscal 2015 interest expense were due to the difference in interest rates on our 9.5 % senior secured notes and our term loan whose interest rate was fixed at 3.12 % after giving effect to our interest rate swap . year ended march 31 , 2015 compared to the year ended march 31 , 2014 revenues . revenues for fiscal 2015 were $ 308.6 million , compared to $ 277.3 million for fiscal 2014 , an increase of $ 31.3 million , or 11 % . the increase in revenue during fiscal 2015 was mainly attributable to increased greenfield revenues which increased $ 34.3 million or 37 % , whereas mro/ue revenues declined $ 3.0 million or 2 % as compared to fiscal 2014 . greenfield revenue grew in all geographic regions with the majority of the growth concentrated in north america where we saw increased activity in the united states and strong demand in the canadian oil sands region as described further below .
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net interest margin is dependent primarily on the difference or spread between the average yield earned on interest-earning assets ( including loans , mortgage-related securities , and investments ) and the average rate paid on interest-bearing liabilities ( including deposits , securities sold under agreements to repurchase , and borrowings ) , as well as the relative amounts of these assets and liabilities . southern bank is subject to interest rate risk to the degree that its interest-earning assets mature or reprice at different times , or on a varying basis , from its interest-bearing liabilities . southern bank 's noninterest income consists primarily of fees charged on transaction and loan accounts , interchange income from customer debit and atm card use , gains on sales of loans to the secondary market , and increased cash surrender value of bank owned life insurance ( “ boli ” ) . southern bank 's operating expenses include : employee compensation and benefits , occupancy expenses , legal and professional fees , federal deposit insurance premiums , amortization of intangible assets , and other general and administrative expenses . southern bank 's operations are significantly influenced by general economic conditions including monetary and fiscal policies of the u.s. government and the federal reserve board . additionally , southern bank is subject to policies and regulations issued by financial institution regulatory agencies including the federal reserve , the missouri division of finance , and the federal deposit insurance corporation . each of these factors may influence interest rates , loan demand , prepayment rates and deposit flows . interest rates available on competing investments as well as general market interest rates influence the bank 's cost of funds . lending activities are affected by the demand for real estate and other types of loans , which in turn is affected by the interest rates at which such financing may be offered . lending activities are funded through the attraction of deposit accounts consisting of checking accounts , passbook and statement savings accounts , money market deposit accounts , certificate of deposit accounts with terms of 60 months or less , securities sold under agreements to repurchase , advances from the federal home loan bank of des moines , and , to a lesser extent , brokered deposits . the bank intends to continue to focus on its lending programs for one- to four-family residential real estate , commercial real estate , commercial business and consumer financing on loans secured by properties or collateral located primarily in southeast missouri and northeast and north central arkansas . non-gaap financial information this annual report on form 10-k contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( gaap ) . these measures include : · fiscal year 2011 net income available to common stockholders per diluted common share excluding bargain purchase gain , net of transaction expenses related to the december 2010 fdic-assisted acquisition involving the former first southern bank ( the “ acquisition ” ) , net of tax ; · fiscal year 2011 noninterest income excluding bargain purchase gain related to the acquisition ; · fiscal year 2012 and 2011 net income available to common stockholders excluding accretion of fair value discount on acquired loans , amortization of fair value premium on assumed time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax ; · fiscal year 2012 and 2011 return on average assets excluding accretion of fair value discount on acquired loans , amortization of fair value premium on assumed time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax ; · fiscal year 2012 and 2011 return on average common equity excluding accretion of fair value discount on 55 acquired loans , amortization of fair value premium on assumed time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax ; · fiscal year 2012 and 2011 net interest margin excluding accretion of fair value discount on acquired loans and amortization of fair value premium on assumed time deposits related to the acquisition ; management believes that showing these amounts and measures excluding these items is useful for investors because it better reflects our core operating results and provides useful information by which to evaluate the company 's operating performance on an ongoing basis from period to period . the following table presents a reconciliation of the calculation of fiscal 2011 diluted earnings per share available to common shareholders excluding bargain purchase gain and transaction expenses related to the acquisition : for the twelve months ended june 30 , 2011 diluted earnings per share available to common stockholders $ 5.12 less : impact of excluding bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax 1.92 diluted earnings per share available to common stockholders - excluding bargain purchase gain , net of tax and transaction expenses , related to the acquisition $ 3.20 the following table presents a reconciliation of the calculation of fiscal 2011 noninterest income excluding bargain purchase gain related to the acquisition : for the twelve months ended ( dollars in thousands ) june 30 , 2011 noninterest income $ 10,502 less : impact of excluding bargain purchase gain related to the acquisition 6,997 noninterest income - excluding bargain purchase gain $ 3,505 the following table presents a reconciliation of the calculation of net income available to common stockholders , excluding accretion of fair value discount on acquired loans , amortization of premium on acquired time deposits , and bargain purchase gain , net of transaction expenses , related to the acquisition , net of tax : for the twelve months ended ( dollars in thousands ) june 30 , 2012 june 30 , 2011 net income available to common stockholders $ 9,580 $ 10,958 less : impact of excluding accretion of fair value discount on acquired loans , amortization of fair story_separator_special_tag a periodic review of selected credits ( based on loan size and type ) is conducted to identify loans with heightened risk or probable losses and to assign risk grades . the primary responsibility for this review rests with the loan administration personnel . this review is supplemented with periodic examinations of both selected credits and the credit review process by applicable regulatory agencies . the information from these reviews assists management in the timely identification of problems and potential problems and provides a basis for deciding whether the credit represents a probable loss or risk that should be recognized . loans are considered impaired if , based on current information and events , it is probable that southern bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . the measurement of impaired loans is generally based on the fair value of the collateral for collateral-dependent loans . if the loan is not collateral-dependent , the measurement of impairment is based on the present value of expected future cash flows discounted at the historical effective interest rate or the observable market price of the loan . in measuring the fair value of the collateral , management uses the assumptions ( i.e. , discount rates ) and methodologies ( i.e. , comparison to the recent selling price of similar assets ) consistent with those that would be utilized by unrelated third parties . impairment identified through this evaluation process is a component of the allowance for loan losses . if a loan that is individually evaluated for impairment is found to have none , it is grouped together with loans having similar characteristics ( i.e. , the same risk grade ) , and an allowance for loan losses is based upon a quantitative factor ( historical average charge-offs for similar loans over the past one to five years ) , and qualitative factors such as qualitative factors such as changes in lending policies ; national , regional , and local economic conditions ; changes in mix and volume of portfolio ; experience , ability , and depth of lending management and staff ; entry to new markets ; levels and trends of delinquent , nonaccrual , special mention , and classified loans ; concentrations of credit ; changes in collateral values ; agricultural economic conditions ; and regulatory risk . for portfolio loans that are evaluated for impairment as part of homogenous pools , an allowance is maintained based upon similar quantitative and qualitative factors . changes in the financial condition of individual borrowers , in economic conditions , in historical loss experience and in the conditions of the various markets in which collateral may 58 be sold may all affect the required level of the allowance for losses on loans and the associated provision for losses on loans . financial condition story_separator_special_tag straight-line method . deposits . deposits increased $ 24.7 million , or 4.4 % , to $ 584.8 million at june 30 , 2012 , as compared to $ 560.2 million at june 30 , 2011. deposit growth was comprised primarily of non-interest bearing accounts , which increased $ 22.0 million , and now accounts , which increased $ 41.4 million , and was partially offset by declines in certificates of deposit , which decreased $ 33.3 million , and savings accounts , which decreased $ 7.7 million . borrowings . fhlb advances decreased $ 9.0 million , or 26.9 % , to $ 24.5 million at june 30 , 2012 , as compared to $ 33.5 million at june 30 , 2011. at both june 30 , 2012 and 2011 , outstanding advances included no overnight borrowings . of the $ 24.5 million in advances outstanding at june 30 , 2012 , the full amount carried fixed rates , and was subject to early redemption by the issuer . subordinated debt . in march 2004 , $ 7.0 million of floating rate capital securities of southern missouri 60 statutory trust i , with a liquidation value of $ 1,000 per share were issued . the securities mature in march 2034 , were redeemable beginning in march 2009 , and bear interest at a floating rate of three-month libor plus 275 basis points . stockholders ' equity . the company 's stockholders ' equity increased $ 39.0 million , or 70.0 % , to $ 94.7 million at june 30 , 2012 , as compared to $ 55.7 million at june 30 , 2011. the increase was primarily due to the november 2011 common stock offering , additional capital invested in the company 's preferred stock under the sblf program ( net of the repurchase of preferred stock issued under the tarp program ) , and retention of net income , partially offset by cash dividends paid on common and preferred stock . comparison of operating results for the years ended june 30 , 2012 and 2011 net income . the company 's net income available to common stockholders for the fiscal year ended june 30 , 2012 , was $ 9.6 million , a decrease of $ 1.4 million , or 12.6 % , from the $ 11.0 million net income available to common stockholders for the prior fiscal year . before an effective dividend on preferred shares of $ 424,000 and a charge of $ 94,000 for the repurchase of preferred stock issued at a discount under the tarp program , net income was $ 10.1 million for the 2012 fiscal year , a decrease of $ 1.4 million , or 12.0 % , as compared to the $ 11.5 million in net income for the prior fiscal year . the decrease in net income was primarily due to a $ 6.4 million decrease in noninterest income and a $ 2.1 million increase in noninterest expense , partially offset by a $ 5.3 million increase in net interest income , a $ 1.4 million decrease in provision for income taxes , and a $ 600,000 decrease in provision for loan losses .
| general . the company 's total assets increased $ 51.0 million , or 7.4 % , to $ 739.2 million at june 30 , 2012 , as compared to $ 688.2 million at june 30 , 2011. the increase was due primarily to increases in the loan and available-for-sale investment portfolios of $ 26.9 million and $ 11.8 million , respectively , as well as a $ 7.8 million increase in bank-owned life insurance . asset growth was funded by a $ 24.7 million increase in deposits , and a $ 39.0 million increase in stockholders ' equity . fhlb advances declined by $ 9.0 million . cash and equivalents . cash and equivalents decreased $ 475,000 , or 1.4 % , to $ 33.4 million at june 30 , 2012 , from $ 33.9 million at june 30 , 2011 , as funds were used to meet loan demand . loans . loans increased $ 26.9 million , or 4.8 % , to $ 583.5 million at june 30 , 2012 , from $ 556.6 million at june 30 , 2011. loan growth was comprised primarily of commercial real estate loans , which increased $ 15.8 million , and commercial loans , which increased $ 10.7 million . allowance for loan losses .
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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 item 1a . risk factors . overview we are a microbiome therapeutics platform company developing a novel class of biological drugs , which are designed to treat disease by restoring the function of a dysbiotic microbiome . our lead product candidate , ser-109 , is designed to reduce recurrences of clostridium difficile , or c. difficile , infection , or cdi , a debilitating infection of the colon , in patients who have received antibiotic therapy for recurrent cdi by treating the dysbiosis of the colonic microbiome and , if approved by the u.s. food and drug administration , or fda , could be a first-in-field oral microbiome drug . our second product candidate , ser-287 , is being developed to treat inflammatory bowel disease , or ibd , including ulcerative colitis , or uc . in addition , using our microbiome therapeutics platform , we are developing product candidates to treat diseases where the microbiome is implicated , including ser-401 , a microbiome therapeutic candidate for use with checkpoint inhibitors in patients with solid tumors , ser-262 , a rationally designed product candidate , to reduce recurrence of cdi in patients who have received antibiotic therapy for an initial or primary cdi , ser-301 , a rationally designed ibd candidate , and ser-155 , a rationally designed product candidate to prevent infections and improve gastrointestinal barrier function ( including the consequences of graft versus host disease ) in patients following allogeneic hematopoietic stem cell transplants or solid organ transplants . we are also using our microbiome therapeutics platform to conduct research on various indications , including : infectious diseases , metabolic diseases , and inflammatory and immune diseases , including immuno-oncology . since our inception in october 2010 , we have devoted substantially all of our resources to developing ser-109 , ser-287 and ser-262 , researching our pre-clinical candidates ser-401 , ser-155 and ser-301 , building our intellectual property portfolio , developing our supply chain , business planning , raising capital and providing general and administrative support for these operations . all of our product candidates other than ser-109 , ser-262 and ser-287 are still in pre-clinical or research development . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . since our inception , we have incurred significant operating losses . our net loss was $ 89.4 million for the year ended december 31 , 2017. as of december 31 , 2017 , we had an accumulated deficit of $ 263.6 million . on july 29 , 2016 , we announced the interim eight-week results from our ser-109 phase 2 clinical study , a randomized , double-blind , placebo controlled phase 2 clinical study conducted in 89 subjects to evaluate the safety , tolerability and efficacy of ser-109 in adults with recurrent cdi . in that study , 44 % of subjects ( 26 of 59 ) who received ser-109 experienced a recurrence at the eight week endpoint compared to 53 % of subjects ( 16 of 30 ) who received placebo , a result that was not statically significant . in order to understand the difference in outcome between phase 1b/2 and phase 2 clinical studies of ser-109 , we conducted an analysis of the available clinical , microbiome and chemistry , manufacturing and control data . we identified specific factors that we believe contributed to the phase 2 clinical study results , including issues related to both the accurate diagnosis of c. difficile recurrent infection , and potential suboptimal dosing of certain subjects in the trial . in june 2017 we initiated a phase 3 clinical study of ser-109 in approximately 320 patients with multiply recurrent cdi . diagnosis of cdi infection for both study entry and for endpoint analysis will be confirmed by c. difficile cytotoxin assay , as compared to the phase 2 clinical study , where most patients were diagnosed by pcr . patients in the ser-109 arm will receive a total ser-109 dose , administered over three days , approximately 10-fold higher than the dose used in the phase 2 clinical study . the new study will evaluate patients for 24 weeks and the primary endpoint will compare the c. difficile recurrence rate in subjects who receive ser-109 verses placebo at up to eight weeks after dosing . on october 2 , 2017 , we announced positive topline results from our phase 1b clinical trial of ser-287 in patients with uc . the ser-287 phase 1b study , a randomized , double-blinded , placebo-controlled , multiple-dose , induction study enrolled patients with active mild-to-moderate uc , with total modified mayo scores of 4 to 10. the study enrolled 58 patients at 20 sites across the united states . study subjects exhibited pre-study disease activity despite use of current therapies in a majority of subjects , which included 5-amino-salacylic acid , low dose corticosteroids , or immunomodulatory therapy . an evaluation of ser-287 safety and tolerability was a primary study endpoint . study results demonstrated no imbalance in adverse events in ser-287-treated patients as compared to patients treated with placebo . there were no drug related serious adverse events . 70 analyses of study patients ' microbiome data , a co-primary study endpoint of the trial , demonstrated t hat ser-287 induced dose-dependent engraftment of ser-287-derived bacterial species into the colonic microbiome of the patients treated with ser-287 . patients administered vancomycin pre-treatment followed by daily administration of ser-287 had the highest level of ser-287 engraftment , which was statistically significant . this patient cohort corresponded with the study arm where the most significant clinical benefits were observed , including clinical remission and endoscopic improvement . differences in the composition of the microbiome post treatment were also associated with clinical remission . story_separator_special_tag obtain regulatory approvals for our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . furthermore , we expect to continue to incur additional costs associated with operating as a public company . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy . we will need to generate significant revenue to achieve profitability , and we may never do so . in january 2016 , we entered into a collaboration and license agreement , or the license agreement , with nestec ltd. , or nhs , for the development and commercialization of certain of our product candidates in development for the treatment and management of cdi and ibd , including uc and crohn 's disease . the license agreement supports the development of our portfolio of products for cdi and ibd in markets outside of the united states and canada , or the licensed territory , and is expected to provide financial support for our ongoing research and development . we have retained full commercial rights to our entire portfolio of product candidates with respect to the united states and canada , where we plan to build our own commercial organization . under the license agreement , we granted to nhs an exclusive , royalty-bearing license to develop and commercialize , in the licensed territory , certain products based on our microbiome technology that are being developed for the treatment of cdi and ibd , including ser-109 , ser-262 , ser-287 and ser-301 , or , collectively , the nhs collaboration products . we also granted to nhs a non-exclusive license to export , develop and make nhs collaboration products in the licensed fields worldwide solely for commercialization in the licensed fields and in the licensed territory . in exchange for the license , nhs made an upfront cash payment of $ 120 million to us in february 2016. nhs has also agreed to pay us tiered royalties , at percentages ranging from the high single digits to high teens , of net sales of nhs collaboration products in the licensed territory . additionally , nhs has agreed to pay us up to $ 660 million for the achievement of certain development and regulatory milestones and up to an aggregate of $ 1.125 billion for the achievement of certain commercial milestones related to the sales of nhs collaboration products . we received a $ 10.0 million milestone payment in 2016 associated with the planned initiation of a phase 1b study for ser-262 in cdi . in june 2017 , we initiated a phase 3 clinical study of ser-109 ( ecospor iii ) in patients with multiply recurrent cdi . in july 2017 , we recorded revenue of $ 20.0 million based on the achievement of this milestone under the license agreement . the full potential value of the upfront payment and milestone payments payable by nhs is over $ 1.9 billion , assuming all products receive regulatory approval and are successfully commercialized . nhs is also obligated to pay some of the costs related to our clinical trials . see “ —liquidity and capital resources. ” we expect that our existing cash , cash equivalents and investments , will enable us to fund our operating expenses and capital expenditure requirements through the first quarter of 2019. see “ —liquidity and capital resources. ” 72 financial operations overview revenue to date we have not generated any revenues from the sale of products . our revenues from collaborations have been derived from the license agreement . operating expenses our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , which include : expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct research , pre-clinical activities and clinical trials on our behalf as well as contract manufacturing organizations that manufacture drug products for use in our pre-clinical and clinical trials ; salaries , benefits and other related costs , including stock-based compensation expense , for personnel in our research and development functions ; costs of outside consultants , including their fees , stock-based compensation and related travel expenses ; the cost of laboratory supplies and acquiring , developing and manufacturing pre-clinical study and clinical trial materials ; costs related to compliance with regulatory requirements ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites . payments for these activities are based on the terms of the individual agreements , which may differ from the pattern of costs incurred , and are reflected in our financial statements as prepaid or accrued research and development expenses . all costs associated with the license agreement are recorded in research and development expense in the consolidated statements of operations and comprehensive loss .
| 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 : replace_table_token_7_th revenue total revenue was $ 32.1 million and $ 21.8 million for the years ended december 31 , 2017 and 2016 , respectively . of the $ 32.1 million of revenue recognized for the year ended december 31 , 2017 , $ 20.0 million was received from nhs associated with the initiation of the phase 3 study for ser-109 in patients with multiply recurrent cdi , which is a substantive milestone under the license agreement . of the $ 21.8 million of revenue recognized for the year ended december 31 , 2016 , $ 10.0 million was received from nhs associated with the initiation of the phase 1b study for ser-262 in cdi , which was a substantive development milestone under the license agreement . we recognize revenue associated with substantive milestones in accordance with fasb asc topic 605-28 , revenue recognition-milestone method , or asc 605-28. the $ 20.0 million and $ 10.0 million payments were recognized in full as related party collaboration revenue during the years ended december 31 , 2017 and 2016 , respectively . the remaining revenue for both 78 periods principally relates to the recognition of the $ 120.0 million upfront payment under the license agreement over the estim ated performance period of 10 years .
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the bank 's strategy is to grow profitably through a commitment to credit quality and expanding market share by acquiring , retaining and expanding customer relationships , while carefully managing interest rate risk . in recent years , the bank has focused on commercial real estate , multi-family and commercial loans as part of its strategy to diversify the loan portfolio and reduce interest rate risk . these types of loans generally have adjustable rates that initially are higher than residential mortgage loans and generally have a higher rate of risk . the bank 's credit policy focuses on quality underwriting standards and close monitoring of the loan portfolio . at december 31 , 2012 , commercial loans accounted for 62.4 % of the loan portfolio and retail loans accounted for 37.6 % . the company intends to continue to diversify the loan portfolio and to focus on commercial real estate and commercial and industrial lending relationships . the company 's relationship banking strategy focuses on increasing core accounts and expanding relationships through its branch network , online banking and telephone banking touch points . the company continues to evaluate opportunities to increase market share by expanding within existing and contiguous markets . core deposits , consisting of all savings and demand deposit accounts , are generally a stable , relatively inexpensive source of funds . at december 31 , 2012 , core deposits were 82.4 % of total deposits . the company 's results of operations are primarily dependent upon net interest income , the difference between interest earned on interest-earning assets and the interest paid on interest-bearing liabilities . changes in interest rates could have an adverse effect on net interest income to the extent the company 's interest-bearing assets and interest-bearing liabilities reprice or mature at different times or relative interest rates . an increase in interest rates generally would result in a decrease in the company 's average interest rate spread and net interest income , which could have a negative effect on profitability . the company generates non-interest income such as income from retail and business account fees , loan servicing fees , loan origination fees , appreciation in the cash surrender value of bank-owned life insurance , income from loan or securities sales , fees from wealth management services and investment product sales and other fees . the company 's operating expenses consist primarily of compensation and benefits expense , occupancy and equipment expense , data processing expense , the amortization of intangible assets , marketing and advertising expense and other general and administrative expenses . the company 's results of operations are also affected by general economic conditions , changes in market interest rates , changes in asset quality , changes in asset values , actions of regulatory agencies and government policies . acquisition on august 11 , 2011 , the company 's wholly owned subsidiary , the provident bank , completed its acquisition of beacon trust company , a new jersey limited purpose trust company , and beacon global asset management , inc. , an sec-registered investment advisor incorporated in delaware ( collectively beacon ) . 48 pursuant to the terms of the stock purchase agreement announced on may 19 , 2011 , beacon 's former parent company , beacon financial corporation , may be paid cash consideration in an amount up to $ 10.5 million , based upon the acquired companies ' financial performance in the three years following the closing of the transaction . subsequent to the acquisition , beacon global asset management was merged with and into beacon trust company . critical accounting policies the company considers certain accounting policies to be critically important to the fair presentation of its financial condition and results of operations . these policies require management to make complex judgments on matters which by their nature have elements of uncertainty . the sensitivity of the company 's consolidated financial statements to these critical accounting policies , and the assumptions and estimates applied , could have a significant impact on its financial condition and results of operations . these assumptions , estimates and judgments made by management can be influenced by a number of factors , including the general economic environment . the company has identified the following as critical accounting policies : adequacy of the allowance for loan losses goodwill valuation and analysis for impairment valuation of securities available for sale and impairment analysis valuation of deferred tax assets the calculation of the allowance for loan losses is a critical accounting policy of the company . the allowance for loan losses is a valuation account that reflects management 's evaluation of the probable losses in the loan portfolio . the company maintains the allowance for loan losses through provisions for loan losses that are charged to income . charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely . recoveries made on loans that have been charged-off are credited to the allowance for loan losses . the company 's evaluation of the adequacy of the allowance for loan losses includes a review of all loans on which the collectibility of principal may not be reasonably assured . for residential mortgage and consumer loans , this is determined primarily by delinquency and collateral values . for commercial real estate and commercial loans , an extensive review of financial performance , payment history and collateral values is conducted on a quarterly basis . as part of the evaluation of the adequacy of the allowance for loan losses , each quarter management prepares an analysis that categorizes the entire loan portfolio by certain risk characteristics such as loan type ( residential mortgage , commercial mortgage , construction , commercial , etc . ) and loan risk rating . when assigning a risk rating to a loan , management utilizes a nine point internal risk rating system . loans deemed to be acceptable quality are rated 1 through 4 , with a rating of 1 established for loans with minimal risk . story_separator_special_tag reporting unit events , such as selling or disposing a portion of a reporting unit and a change in composition of assets . the company completed its annual goodwill impairment test as of september 30 , 2012. based upon its qualitative assessment of goodwill , the company concluded it is more likely than not that the fair value of the reporting unit exceeds its carrying amount , goodwill was not impaired and no further quantitative analysis ( step 1 ) was warranted . the company may , based upon its qualitative assessment , or at its option , perform the two-step process to evaluate the potential impairment of goodwill . if , based upon step 1 , the fair value of the reporting unit exceeds its carrying amount , goodwill of the reporting unit is considered not impaired . however , if the carrying amount of the reporting unit exceeds its fair value , an additional test must be performed . the second step test compares the implied fair value of the reporting unit 's goodwill with the carrying amount of that goodwill . an impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value . the company 's available for sale securities portfolio is carried at estimated fair value , with any unrealized gains or losses , net of taxes , reported as accumulated other comprehensive income or loss in stockholders ' equity . estimated fair values are based on market quotations or matrix pricing as discussed in note 5 to the audited consolidated financial statements . securities which the company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost . the company conducts a periodic review and evaluation of the securities portfolio to determine if any declines in the fair values of securities are other-than-temporary . in this evaluation , if such a decline were deemed other-than-temporary , the company would measure the total credit-related component of the unrealized loss , and recognize that portion of the loss as a charge to current period earnings . the remaining portion of the unrealized loss would be recognized as an adjustment to accumulated other comprehensive income . the fair value of the securities portfolio is significantly affected by changes in interest rates . in general , as interest rates rise , the fair value of fixed-rate securities decreases and as interest rates fall , the fair value of fixed-rate securities increases . turmoil in the credit markets resulted in a lack of liquidity in certain sectors of the mortgage-backed securities market . increases in delinquencies and foreclosures have resulted in limited trading activity and significant price declines , regardless of favorable movements in interest rates . the company determines if it has the intent to sell these securities or if it is more likely than not that the company would be required to sell the securities before the anticipated recovery . if either exists , the decline in value is considered other-than-temporary . in this evaluation , the company did not recognize other-than-temporary securities impairment losses in 2012 , but did recognize losses totaling $ 302,000 and $ 170,000 in 2011 and 2010 , respectively . the determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities , utilization against carryback years and estimates of future taxable income . such estimates are subject to management 's judgment . a valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items . a valuation reserve of $ 1.1 million was established in 2009 pertaining primarily to state tax benefits on net operating losses at the bank and unused capital loss carryforwards . in 2011 , management released the valuation allowance associated with the state net operating losses , approximately $ 840,000 , due to expectation of current and future taxable income . at december 31 , 2012 , the company maintained a valuation allowance of $ 242,000 , related to unused capital loss carryforwards . analysis of net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities . 51 average balance sheet . the following table sets forth certain information for the years ended december 31 , 2012 , 2011 and 2010. for the periods indicated , the total dollar amount of interest income from average interest-earning assets and the resultant yields , as well as the interest expense on average interest-bearing liabilities is expressed both in dollars and rates . no tax equivalent adjustments were made . average balances are daily averages . replace_table_token_24_th ( 1 ) average outstanding balance amounts are at amortized cost . ( 2 ) average outstanding balances are net of the allowance for loan losses , deferred loan fees and expenses , and loan premiums and discounts and include non-accrual loans . ( 3 ) net interest income divided by average interest-earning assets . 52 rate/volume analysis . the following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( ii ) changes attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( iii ) the net change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate .
| general . net income for the year ended december 31 , 2011 was $ 57.3 million , compared to $ 49.7 million for the year ended december 31 , 2010. basic and diluted earnings per share were $ 1.01 for the year ended december 31 , 2011 , compared to a basic and diluted loss per share of $ 0.88 for 2010. earnings for the year ended december 31 , 2011 reflect actions taken to reduce funding costs , with net interest income increasing $ 7.0 million , compared with the same period in 2010. in addition , the provision for loan losses decreased $ 6.6 million for the year ended december 31 , 2011 , compared with the year ended december 31 , 2010. these improvements were partially offset by an increase in non-interest expense of $ 3.7 million for year ended december 31 , 2011 , compared with the same period in 2010. net interest income . net interest income increased $ 7.0 million , or 3.4 % , to $ 216.0 million for 2011 , from $ 209.0 million for 2010. the average interest rate spread increased 6 basis points to 3.33 % for 2011 , from 3.27 % for 2010. the net interest margin increased 4 basis points to 3.49 % for 2011 , compared to 3.45 % for 2010. for the year ended december 31 , 2011 , the favorable effects of an increase in average loans outstanding and reductions in funding costs outpaced the impact of the downward repricing of earning assets and accelerated premium amortization on mortgage-backed securities . interest income decreased $ 10.8 million , or 3.8 % , to $ 275.7 million for 2011 , compared to $ 286.5 million for 2010. the decrease in interest income was attributable to a decrease in the yield on average earning assets , partially offset by an increase in average earning asset balances .
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section 16 ( a ) beneficial ownership reporting compliance section 16 ( a ) of the securities exchange act of 1934 , as amended requires our executive officers and directors and persons who own more than ten percent ( 10 % ) of a registered class of our equity securities to file reports of ownership and changes in ownership with the securities and exchange commission , or sec . executive officers , directors and greater than ten percent ( 10 % ) stockholders are required by commission regulation to furnish story_separator_special_tag this discussion and analysis should be read in conjunction with our financial statements and accompanying notes included elsewhere in this report . operating results are not necessarily indicative of results that may occur in future periods . overview we are a biopharmaceutical company that develops novel drugs . our lead drug candidate is called remoxy . remoxy is a strong painkiller with a unique formulation designed to reduce potential risks of unintended use . remoxy and three other abuse-resistant painkillers are being developed pursuant to a strategic alliance we have with pfizer under the king agreements . pfizer acquired king in early 2011. we expect remoxy will be commercialized within pfizer 's primary care unit . we believe pfizer 's acquisition of king may facilitate remoxy 's commercial success , if approved by the fda . we and king jointly managed a phase iii clinical program and nda submission for remoxy . in mid-2008 , the fda accepted our nda for remoxy with priority review . in december 2008 , we received from the fda a complete response letter for the nda for remoxy . in this complete response letter , the fda indicated additional non-clinical data was required to support the approval of remoxy . also , the fda did not request or recommend additional clinical efficacy studies prior to approval . in 2009 , king assumed sole responsibility for the regulatory approval of remoxy . this shift of responsibility did not change any economic term of the king agreements . in december 2010 , king resubmitted the remoxy nda . in january 2011 , we announced that the fda had accepted the resubmission of the remoxy nda . in june 2011 , we and pfizer announced that king received a complete response letter from the fda in response to king 's resubmission of the remoxy nda . the fda 's complete response letter raised concerns related to , among other matters , the chemistry , manufacturing , and controls section of the nda for remoxy . certain drug lots showed inconsistent release performance during in vitro testing . it is not known at this time whether this is an artifact of the testing method or a manufacturing deficiency . sufficient information does not yet exist to accurately assess the time required to resolve the concerns raised in the fda 's complete response letter . in january 2011 , we announced that the fda had accepted our ind for abuse-resistant oxymorphone and that we had received a $ 5.0 million milestone payment under the king agreements for this milestone . all of our collaboration , contract and milestone revenues are recognized pursuant to payments we 've received from the king agreements , including : replace_table_token_4_th we will receive a $ 15.0 million cash milestone payment from king upon regulatory approval of remoxy in the united states . we could also receive from king up to $ 105.0 million in additional milestone payments in the course of clinical development of the other abuse-resistant opioid painkillers under the strategic alliance . in addition , subject to certain limitations , king is obligated to fund development expenses incurred by us pursuant to the collaboration agreement . king is obligated to fund the commercialization expenses of , and has the 33 exclusive right to market and sell , drugs developed in connection with the strategic alliance . the royalty rate for net sales of remoxy and other products covered by the strategic alliance with king in the united states is 20 % , except as to the first $ 1.0 billion in cumulative net sales in the united states , for which the royalty is set at 15 % . the royalty rate for net sales of products covered by the strategic alliance with king outside the united states is 10 % on all of net sales . although we were profitable in 2006 , 2007 and 2008 based on payments received from king and interest income , we have yet to generate any revenues from product sales . we have recorded an accumulated deficit of $ 132.2 million at december 31 , 2011. these losses have resulted principally from costs incurred in connection with research and development activities , salaries and other personnel-related costs and general corporate expenses . research and development activities include costs of preclinical and clinical trials as well as clinical supplies associated with our drug candidates . salaries and other personnel-related costs include non-cash stock-based compensation associated with options and other equity awards granted to employees and non-employees . our operating results may fluctuate substantially from period to period as a result of the timing and enrollment rates of clinical trials for our drug candidates and our need for clinical supplies . we expect to continue to use significant cash resources in our operations for the next several years . our cash requirements for operating activities and capital expenditures may increase substantially in the future as we : continue to conduct preclinical and clinical trials for our drug candidates ; seek regulatory approvals for our drug candidates ; develop , formulate , manufacture and commercialize our drug candidates ; implement additional internal systems and develop new infrastructure ; acquire or in-license additional products or technologies , or expand the use of our technology ; maintain , defend and expand the scope of our intellectual property ; and hire additional personnel . product revenue will depend on our ability to receive regulatory approvals for , and successfully market , our drug candidates . story_separator_special_tag estimated clinical trial costs related to enrollment can vary based on numerous factors , including expected number of patients in trials , the number of patients that do not complete participation in a trial , and when a patient drops out of a trial . information about patient enrollment can become available significantly after we report our expenses for clinical trials , in which case we would change our estimate of the remaining cost of a trial . costs that are based on clinical data collection and management are recognized based on estimates of unbilled goods and services received . in the event of early termination of a clinical trial , we would accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial . stock-based compensation . we recognize expense in the statement of operations for the fair value of all share-based payments to employees and directors , including grants of employee stock options and other share based awards . for stock options , we use the black-scholes option valuation model and the single-option award approach and straight-line attribution method . using this approach , the compensation cost is amortized on a straight-line basis over the vesting period of each respective stock option , generally four years . we estimate forfeitures and adjust this estimate periodically based on the extent to which future actual forfeitures differ , or are expected to differ , from such estimates . we have granted share-based awards that vest upon achievement of certain performance criteria , or performance awards . the value of these awards is the product of the number of shares of our common stock to be issued under the award multiplied by the fair market value of a share of our common stock on the date of grant . these awards include future performance conditions . we estimate an implicit service period for achieving these performance conditions . performance awards vest and common stock is issued on achieving performance conditions . we recognize stock-based compensation expense for performance awards when we conclude that achieving a performance condition is probable . we periodically review and update as appropriate our estimates of the implicit service periods and the likelihood of achieving the performance conditions . revenue recognition and deferred program fee revenue . we recognize program fee revenue , collaboration revenue and milestone revenue in connection with our strategic alliance with king . program fee revenue is derived from upfront payments from king , including the $ 150.0 million paid to us at the beginning of the strategic alliance and the $ 5.0 million king paid us in july 2010 in connection with an amendment to our strategic alliance . these payments are recognized from receipt ratably over our estimate of the development period for the fourth of four drug candidates expected to be developed under the strategic alliance with king . we currently estimate the development period for all four expected drug candidates to end in the quarter ended september 30 , 2016. we review the estimated development period on a quarterly basis and change it if appropriate based upon our latest expectations . in the first quarter of 2010 we determined that our estimate of the development period should be extended from the third quarter of 2014. collaboration revenues from reimbursement of development expenses pursuant to our collaboration agreement with king are generally recognized when king has completed its review of the expenses invoiced to them . king is obligated to pay us milestone payments contingent upon the achievement of certain substantive events in the development of remoxy and the other opioid painkillers under the strategic alliance . we recognize milestone payments from king as revenue when we achieve the underlying developmental milestone as the milestone payments are not dependent upon any other future activities or achievement of any other future milestones and the achievement of each of the developmental milestones were substantively at risk and contingent at the effective date of the collaboration . substantial effort is involved in achieving each of the developmental milestones . these milestones represent the culmination of discrete earnings processes and the amount of each milestone payment is reasonable in relation with the level of effort associated with the achievement of the milestone . each milestone payment is non-refundable and non-creditable when made . the ongoing research and development services being provided to king under the collaboration are priced at fair value based upon the reimbursement of expenses incurred pursuant to the collaboration with king . 36 taxes . we make estimates and judgments in determining the need for a provision for income taxes , including the estimation of our taxable income or loss for each full fiscal year . we have accumulated significant deferred tax assets . deferred income taxes reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . realization of certain deferred tax assets is dependent upon future earnings , if any . we are uncertain as to the timing and amount of any future earnings . accordingly , we offset these net deferred tax assets with a valuation allowance . we may in the future determine that more of our deferred tax assets will likely be realized , in which case we will reduce our valuation allowance in the quarter in which such determination is made . if the valuation allowance is reduced , we may recognize a benefit from income taxes in our statement of operations in that period . we classify interest recognized in connection with our tax positions as interest expense , when appropriate . story_separator_special_tag style= '' margin-top:18px ; margin-bottom:0px '' > provision for income taxes we did not provide for federal income taxes in 2011 or 2010 because we had a tax loss for both 2011 and 2010 .
| results of operations years ended december 31 , 2011 and 2010 revenueprogram fee revenue king paid us a $ 150.0 million upfront fee in connection with the closing of our strategic alliance with king and $ 5.0 million in july 2010 in connection with an amendment to our strategic alliance . revenues recognized from amortization of this upfront fee were $ 10.9 million in 2011 and $ 10.5 million in 2010. we expect to recognize the rest of the program fee ratably over our estimate of the remainder of the development period under the strategic alliance with king . we currently estimate the development period for all four expected drug candidates to extend through september 2016. revenuecollaboration revenue collaboration revenues were $ 0.6 million in 2011 and $ 1.3 million in 2010. these revenues related to reimbursement of our development expenses incurred pursuant to the king strategic alliance . collaboration revenues were lower in 2011 as compared to 2010 primarily because the reimbursable expenses we incurred pursuant to the strategic alliance with king were lower in 2011 as compared to 2010. we expect the amount and timing of collaboration revenue to fluctuate in relation to the amount and timing of the underlying research and development expenses , as well as the timing of completion of king 's review of submitted expenses . revenuemilestone revenue milestone revenue of $ 5.0 million in 2010 was related to acceptance by the fda of the ind for abuse-resistant oxymorphone under the king agreements . research and development expense research and development expense consists primarily of costs of drug development work associated with our drug candidates , including : preclinical testing , clinical trials , clinical supplies and related formulation and design costs , and salaries and other personnel-related expenses .
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f or most leases with a term of greater than 12 months , in which we are the lessee , the present value of future lease payments will be recognized on our balance sheet as a right-of-use asset and related liability . as of december 31 , 2017 , the remaining contractual payments under our ground lease agreements aggregated $ 250,000 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. 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 income tax expense , accounting for acquired real estate facilities , allowance for doubtful accounts , impairment of long-lived assets , accrual for uncertain and contingent liabilities , each of which are more fully discussed below . income tax expense : we have elected to be treated as a reit , as defined under the code . as a reit , we do not incur federal income tax on our “ reit taxable income ” that is fully distributed each year ( for this purpose , certain distributions paid in a subsequent year may be considered ) , and if we meet certain organizational and operational rules . we believe we have met these reit requirements for all periods presented herein . accordingly , we have recorded no federal income tax expense related to our “ reit taxable income . ” our evaluation that we have met the reit requirements could be incorrect , because compliance with the tax rules requires factual determinations , and circumstances we have not identified could result in noncompliance with the tax requirements in current or prior years . for any taxable year that we fail to qualify as a reit and for which applicable statutory relief provisions did not apply , we would be taxed at the regular corporate rates on all of our taxable income for at least that year and the ensuing four years , we could be subject to penalties and interest , and our net income would be materially different from the amounts estimated in our consolidated financial statements . accounting for acquired real estate facilities : we estimate the fair values of the land , buildings , intangible assets and intangible liabilities for purposes of allocating the purchase price . such estimates are based upon many assumptions and judgments , including ( i ) market rates of return and capitalization rates on real estate and intangible assets , ( ii ) building and material cost levels , ( iii ) comparisons of the acquired underlying land parcels to recent land transactions , ( iv ) estimated market rent levels and ( v ) future cash flows from the real estate and the existing customer base . others could come to materially different conclusions as to the estimated fair values , which would result in different depreciation and amortization expense , rental income , gains and losses on sale of real estate assets , and real estate and intangible assets . allowance for doubtful accounts : customer receivables consist primarily of amounts due for contractual lease payments , reimbursements of common area maintenance expenses , property taxes and other expenses recoverable from customers . 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 . determination of the adequacy of allowances for doubtful accounts requires significant judgments and estimates . others could come to materially different conclusions regarding the adequacy of our allowance for doubtful accounts . significant unreserved bad debt losses could materially impact our net income . impairment of long-lived assets : the analysis of impairment of our long-lived assets involves identification of indicators of impairment , projections of future operating cash flows and estimates of fair values or selling prices , all of which require significant judgment and subjectivity . others could come to materially different conclusions . in addition , we may not have identified all current facts and circumstances that may affect impairment . any unidentified impairment loss , or change in conclusions , could have a material adverse impact on our net income . accrual for uncertain and contingent liabilities : we accrue for certain contingent and other liabilities that have significant uncertain elements , such as property taxes , performance bonuses and other operating expenses , as well as other legal claims and disputes involving customers , employees , governmental agencies and other third parties . we estimate such liabilities based upon many factors such as assumptions of past and future trends and our evaluation of likely outcomes . however , the estimates of known liabilities could be incorrect or we may not be aware of all such liabilities , in which case our accrued liabilities and net income could be misstated . 19 strategic overview our overall operating results are impacted primarily by the performance of our existing real estate facilities , which at december 31 , 2017 are comprised of 28.0 million rentable square feet of multi-tenant flex , industrial and office properties concentrated in six states and a 95.0 % interest in a 395 -unit apartment complex . accordingly , a significant degree of management attention is paid to maximizing the cash flow from our existing real estate portfolio . we also acquire properties we believe will create long-term value , and from time to time we dispose of properties which no longer fit within the company 's strategic objectives . existing real estate facilities : the operating results of our existing real estate facilities are substantially influenced by demand for rental space within our properties and our markets , which impacts occupancy , rental rates and capital expenditures requirements . story_separator_special_tag replace_table_token_4_th as of december 31 , 2017 , excluding assets held for sale , leases from our top 10 customers comprised 10.6 % of our annualized rental income , with only one customer , the u.s. government ( 4.5 % ) , representing more than 1 % as depicted in the following table ( in thousands ) . replace_table_token_5_th ( 1 ) for leases expiring prior to december 31 , 2018 , annualized rental income represents income to be received under existing leases from january 1 , 2018 through the date of expiration . 21 customer credit risk : we have historically experienced a low level of write-offs of uncollectible rents , with less than 0.5 % of rental income written off each year over the last six years . however , there can be no assurance that write offs may not increase , because there is inherent uncertainty in a customer 's ability to continue paying rent and meet its full lease obligation . as of february 19 , 2018 , we had 62 ,000 square feet of leased space occupied by three customers that are protected by chapter 11 of the u.s. bankruptcy code . from time to time , customers contact us , requesting early termination of their lease , reductions in space leased , or rent deferment or abatement . net operating income we evaluate the performance of our business parks primarily based on n et operating i ncome ( “ noi ” ) , a measure that is not defined in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , because we believe noi is an important measure of the value and p erformance of our real estate . we believe investors utilize noi in a similar m anner and for similar reasons . we define noi as adjusted rental income less adjusted cost of operations ( described below ) . noi excludes depreciation and amortization because management and investors do not consider it important in valuing real estate or evaluating real estate performance , because depreciation assumes the value of real estate declines ratably from its historical cost based upon the passage of time , while we believe the value of real estate changes based upon cash flow and other market factors . adjusted rental income represents rental income , excluding material lease buyout payment s , which we believe are not reflective of ongoing rental income . adjusted cost of operations represents cost of operations , excluding senior management long-term equity incentive plan ( “ lteip ” ) amortization , which can vary significantly period to period based upon-the performance of the whole company , rather than just property operations . the company 's calculation of noi , adjusted rental income and adjusted cost of operations may not be comparable to those of other companies and should not be used as an alternative to p erformance measures calculated in accordance with gaap . see “ analysis of operating income ” below for reconciliations of each of these measures to their closest analogous gaap measure on our consolidated statements of income . adjusted rental income is reconciled to rental income , adjusted cost of operations is reconciled to cost of operations and net operating income is reconciled to operating income . story_separator_special_tag increased $ 2.2 million in 2017 compared to 2016 and by $ 1 . 9 million in 2016 as compared to 2015 due primarily to increases in adjusted cost of operations for the same park and non-same park facilities , offset partially by adjusted costs of operations from assets sold or held for sale or development . the 2017 increase in cost of operations was partially offset by lower lteip amortization , whereas the increase in 2016 lteip amortization increased 2016 cost of operations . operating income increased $ 23.5 million in 2017 compared to 2016 and by $ 16.5 million in 2016 compare to 2015. the 2017 increase was due primarily to higher rental income , lower depreciation expense and general and administrative expenses . the 2016 increase in operating income was primarily due to higher rental income and lower depreciation expense partially offset by higher general and administrative expenses . see below for a discussion of depreciation and amortization expense and general and administrative expenses . same park facilities the same park facilities are those that we have owned and operated since january 1 , 2015. we evaluate the operations of these facilities to more effectively evaluate the ongoing performance of our portfolio in 2017 , 2016 and 2015. we believe the same park information is used by investors and analysts in a similar manner . the following table summarizes the historical operating results of these facilities and certain statistical information related to leasing activity ( in thousands , except per square foot data ) : replace_table_token_7_th ( 1 ) computed by dividing noi by adjusted rental income . ( 2 ) represents the annualized adjusted rental income earned per occupied square foot . analysis of same park adjusted rental income adjusted rental income generated by the same park facilities increased 4.6 % in 2017 as compared to 2016 and by 4.3 % in 2016 as compared to 2015. these increases were due primarily to higher rental rates charged to our customers , as annualized realized rental income per occupied square foot increased 4.5 % and 2.9 % in 2017 and 2016 , respectively , compared to the year prior . weighted average occupancy increased 0.2 % and 1.3 % in 2017 and 2016 , respectively , compared to the year prior . we believe that high occupancies help maximize our rental income . accordingly , we seek to maintain a weighted average occupancy over 90 % . during 2017 and 2016 , most markets continued to reflect favorable conditions allowing for stable occupancy as well as increasing rental rates .
| results of operations operating results for 2017 and 2016 for the year ended december 31 , 2017 , net income allocable to common shareholders was $ 90.4 million or $ 3.30 per diluted share , compared to $ 62.9 million or $ 2.31 per diluted share for the year ended december 31 , 2016 . the increase was due to a $ 12.9 million increase in noi with respect to our real estate facilities , gains on the sale of real estate facilities and development rights , a reduction in preferred distributions and a reduction in interest expense due to the repayment of debt , partially offset by an increase in charges related to the redemption of preferred securities . the increase in noi includes a $ 14.5 million increase for our same-park facilities ( defined below ) due primarily to higher realized rent per occupied square foot and increased occupancy , offset partially by reduced noi with respect to facilities we sold or are holding for sale or development . operating results for 2016 and 2015 for the year ended december 31 , 2016 , n et income allocable to common shareholders for the year ended december 31 , 2016 was $ 62.9 million or $ 2.31 per diluted share , compared to $ 68.3 million or $ 2.52 per diluted share for the year ended december 31 , 2015 . the decrease was primarily due to gain on sale of assets reported in 2015 partially offset by a n $ 11.9 million increase in noi with respect to our real estate facilities and lower interest expense in 2016. the increase in noi includes a $ 13.0 million increase for our same-park facilities due primarily to an increase in occupancy and higher realized rent per occupied square foot , offset partially by reduced noi with respect to facilities we sold or are holding for sale or development .
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since then , we have widened our strategy to focus in other sectors of the economy and continue to reduce our exposure to the energy industry , and our holdings in the energy and energy related industries now represent less than 7 % of our investment portfolio . the aggregate value of our portfolio investments was $ 2,094,221 and $ 1,463,010 as of june 30 , 2012 and june 30 , 2011 , respectively . during the fiscal year ended june 30 , 2012 , our net cost of investments increased by $ 663,579 , or 46.2 % , as a result of thirty-eight new investments , seventeen follow-on investments and revolver advances of $ 1,115,012 , accrued of payment-in-kind interest of $ 5,647 and accretion of purchase discount of $ 7,284 , while we received full repayment on seventeen investments , sold five investments and received several partial prepayments and revolver repayments totaling of $ 500,952 , including a net realized gain of $ 36,588. during the year ended june 30 , 2012 , deb shops , inc. ( `` deb shops '' ) filed for bankruptcy and a plan for reorganization was proposed . the plan was approved by the bankruptcy court and our debt position was eliminated with no payment to us . as a result , we determined that the impairment of deb shops was other-than-temporary on september 30 , 2011 and recorded a realized loss of $ 14,607 for the full amount of the amortized cost . the asset was completely written off when the plan of reorganization was approved . this realized loss was primarily offset the sale of our shares in nrg manufacturing inc. ( `` nrg '' ) common stock for which we realized a gain of $ 36,940. the remaining net realized gain of $ 14,255 is primarily due to the sale of our equity investments in c & j cladding , llc ( `` c & j '' ) , the copernicus group , inc. ( `` copernicus '' ) , nupla corporation ( `` nupla '' ) and sport helmets holdings , llc ( `` sport helmets '' ) . compared to the end of last fiscal year ( ended june 30 , 2011 ) , net assets increased by $ 397,617 or 35.7 % during the year ended june 30 , 2012 , from $ 1,114,357 to $ 1,511,974. this increase resulted from the issuance of new shares of our common stock ( less offering costs ) in the amount of $ 337,562 , dividend reinvestments of $ 10,530 , and another $ 190,904 from operations . these increases , in turn , were offset by $ 141,379 in dividend distributions to our stockholders . the $ 190,904 increase in net assets resulting from operations is net of the following : net investment income of $ 186,684 , net realized gain on investments of $ 36,588 , and a decrease in net assets due to changes in net unrealized depreciation of investments of $ 32,368. the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the 61 financial statements and the reported amounts of income and expenses during the reported period . changes in the economic environment , financial markets and any other parameters used in determining these estimates could cause actual results to differ and those differences could be material . story_separator_special_tag internotes® for net proceeds of approximately $ 14,857 , as follows : replace_table_token_8_th on april 16 , 2012 , we issued $ 130,000 in aggregate principal amount of 5.375 % senior convertible notes due 2017 ( the `` 2017 notes '' ) for net proceeds following underwriting expenses of approximately $ 126,035. other than the coupon and maturity date , the 2017 notes have terms that are substantially similar to the terms of our 5.50 % senior convertible notes due 2016 ( the `` 2016 notes '' ) . on may 1 , 2012 , we issued $ 100,000 in aggregate principal amount of 6.95 % senior unsecured notes due 2022 for net proceeds net of offering expenses of approximately $ 96,800 ( the `` 2022 notes '' ) . patriot acquisition on december 2 , 2009 , we acquired the outstanding shares of patriot capital funding , inc. ( `` patriot '' ) common stock for $ 201,083. under the terms of the merger agreement , patriot common shareholders received 0.363992 shares of our common stock for each share of patriot common stock , resulting in 8,444,068 shares of common stock being issued by us . in connection with the transaction , we repaid all the outstanding borrowings of patriot , in compliance with the merger agreement . the fair value of patriot 's investments was determined by the board of directors in conjunction with an independent valuation agent . this valuation resulted in a purchase price of $ 207,126 which was $ 98,150 below the amortized cost of such investments . during the year ended june 30 , 2012 , we recognized $ 6,613 of interest income due to purchase discount accretion from the assets acquired from patriot . included in the $ 6,613 is $ 3,083 of normal accretion and $ 3,530 of accelerated accretion resulting from the repayment of mac & massey , nupla , rom and sport helmets . during the year ended june 30 , 2011 , we recognized $ 22,084 of interest income due to purchase discount accretion from the assets acquired from patriot . story_separator_special_tag as of june , 2012 , we own controlling interests in airmall usa , inc. ( `` airmall '' ) , ajax rolled ring & machine , inc. ( `` ajax '' ) , awcnc , llc , borga , inc. , energy solutions holdings , inc. ( `` energy solutions '' ) , first tower , integrated contract services , inc. ( `` ics '' ) , manx energy , inc. ( `` manx '' ) , nmmb holdings , inc. ( `` nmmb '' ) , r-v industries , inc. ( `` r-v '' ) and wolf energy holdings , inc. ( `` wolf '' ) . we also own an affiliated interest in bnn holdings corp. f/k/a biotronic neuronetwork ( `` biotronic '' ) , boxercraft incorporated ( `` boxercraft '' ) and smart , llc . 65 the following is a summary of our investment portfolio by level of control at june 30 , 2012 and june 30 , 2011 , respectively : replace_table_token_9_th the following is our investment portfolio presented by type of investment at june 30 , 2012 and june 30 , 2011 , respectively : replace_table_token_10_th 66 the following is our investments in debt securities presented by type of security at june 30 , 2012 and june 30 , 2011 , respectively : replace_table_token_11_th the following is our investment portfolio presented by geographic location of the investment at june 30 , 2012 and june 30 , 2011 , respectively : replace_table_token_12_th 67 the following is our investment portfolio presented by industry sector of the investment at june 30 , 2012 and june 30 , 2011 , respectively : replace_table_token_13_th ( 1 ) during the quarter ended december 31 , 2011 , our ownership of change clean energy holdings , inc. ( `` ccehi '' ) and change clean energy , inc. ( `` ccei '' ) , freedom marine holdings , llc ( `` freedom marine '' ) and yatesville coal holdings , inc. ( `` yatesville '' ) was transferred to energy solutions to consolidate all of our energy holdings under one management team . 68 portfolio investment activity during the year ended june 30 , 2012 , we acquired $ 1,000,885 of new investments , completed follow-on investments in existing portfolio companies , totaling approximately $ 112,627 , funded $ 1,500 of revolver advances , and recorded pik interest of $ 5,647 , resulting in gross investment originations of $ 1,120,659. the more significant of these investments are described briefly in the following : on july 1 , 2011 , we made a senior secured follow-on investment of $ 2,300 in boxercraft to support the acquisition of jones & mitchell , a supplier of college-licensed apparel . the first lien note bears interest in cash at libor plus 7.50 % and has a final maturity on september 16 , 2013. on july 8 , 2011 , we made a senior secured investment of $ 39,000 to support the recapitalization of totes isotoner corporation ( `` totes '' ) . the second lien note bears interest in cash at the greater of 10.75 % or libor plus 9.25 % and has a final maturity on january 8 , 2018. on august 5 , 2011 and september 7 , 2011 , we made senior secured follow-on investments of $ 3,850 and $ 11,800 , respectively , in rom to support the acquisitions of havis lighting solutions , a supplier of products primarily used by emergency response and police vehicles , and the acquisition of a leading manufacturer of personal safety products for the transportation and industrial markets . the first lien notes bear interest in cash at the greater of 10.50 % or libor plus 9.50 % and have a final maturity on may 8 , 2013. on august 9 , 2011 , we provided a $ 15,000 term loan to support the acquisition of nobel learning communities , inc. , a leading national operator of private schools . the unsecured note bears interest in cash at 11.50 % and interest in kind of 1.50 % and has a final maturity on august 9 , 2017. on august 9 , 2011 , we made an investment of $ 32,116 to purchase 66.2 % of the unrated subordinated notes in babson clo ltd 2011-i . on september 16 , 2011 , we acted as the facility agent and lead lender of a syndication of lenders that collectively provided $ 132,000 in senior secured financing to support the financing of capstone logistics , llc ( `` capstone '' ) , a leading logistics company . this company provides a broad array of logistics services to a diverse group of blue chip customers in the grocery , food service , retail , and specialty automotive industries . as of june 30 , 2012 our investment is $ 75,418 structured as $ 33,793 of term loan a and $ 41,625 of term loan b first lien notes . after the financing , we received repayment of the loan that was outstanding for progressive logistics services , llc . the term loan a notes bear interest in cash at the greater of 7.50 % or libor plus 5.50 % and have a final maturity on september 16 , 2016. the term loan b notes bear interest in cash at the greater of 13.50 % or libor plus 11.50 % and have a final maturity on september 16 , 2016. on september 30 , 2011 , we provided a $ 23,000 senior secured loan to support the recapitalization of anchor hocking , llc ( `` anchor hocking '' ) , a leading designer , manufacturer , and marketer of high quality glass products for the retail , food service , and oem channels .
| fourth quarter highlights investment transactions on april 2 , 2012 we made an investment of $ 22,000 to purchase 51.2 % of the subordinated notes in galaxy xii clo , ltd ( `` galaxy '' ) . on april 16 , 2012 , we made a senior secured debt investment of $ 15,000 to support the acquisition of nixon , inc. ( `` nixon '' ) , a designer and distributor of watches and accessories . the first lien note bears interest in cash at 8.75 % and interest in kind of 2.75 % and has a final maturity of april 16 , 2018. on april 20 , 2012 we made an investment of $ 43,195 to purchase 71.1 % of the lp certificates in symphony clo ix , ltd ( `` symphony '' ) . on may 8 , 2012 , sonicwall , inc. ( `` sonicwall '' ) repaid the $ 23,000 loan receivable to us . on may 17 , 2012 , we made an investment of $ 50,000 in archipelago learning , inc. ( `` archipelago '' ) , providers of educational software which deliver online curriculum and assessments to the u.s. educational market . the second lien note bears interest in cash at the greater of 11.25 % or libor plus 9.75 % and has a final maturity of may 17 , 2019. on may 21 , 2012 , we made a follow-on investment of $ 10,500 in stauber performance ingredients , inc ( `` stauber '' ) . the first lien note bears interest in cash at the greater of 10.5 % or libor plus 7.5 % and has a final maturity of may 21 , 2017. on may 31 , 2012 , copernicus repaid the remaining $ 17,596 loan receivable to us and we received $ 2,562 for our preferred stock positions , resulting in a realized gain of $ 2,283. on june 1 , 2012 , we made a senior secured second lien investment of $ 17,500 in southern management corporation ( `` smc '' ) .
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due to our transition to cloud subscriptions , we believe separate disclosures of our software license , cloud subscriptions , maintenance and services revenue is meaningful to investors and provide an important measure of our business performance . we have five principal sources of revenue : cloud subscriptions , including software as a service ( “ saas ” ) and hosting of software ; licenses of our software ; customer support services and software enhancements ( collectively , “ maintenance ” ) ; professional services , including solutions planning and implementation , related consulting , customer training , and reimbursements from customers for out-of-pocket expenses ( collectively , “ services ” ) ; and hardware sales . 22 in 2018 , we generated $ 559.2 million in total revenue , with a revenue mix of : cloud subscriptions 4 % ; software license 8 % ; maintenance 26 % ; services 59 % ; and hardware 3 % . we have three geographic reportable segments : the americas , emea , and apac . geographic revenue is based on the location of the sale . our international revenue was approximately $ 174.1 million , $ 168.3 million , and $ 144.8 million for 2018 , 2017 and 2016 , respectively , which represents approximately 31 % , 28 % , and 24 % of our total revenue for 2018 , 2017 and 2016 , respectively . international revenue includes all revenue derived from sales to customers outside the united states . at december 31 , 2018 , we employed approximately 3,000 employees worldwide . we have offices in australia , chile , china , france , germany , india , japan , the netherlands , singapore , spain and the united kingdom , as well as representatives in mexico and reseller partnerships in latin america , eastern europe , the middle east , south africa , and asia . future expectations our transition to a cloud subscription model , shifting industry dynamics and economic uncertainty in retail impacted our revenue and earnings growth in 2018 and 2017 , and we expect that , going forward , these factors , as well as macroeconomic conditions as a whole , may continue to impact revenue and earnings growth . the pace at which the market for our products transitions from perpetual , on-premises installation to cloud subscriptions , which result in revenue recognition spread out over the subscription period rather than up front , and the lead times for developing new business , which can be long for our products , can cause uncertainty for our future expectations , particularly with respect to our ability to accurately forecast bookings and revenues from quarter to quarter and over the longer term . as we move into 2019 , our five strategic goals continue to be : focus on customer success and drive sustainable growth ; aggressively invest in innovation to expand our products and total addressable market ; develop and grow our cloud operations and cloud subscription revenue ; expand our manhattan active omni/point-of-sale/customer engagement business ; and expand our global sales and marketing teams . cloud subscription historically , our software licenses were sold as perpetual licenses , under which customers own the software license and revenue is recognized at the time of sale . in 2017 , we released manhattan active solutions , accelerating our business transition to cloud subscriptions . under a cloud subscription , customers pay a periodic fee for the right to use our software within a cloud-based environment that we provide and manage over a specified period of time . as part of our subscription program , we allow our existing customers to convert their maintenance contracts to cloud subscription contracts . while it is early in our transition , a few customers converted their maintenance contracts to subscriptions in 2017 and 2018 , and we expect there will be continued opportunities to convert existing maintenance contracts to cloud subscription contracts in 2019 and beyond . with the launch of manhattan active solutions , the transition to a cloud subscription model has had , and will continue to have , an adverse impact on revenue , earnings and cash flow relative to periods in which we primarily sell perpetual licenses . this effect will continue until a stable , recurring mix of perpetual license to cloud subscription revenues develops . global economic trends and industry factors global macro-economic trends , technology spending , and supply chain management market growth are important barometers for our business . in 2018 , approximately 69 % of our total revenue was generated in the united states , 15 % in emea , and the remaining balance in apac , canada , and latin america . in addition , gartner inc. , an information technology research and advisory company , estimates that nearly 80 % of every supply chain software solutions dollar invested is spent in north america and western europe ; consequently , the health of the u.s. and the western european economies have a meaningful impact on our financial results . we sell technology-based solutions with total pricing , including software and services , in many cases exceeding $ 1.0 million . our software is often a part of our customers ' and prospects ' much larger capital commitment associated with facilities expansion and business improvement . we believe that , given the lingering uncertainty in the global macro environment primarily in the retail industry , the current sales cycles for large license sales and cloud subscriptions of $ 1.0 million or greater in our target markets have been extended . the current business climate within the united states and geographic regions in which we operate continues to affect customers ' and prospects ' decisions regarding timing of strategic capital expenditures . delays with respect to such decisions can have a material adverse impact on our business , and may further intensify competition in our already highly competitive markets . in january 2019 , the international monetary fund ( imf ) provided a world economic outlook ( weo ) update . story_separator_special_tag the americas , emea , and apac segments recognized $ 265.2 million , $ 50.3 million , and $ 14.2 million , respectively . due to our large services revenue mix as a percentage of total revenue , our consolidated operating margin profile may be lower than those of our competitors , and while we 24 believe our services margins are strong , they do lower our operating margin profile as services margins are inherently lower than the margin for software license revenue and some of our other revenue sources . at december 31 , 2018 , our professional services organization accounted for 63 % of our total employees worldwide . our professional services organization provides our customers with expertise and assistance in planning and implementing our solutions . to ensure a successful product implementation , consultants assist customers with the initial installation of a system , the conversion and transfer of the customer 's historical data onto our system , and ongoing training , education , and system upgrades . we believe our professional services enable customers to implement our software rapidly , ensure the customer 's success with our solutions , strengthen our customer relationships , and add to our industry-specific knowledge base for use in future implementations and product innovations . although our professional services are optional , the majority of our customers use at least some portion of these services for their planning , implementation , or related needs . professional services are typically rendered under time and materials-based contracts with services typically billed on an hourly basis . professional services are sometimes rendered under fixed-fee based contracts with payments due on specific dates or milestones . services revenue growth is contingent upon software license revenue , cloud subscriptions and customer upgrade cycles , which are influenced by the strength of general economic and business conditions and the competitive position of our software products . in addition , our professional services business has competitive exposure to offshore providers and other consulting companies . all of these factors potentially create the risk of pricing pressure , fewer customer orders , reduced gross margins , and loss of market share . services revenue also includes reimbursements from customers for out-of-pocket expenses . the total amount of expense reimbursement recorded to service revenue was $ 16.8 million for 2018. hardware : our hardware revenue , which we recognize net of related costs as of january 1 , 2018 , totaled $ 14.0 million in 2018 representing 3 % of total revenue . in conjunction with the licensing of our software , and as a convenience for our customers , we resell a variety of hardware products developed and manufactured by third parties . these products include computer hardware , radio frequency terminal networks , rfid chip readers , bar code printers and scanners , and other peripherals . we resell all third-party hardware products and related maintenance pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products and services at discount prices . we generally purchase hardware from our vendors only after receiving an order from a customer . as a result , we do not maintain hardware inventory . product development we continue to invest significantly in research and development ( r & d ) to provide leading solutions that help global retailers , manufacturers , wholesalers , distributors and logistics providers successfully manage accelerating and fluctuating demands as well as the increasing complexity and volatility of their local and global supply chains , retail store operations and point of sale . our research and development expenses for 2018 , 2017 and 2016 were $ 71.9 million , $ 57.7 million , and $ 54.7 million , respectively . we expect to continue to focus our r & d resources on the development and enhancement of our core supply chain , inventory optimization , omni-channel and point of sale software solutions . we offer what we believe to be the broadest solutions portfolio in the supply chain solutions marketplace , to address all aspects of inventory optimization , transportation management , distribution management , planning , and omni-channel operations including order management , store inventory & fulfillment , call center and point of sale . we also plan to continue to enhance our existing solutions and to introduce new solutions to address evolving industry standards and market needs . we identify opportunities to further enhance our solutions and to develop and provide new solutions through our customer support organization , as well as through ongoing customer consulting engagements and implementations , interactions with our user groups , association with leading industry analysts and market research firms , and participation in industry standards and research committees . our solutions address the needs of customers in various vertical markets , including retail , consumer goods , food and grocery logistics service providers , industrial and wholesale , high technology and electronics , life sciences , and government . cash flow and financial condition for 2018 , we generated cash flow from operating activities of $ 137.3 million and have generated a cumulative total of $ 440.8 million for the three years ended december 31 , 2018. our cash at december 31 , 2018 totaled $ 100.6 million , with no debt on our balance sheet . we currently have no credit facilities . during the past three years , our primary uses of cash have been for funding investments in r & d , in operations to drive earnings growth , and in repurchases of our common stock . during 2018 , we repurchased approximately $ 143.3 million of manhattan associates ' outstanding common stock under the share repurchase program approved by our board of directors throughout the year . 25 in 2019 , our priorities for use of cash will continue to be investments in product development and in the growth of our business . we expect to continue to evaluate acquisition opportunities that are complementary to our product footprint and technology direction .
| full year 2018 financial summary diluted earnings per share : $ 1.58 for 2018 compared to $ 1.68 for 2017 ; consolidated revenue : $ 559.2 million for 2018 compared to $ 594.6 million for 2017 ; cloud subscription revenue : $ 23.1 million for 2018 compared to $ 9.6 million for 2017 ; license revenue : $ 45.4 million for 2018 , compared to $ 72.3 million for 2017 ; operating income : $ 133.9 million for 2018 , compared to $ 185.6 million for 2017 ; operating margins : 23.9 % for 2018 compared to 31.2 % for 2017 ; cash flow from operations : $ 137.3 million for 2018 compared to $ 164.1 million for 2017 ; cash on hand : $ 100.6 million at december 31 , 2018 compared to $ 125.5 million at december 31 , 2017 ; share repurchases : in 2018 , we reduced our common shares outstanding by 4 % , primarily through the repurchase of approximately 3.1 million shares of our common stock , under the share repurchase program authorized by our board of directors . in january 2019 , our board of directors confirmed our existing authority to repurchase up to an aggregate of $ 50 million of our outstanding common stock . results of operations in the following table , we present a selection of certain statement of income data for 2018 , 2017 and 2016. with our transition to and growth in cloud subscriptions , which began in 2017 , we believe separate disclosures of our software license , cloud subscriptions , maintenance and services revenue is meaningful to investors and provides an important measure of our business performance . replace_table_token_4_th 26 we have three geographic reportable segments : the americas , emea , and apac . geographic revenue information is based on the location of sale . the revenues represented below are from external customers only .
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should one or more of these risks or uncertainties materialize , or should the underlying assumptions prove incorrect , actual results may differ significantly from those anticipated , believed , estimated , expected , intended , or planned . although the company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions , the company can not guarantee future results , levels of activity , performance , or achievements . except as required by applicable law , including the securities laws of the united states , the company does not intend to update any of the forward-looking statements to conform these statements to actual results . readers are urged to carefully review and consider the various disclosures made throughout the entirety of annual report , which attempts to advise interested parties of the risks and factors that may affect our business , financial condition , results of operations , and prospects . our financial statements are prepared in us dollars and in accordance with accounting principles generally accepted in the united states . see “ foreign currency translation and comprehensive income ( loss ) ” below for information concerning the exchange rates at which renminbi ( “ rmb ” ) were translated into us dollars ( “ usd ” ) at various pertinent dates and for pertinent periods . overview of business background china recycling energy corporation ( the “ company ” or “ creg ” ) was incorporated on may 8 , 1980 as boulder brewing company under the laws of the state of colorado . on september 6 , 2001 , the company changed its state of incorporation to the state of nevada . in 2004 , the company changed its name from boulder brewing company to china digital wireless , inc. and on march 8 , 2007 , the company again changed its name from china digital wireless , inc. to its current name , china recycling energy corporation . the company , through its subsidiaries , sells and leases energy saving systems and equipment to its customers in the people 's republic of china ( “ prc ” ) . typically , the company transfers ownership of the waste energy recycling power generating projects to its customers at the end of each sales-type lease and provides financing to its customers for the cost of the projects as described below . 36 our subsidiaries our business is primarily conducted through our wholly-owned subsidiary , sifang holdings and shanghai yinghua financial leasing co. , ltd ( “ yinghua ” ) ; its wholly-owned subsidiaries , huahong new energy technology co. , ltd. ( “ huahong ” ) and shanghai tch ; shanghai tch 's wholly-owned subsidiaries , xi'an tch energy technology company , ltd ( “ xi'an tch ” ) , xi'an tch 's wholly-owned subsidiary erdos tch energy saving development co. , ltd ( “ erdos tch ” ) and zhongxun energy investment ( beijing ) co. , ltd ( “ zhongxun ” ) ; and xi'an tch 's 90 % owned subsidiary xi'an zhonghong new energy technology co. , ltd. zhonghong is engaged to provide energy saving solutions and services , including constructing , selling and leasing energy saving systems and equipment to customers , project investment , investment management , economic information consulting , technical services , financial leasing , purchase of financial leasing assets , disposal and repair of financial leasing assets , consulting and ensuring of financial leasing transactions . the company 's organizational chart is as follows : creg legal structure 37 shanghai tch and its subsidiaries shanghai tch was established as a foreign investment enterprise in shanghai under the laws of the prc on may 25 , 2004 and has a registered capital of $ 29.80 million . xi'an tch was incorporated in xi'an , shaanxi province under the laws of the prc on november 8 , 2007. in february 2009 , huahong was incorporated in xi'an , shaanxi province . erdos tch was incorporated in april 2009 in erdos , inner mongolia autonomous region . on july 19 , 2013 , xi'an tch formed a new company called xi'an zhonghong new energy technology co. , ltd ( “ zhonghong ” ) . xi'an tch owns 90 % of zhonghong , which provides energy saving solutions and services , including constructing , selling and leasing energy saving systems and equipment to customers . as of december 31 , 2016 , shanghai tch , through its subsidiaries , had sales or sales-type leases with the following parties : ( i ) erdos ( for five recycling waste heat power generating systems ) ; ( ii ) pucheng ( for two biomass power generation ( “ bmpg ” ) systems ) ; and ( iii ) shenqiu ( for two bmpg systems ) . the fund management company and the hyref fund on june 25 , 2013 , xi'an tch and hongyuan huifu venture capital co. ltd ( “ hongyuan huifu ” ) jointly established hongyuan recycling energy investment management beijing co. , ltd ( the “ fund management company ” ) with registered capital of rmb 10 million . xi'an tch made an initial capital contribution of rmb 4 million ( $ 650,000 ) and has a 40 % ownership interest in the fund management company . with respect to the fund management company , voting rights and dividend rights are allocated 80 % and 20 % between hongyuan huifu and xi'an tch , respectively . the fund management company serves as the general partner of beijing hongyuan recycling energy investment center , llp ( the “ hyref fund ” ) , a limited liability partnership established on july 18 , 2013 in beijing . the fund management company made an initial capital contribution of rmb 5 million ( $ 830,000 ) to the hyref fund . an initial total amount of rmb 460 million ( $ 75 million ) has been fully subscribed by all partners for the hyref fund . story_separator_special_tag on june 10 , 2013 , xi'an tch and datong entered into a supplemental agreement relating to the minimum service fee . the minimum service fee per month for the first five years is $ 0.19 million ( rmb 1.2 million ) , $ 0.18 million ( rmb 1.1 million ) for the second five years , $ 0.16 million ( rmb 1.0 million ) for the following 10 years and $ 0.15 million ( rmb 0.9 million ) for the last 10 years . after 30 years , the units will be transferred to datong at no additional charge . on may 26 , 2015 , the 15mw wgpg system was completed . due to a change to its strategic plan , datong notified xi'an tch that it would not be able to fulfill its obligations under the cooperative agreement and requested to repurchase the two 3mw blast furnace power recovery turbine ( the “ bprt ” ) systems and one 15mw wgpg system ( the “ systems ” ) from xi'an tch and terminate the cooperative agreement . on may 29 , 2015 , xi'an tch entered into a repurchase agreement for the recycling economy project with datong . under the repurchase agreement , datong was to repurchase the systems from xi'an tch and pay outstanding energy saving service fees of rmb 1.2 million ( $ 193,548 ) to xi'an tch within five business days from the execution of the repurchase agreement . the systems were to be transferred to datong for a total price of rmb 250 million ( $ 40.32 million ) with rmb 100 million for two bprt systems and rmb 150 million for one wgpg system . as of june 30 , 2015 , xi'an tch had received the payment in full and the systems were transferred . the outstanding balance of net investment receivable ( the remaining principal amount ) at the date of transfer was $ 13.37 million . the company recorded $ 2.98 million gain from two brpt systems as non-operating income and $ 3.02 million gain from the wgpg system as gross profit from the sales of system which was the difference between the repurchase amount and the net investment receivable . shenqiu yuneng biomass power generation projects on may 25 , 2011 , xi'an tch entered into a letter of intent with shenqiu yuneng thermal power co. , ltd. ( “ shenqiu ” ) to reconstruct and transform a thermal power generation system owned by shenqiu into a 75t/h bmpg system for $ 3.57 million ( rmb 22.5 million ) . the project commenced in june 2011 and was completed in the third quarter of 2011. on september 28 , 2011 , xi'an tch entered into a biomass power generation asset transfer agreement with shenqiu ( the “ shenqiu transfer agreement ” ) . pursuant to the shenqiu transfer agreement , shenqiu sold xi'an tch a set of 12 mw bmpg systems ( after xi'an tch converted the system for bmpg purposes ) . as consideration for the bmpg systems , xi'an tch agreed to pay shenqiu $ 10.94 million ( rmb 70 million ) in cash in three installments within six months upon the transfer of ownership of the systems . by the end of 2012 , all of the consideration was paid . on september 28 , 2011 , xi'an tch and shenqiu also entered into a biomass power generation project lease agreement ( the “ 2011 shenqiu lease ” ) . under the 2011 shenqiu lease , xi'an tch agreed to lease a set of 12mw bmpg systems to shenqiu at a monthly rental rate of $ 286,000 ( rmb 1.8 million ) for 11 years . upon expiration of the 2011 shenqiu lease , ownership of this system will be transferred from xi'an tch to shenqiu at no additional cost . in connection with the 2011 shenqiu lease , shenqiu paid one month 's rent as a security deposit to xi'an tch , in addition to providing personal guarantees . on october 8 , 2012 , xi'an tch entered into a letter of intent for technical reformation of shenqiu project phase ii with shenqiu for technical reformation to enlarge the capacity of the shenqiu project phase i ( the “ shenqiu phase ii project ” ) . the technical reformation involved the construction of another 12mw bmpg system . after the reformation , the generation capacity of the power plant increased to 24mw . the project commenced on october 25 , 2012 and was completed during the first quarter of 2013. the total cost of the project was $ 11.1 million ( rmb 68 million ) . on march 30 , 2013 , xi'an tch and shenqiu entered into a bmpg project lease agreement ( the “ 2013 shenqiu lease ” ) . under the 2013 shenqiu lease , xi'an tch agreed to lease the second set of 12mw bmpg systems to shenqiu for $ 239,000 ( rmb 1.5 million ) per month for 9.5 years . when the 2013 shenqiu lease expires , ownership of this system will be transferred from xi'an tch to shenqiu at no additional cost . 39 pucheng biomass power generation projects on september 11 , 2013 , xi'an tch entered into a bmpg asset transfer agreement ( the “ pucheng transfer agreement ” ) with pucheng xin heng yuan biomass power generation corporation ( “ pucheng ” ) , a limited liability company incorporated in china . the pucheng transfer agreement provided for the sale by pucheng to xi'an tch of a set of 12mw bmpg systems with the completion of system transformation for a purchase price of rmb 100 million ( $ 16.48 million ) in the form of 8,766,547 shares of common stock of the company at the price of $ 1.87 per share . also on september 11 , 2013 , xi'an tch also entered into a bmpg project lease agreement with pucheng ( the “ pucheng lease ” ) .
| results of operations comparison of years ended december 31 , 2016 and 2015 the following table sets forth the results of our operations for the periods indicated as a percentage of net sales , certain columns may not add due to rounding . replace_table_token_2_th sales . total sales for the year ended december 31 , 2016 were $ 6,645 , while total sales for the comparable period of 2015 were $ 24.36 million , a decrease of $ 24.35 million . of the total sales , sales of systems for the years ended december 31 , 2016 and 2015 were $ 0 and $ 24.08 million , respectively ; the decrease was primarily due to the sale of the datong project in 2015. for the year ended december 31 , 2016 , the company had contingent rental income of $ 6,645 , compared to $ 0.27 million of contingent rental income from the usage of electricity in addition to the minimum lease payments for the comparable period in 2015. on april 28 , 2016 , erdos tch and erdos entered a supplemental agreement , effective on may 1 , 2016 , whereby erdos tch cancelled monthly minimum lease payments from erdos , and charges erdos based on actual electricity sold at rmb 0.30 / kwh . for the sales-type leases , sales and cos are recorded at the time of the lease ; in addition to sales revenue , our other major source of revenue is interest income from the sales-type leases . cost of sales . cost of sales for the year ended december 31 , 2016 was $ 11,654 , while our cos for the comparable period of 2015 was $ 21.14 million , a decrease of $ 21.13 million . we sold the datong wgpg project upon completion of the construction in the year ended december 31 , 2015 ; while we did not finish any new construction or sale any new system in the year ended december 31 , 2016. gross profit ( loss ) .
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$ ( 9,138 ) $ ( 1,213,359 ) $ 38,308 $ 1,921,740 net loss ( 17,074 ) ( 532 ) ( 17,606 ) f - 6 replace_table_token_27_th f - 7 replace_table_token_28_th the accompanying notes are an integral part of these consolidated financial statements . f - 8 brandywine realty trust consolidated statements of cash flows ( in story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on our consolidated financial statements for the years ended december 31 , 2011 , 2010 and 2009. overview as of december 31 , 2011 , we manage our portfolio within seven segments : ( 1 ) pennsylvania suburbs , ( 2 ) philadelphia cbd , ( 3 ) metropolitan washington d.c , ( 4 ) new jersey/delaware , ( 5 ) richmond , virginia , ( 6 ) austin , texas and ( 7 ) california . the pennsylvania suburbs segment includes properties in chester , delaware , and montgomery counties in the philadelphia suburbs . the philadelphia cbd segment includes properties located in the city of philadelphia in pennsylvania . the metropolitan washington , d.c. segment includes properties in northern virginia and suburban maryland . the new jersey/delaware segment includes properties in burlington , camden and mercer counties in new jersey and in new castle county in the state of delaware . the richmond , virginia segment includes properties primarily in albemarle , chesterfield , goochland and henrico counties and durham , north carolina . the austin , texas segment includes properties in austin . the california segment includes properties in oakland , concord , carlsbad and rancho bernardo . we generate cash and revenue from leases of space at our properties and , to a lesser extent , from the management of properties owned by third parties and from investments in the real estate ventures . factors that we evaluate when leasing space include rental rates , costs of tenant improvements , tenant creditworthiness , current and expected operating costs , the length of the lease , vacancy levels and demand for office and industrial space . we also generate cash through sales of assets , including assets that we do not view as core to our portfolio , either because of location or expected growth potential , and assets that are commanding premium prices from third party investors . factors that may influence future results of operations global market and economic conditions in the u.s. , market and economic conditions have been challenging , characterized by tighter credit conditions and slower growth . as a result , the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads . concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce , and in some cases , cease to provide funding to borrowers . continued volatility in the u.s. and international markets and economies may adversely affect our liquidity and financial condition , and the liquidity and financial condition of our tenants . if these market conditions continue , they may limit our ability and the ability of our tenants , to timely refinance maturing liabilities and access the capital markets to meet liquidity needs . real estate asset valuation general economic conditions and the resulting impact on market conditions or a downturn in tenants ' businesses may adversely affect the value of our assets . significantly challenging economic conditions in the u.s. , declining demand for leased office , mixed use , or industrial properties and or a decrease in market rental rates and or market values of real estate assets in our submarkets could have a negative impact on the value of our properties and related tenant improvements . if we were required under gaap to write down the carrying value of any of our properties to the lower of cost or fair value due to impairment , or if as a result of an early lease termination we were required to remove or dispose of material amounts of tenant improvements that are not reusable to another tenant , our financial condition and results of operations could be negatively affected . leasing activity and rental rates the amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space , newly developed or redeveloped properties and space available from unscheduled lease terminations . the amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets . negative trends in one or more of these factors could adversely affect our rental income in future periods . development and redevelopment programs historically , a significant portion of our growth has come from our development and redevelopment efforts . we have a proactive planning process by which we continually evaluate the size , timing , costs and scope of our development and redevelopment programs and , as necessary , scale activity to reflect the economic conditions and the real estate fundamentals that exist in our 40 strategic submarkets . we are not currently proceeding on any development or redevelopment activity , although , we are , in the ordinary course of business , evaluating development and redevelopment opportunities . we believe that a portion of our future potential growth will continue to come from the developed or redeveloped properties that we recently placed in service once current economic conditions normalize . however , we anticipate that the general economic conditions and the resulting impact on conditions in our core markets will delay timing and reduce the scope of our development program in the near future . story_separator_special_tag for parcels of land that we ultimately develop , we will be subject to risks and costs associated with land development , including building moratoriums and inability to obtain necessary zoning , land-use , building , occupancy and other required governmental approvals , construction cost increases or overruns and construction delays , and insufficient occupancy rates and rental rates . we have entered into development agreements related to two of our land parcels under option for ground lease that require us to commence development by december 31 , 2012. if we determine that we will not be able to start the construction by the date specified , or if we determine that development is not in our best economic interest and an extension of the development period can not be negotiated , we will write off all costs that we have incurred in preparing these parcels of land for development amounting to $ 7.7 million as of december 31 , 2011. critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discuss our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods . certain accounting policies are considered to be critical accounting policies , as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period . management believes the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements . for a summary of all of our significant accounting policies , see note 2 to our consolidated financial statements included elsewhere in this report . revenue recognition we recognize rental revenue on the straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases , which averages minimum rents over the terms of the leases . lease incentives , which are included as reductions of rental revenue are recognized on a straight-line basis over the term of the lease . certain lease agreements contain provisions that require tenants to reimburse a pro rata share of real estate taxes and common area maintenance costs . for certain leases in the portfolio , there are significant assumptions and judgments made by management in determining the lease term such as when termination options are provided to the tenant . the lease term impacts the period over which minimum 42 rents are determined and recorded and also considers the period over which lease related costs are amortized . in addition , our rental revenue is impacted by our determination of whether the improvements made by us or the tenant are landlord assets . the determination of whether an asset is a landlord asset requires judgment and principally considers whether improvements would be utilizable by another tenant upon move out by the existing tenant . to the extent they are determined not to be landlord assets , and we fund them , they are considered as lease incentives . to the extent the tenant funds the improvements that we consider to be landlord assets , we treat them as deferred revenue which is amortized to revenue over the lease term . real estate investments real estate investments are carried at cost . we record acquisition of real estate investments under the acquisition method of accounting and allocate the purchase price to land , buildings and intangible assets on a relative fair value basis . depreciation is computed using the straight-line method over the useful lives of buildings and capital improvements ( 5 to 55 years ) and over the shorter of the lease term or the life of the asset for tenant improvements . direct construction costs related to the development of properties and land holdings are capitalized as incurred . capitalized costs include pre-construction costs essential to the development of the property , development and constructions costs , interest , property taxes , insurance , salaries and other project costs during the period of development . estimates and judgments are required in determining when capitalization of certain costs such as interest should commence and cease . we expense routine repair and maintenance expenditures and capitalize those items that extend the useful lives of the underlying assets . real estate ventures when we obtain an economic interest in an entity , we evaluate the entity to determine if the entity is deemed a variable interest entity ( “ vie ” ) , and if we are deemed to be the primary beneficiary , in accordance with the accounting standard for the consolidation of variable interest entities . this accounting standard requires significant use of judgments and estimates in determining its application . if the entity is not deemed to be a vie , and we serve as the general partner within the entity , we evaluate to determine if our presumed control as the general partner is overcome by the “ kick out ” rights and other substantive participating rights of the limited partners in accordance with the same accounting standard . we consolidate ( i ) entities that are vies and of which we are deemed to be the primary beneficiary and ( ii ) entities that are non-vies which we control . entities that we account for under the equity method ( i.e.
| results of operations comparison of the year ended december 31 , 2010 to the year ended december 31 , 2009 the table below shows selected operating information for the “ same store property portfolio ” and the “ total portfolio. ” the same store property portfolio consists of 223 properties containing an aggregate of approximately 22.3 million net rentable square feet that we owned for the entire twelve-month periods ended december 31 , 2010 and 2009 . the same store property portfolio includes properties acquired or placed in service on or prior to january 1 , 2009 and owned through december 31 , 2010. the total portfolio includes the effects of other properties that were either placed into service , acquired or redeveloped after january 1 , 2009 or disposed prior to december 31 , 2010.this table also includes a reconciliation from the same store property portfolio to the total portfolio net income ( i.e. , all properties owned by us during the twelve-month periods ended december 31 , 2010 and 2009 ) by providing information for the properties which were acquired , under development ( including lease-up assets ) or placed into service and administrative/elimination information for the twelve-month periods ended december 31 , 2010 and 2009 ( in thousands ) . the total portfolio net income presented in the table is equal to the net income of brandywine realty trust and brandywine operating partnership . 51 comparison of twelve-months ended december 31 , 2010 to the twelve-months ended december 31 , 2009 : replace_table_token_18_th explanatory notes ( a ) - results include : two developments and two redevelopment properties . 52 ( b ) - represents certain revenues and expenses at the corporate level as well as various intercompany costs that are eliminated in consolidation and third-party management fees .
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in addition , we build the equity of our brands over time with strong consumer-directed marketing , innovative new products , and effective merchandising . we believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe . our fundamental financial goal is to generate superior returns for our shareholders over the long term . we believe that increases in net sales , segment operating profit , earnings per share ( eps ) , free cash flow conversion , cash return to shareholders , and return on average total capital are key drivers of financial performance for our business . our long-term growth objectives are to consistently deliver : low single-digit annual growth in net sales ; mid single-digit annual growth in total segment operating profit ; high single-digit annual growth in diluted eps excluding certain items affecting comparability ; improvement in adjusted return on average total capital ; free cash flow conversion averaging above 95 percent of adjusted net earnings after tax ; and cash return to shareholders averaging above 90 percent of free cash flow , including an attractive dividend yield . we believe that this financial performance should result in long-term value creation for shareholders . fiscal 2016 was an important step toward returning to our long-term growth objectives . our u.s. retail segment improved its operating profit performance in fiscal 2016 , excluding the impact of acquisitions and divestitures , primarily the north american green giant business ( green giant ) divestiture and 6 incremental months of results from the acquisition of annie 's , inc. ( annie 's ) . net sales as reported declined 5 percentage points in fiscal 2016 , which included 2 percentage points of decline from the net impact of green giant and annie 's and 1 percentage point of decline from a 53 rd week in fiscal 2015. while net sales growth did not meet our expectations , operating profit increased 1 percent , despite the 53 rd week in fiscal 2015 and the net unfavorable impact of the green giant divestiture and annie 's acquisition . operating profit for the convenience stores and foodservice segment increased 7 percent , driven primarily by our 6 priority product platforms . operating results for the international segment had good growth in developed markets that was tempered by slowdowns in developing markets . international net sales as reported declined 10 percent , including 1 percentage point of decline from the divestiture of green giant , our venezuela business , and our foodservice business in argentina , but grew 3 percent on a constant-currency basis . international segment operating profit declined 15 percent and was impacted by 12 percentage points of unfavorable foreign currency exchange and slowing economic growth in china and brazil , as well as the effect of divestitures . our consolidated net sales for fiscal 2016 declined 6 percent to $ 16.6 billion , primarily driven by unfavorable foreign exchange , a 53 rd week in fiscal 2015 , and the net impact of acquisitions and divestitures . on a constant-currency basis , net sales decreased 2 percent . operating profit of $ 2.7 billion increased 30 percent . total segment operating profit of $ 3.0 billion declined 1 percent and grew 1 percent on a constant-currency basis . diluted eps increased 41 percent to $ 2.77 per share . adjusted diluted eps , which excludes certain items affecting comparability of results , rose 2 percent to $ 2.92 per share and increased 5 percent on a constant-currency basis . our return on average total capital was 12.9 percent , and return on adjusted average total capital increased 10 basis points to 11.3 percent . ( see the non-gaap measures section below for discussion of total segment operating profit , adjusted diluted eps , constant-currency net sales growth rates , constant-currency international segment net sales growth rate , constant-currency total segment operating profit growth rate , constant-currency adjusted diluted eps growth rate , and adjusted return on average total capital , which are not defined by generally accepted accounting principles ( gaap ) ) . net cash provided by operations totaled $ 2.6 billion in fiscal 2016 at a conversion rate of 151 percent of net earnings , including earnings attributable to redeemable and noncontrolling interests . this cash generation supported capital investments totaling $ 729 million , and our resulting free cash flow was $ 1.9 billion at a conversion rate of 17 104 percent of adjusted net earnings , including earnings attributable to redeemable and noncontrolling interests . we also returned significant cash to shareholders through a 7 percent dividend increase and share repurchases totaling $ 607 million . total cash returned to shareholders represented 79 percent of our free cash flow ( see the non-gaap measures section below for a description of our use of measures not defined by gaap ) . we recorded the following achievements related to our other key operating objectives for fiscal 2016 : we took steps to reshape our business portfolio to drive future growth with the divestiture of our north american green giant vegetable business and two smaller divestures , the venezuela canned meat business and the foodservice dough business in argentina . we also acquired epic provisions llc ( epic ) , broadening our product offerings in our u.s. natural and organic portfolio to include meat snacks , and we entered the growing brazilian yogurt market through the acquisition of laticinios carolina ltda . ( carolina ) . we generated strong levels of supply chain productivity savings in fiscal 2016 through our ongoing holistic margin management ( hmm ) efforts . we also continued to execute our cost savings and organizational initiatives during the fiscal year . we expanded project century , an initiative to streamline our north american distribution and manufacturing network , to our international segment supply chain . we also initiated project compass , with a focus on increasing the agility and effectiveness of our international segment . story_separator_special_tag the change in net sales for each joint venture is set forth in the following table : as reported constant-currency basis fiscal 2016 vs. 2015 fiscal 2016 vs. 2015 cpw ( 12 ) % flat hdj flat 5 joint ventures ( 10 ) % 1 % 21 the components of our joint ventures ' net sales growth are shown in the following table : fiscal 2016 vs. fiscal 2015 cpw hdj contributions from volume growth ( a ) flat 11 pts net price realization and mix flat ( 6 ) pts foreign currency exchange ( 12 ) pts ( 5 ) pts net sales growth ( 12 ) pts flat ( a ) measured in tons based on the stated weight of our product shipments . average diluted shares outstanding decreased by 7 million in fiscal 2016 from fiscal 2015 due to share repurchases , partially offset by option exercises . fiscal 2015 consolidated results of operations fiscal 2015 had 53 weeks compared to 52 weeks in fiscal 2014. fiscal 2015 net sales declined 2 percent to $ 17,630 million and increased 1 percent on a constant-currency basis . operating profit of $ 2,077 million was 30 percent lower than fiscal 2014. total segment operating profit was $ 3,035 million , 4 percent lower than fiscal 2014 and 2 percent lower on a constant-currency basis . in fiscal 2015 , net earnings attributable to general mills were $ 1,221 million , down 33 percent from $ 1,824 million in fiscal 2014 , and we reported diluted eps of $ 1.97 in fiscal 2015 , down 30 percent from $ 2.83 in fiscal 2014. fiscal 2015 results include restructuring-related charges , an indefinite-lived intangible asset impairment charge , tax impacts from the repatriation of historical foreign earnings , losses from the mark-to-market valuation of certain commodity positions and grain inventories , integration costs resulting from the acquisition of annie 's , and the impact of venezuela currency devaluation . fiscal 2014 results include the impact of venezuela currency devaluation , a gain on the divestiture of certain grain elevators , losses from the mark-to-market valuation of certain commodity positions and grain inventories , and restructuring charges related to our fiscal 2012 productivity and cost savings plan . diluted eps excluding these items affecting comparability totaled $ 2.86 in fiscal 2015 , up 1 percent from $ 2.82 in fiscal 2014 ( see the non-gaap measures section below for a description of our use of these measures not defined by gaap ) . net sales declined 2 percent to $ 17,630 million in fiscal 2015 from $ 17,910 in fiscal 2014. the components of net sales growth are shown in the following table : fiscal 2015 vs. 2014 contributions from volume growth ( a ) ( 1 ) pt net price realization and mix 2 pts foreign currency exchange ( 3 ) pts net sales growth ( 2 ) pts ( a ) measured in tons based on the stated weight of our product shipments . the 53 rd week in fiscal 2015 contributed approximately 1 percentage point of net sales growth , reflecting 1 percentage point of growth from volume . cost of sales increased $ 141 million in fiscal 2015 to $ 11,681 million . in fiscal 2015 , we recorded a $ 90 million net increase in cost of sales related to mark-to-market valuation of certain commodity positions and grain inventories , compared to a net decrease of $ 49 million in fiscal 2014. in fiscal 2015 , we recorded $ 60 million of restructuring charges in cost of sales . product mix drove a $ 17 million increase in cost of sales . we also recorded a $ 3 million foreign exchange loss in fiscal 2015 related to venezuela currency devaluation compared to a $ 23 million loss in fiscal 2014. lower volume drove a $ 68 million decrease in cost of sales in fiscal 2015. we recorded $ 13 million of restructuring initiative project-related cash costs in cost of sales in fiscal 2015 . 22 gross margin declined 7 percent in fiscal 2015 versus fiscal 2014. gross margin as a percent of net sales of 34 percent decreased 190 basis points compared to fiscal 2014. sg & a expenses decreased $ 146 million in fiscal 2015 versus fiscal 2014 primarily due to a 5 percent decrease in advertising and media expense , and savings from project catalyst and our other cost management initiatives . in fiscal 2015 , we recorded a $ 5 million charge in sg & a expenses related to venezuela currency devaluation compared to a $ 39 million charge in fiscal 2014. in addition , we recorded $ 16 million of integration costs in sg & a expenses in fiscal 2015 related to our acquisition of annie 's . sg & a expenses as a percent of net sales decreased 50 basis points compared to fiscal 2014. there were no divestitures in fiscal 2015. during fiscal 2014 , we recorded a divestiture gain of $ 66 million related to the sale of certain grain elevators in our u.s. retail segment . restructuring , impairment , and other exit costs totaled $ 544 million in fiscal 2015 compared to $ 4 million in fiscal 2014. in fiscal 2015 , we made a strategic decision to redirect certain resources supporting our green giant business in our u.s. retail segment to other businesses within the segment . as a result , we recorded a $ 260 million impairment charge in fiscal 2015 related to the green giant brand intangible asset .
| fiscal 2016 consolidated results of operations fiscal 2016 had 52 weeks compared to 53 weeks in fiscal 2015. included in fiscal 2016 is an additional month of results from annie 's and yoplait sas ( please refer to note 1 to the consolidated financial statements in item 8 of this report ) . fiscal 2016 net sales declined 6 percent to $ 16,563 million and decreased 2 percent on a constant-currency basis . operating profit of $ 2,707 million was 30 percent higher than fiscal 2015. total segment operating profit was $ 3,000 million , 1 percent lower than fiscal 2015 and 1 percent higher on a constant-currency basis . in fiscal 2016 , net earnings attributable to general mills were $ 1,697 million , up 39 percent from $ 1,221 million in fiscal 2015 , and we reported diluted eps of $ 2.77 in fiscal 2016 , up 41 percent from $ 1.97 in fiscal 2015. fiscal 2016 results include restructuring-related charges , a net gain from divestitures , and gains from the mark-to-market valuation of certain commodity positions and grain inventories . fiscal 2015 results include restructuring-related charges , an indefinite-lived intangible asset impairment charge , tax impacts from the repatriation of historical foreign earnings , losses from the mark-to-market valuation of certain commodity positions and grain inventories , integration costs resulting from the acquisition of annie 's , and the impact of venezuela currency devaluation . diluted eps excluding these items affecting comparability totaled $ 2.92 in fiscal 2016 , up 2 percent from $ 2.86 in fiscal 2015. diluted eps excluding certain items affecting comparability on a constant-currency basis increased 5 percent compared to fiscal 2015 ( see the non-gaap measures section below for a description of our use of measures not defined by gaap ) .
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the company tests for goodwill impairment story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes to those statements included herein . in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under “ risk factors ” and elsewhere herein . see “ special note regarding forward-looking statements. ” overview our mission : we exist to be the most transparent brand in automotive , to serve as a catalyst that dramatically improves the way people discover , buy and sell cars . we have established a diverse software ecosystem on a common technology infrastructure , powered by proprietary data and analytics . our company-branded platform is available on our truecar website and mobile applications . in addition , we customize and operate our platform on a co-branded basis for our many affinity group marketing partners , including financial institutions like usaa , chase and american express , membership-based organizations like consumer reports , aarp , sam 's club and aaa , and employee buying programs for large enterprises such as ibm and walmart . we enable users to obtain market-based pricing data on new and used cars , and to connect with our network of truecar certified dealers . we also allow automobile manufacturers , known in the industry as oems , to connect with truecar users during the purchase process and efficiently deliver targeted incentives to consumers . we benefit consumers by providing information related to what others have paid for a make , model and trim of car in their area and guaranteed savings off the manufacturer 's suggested retail price , or msrp , for that make , model and trim , as well as , in most instances , price offers on actual vehicle inventory , which we refer to as vin-based offers , from our network of truecar certified dealers . guaranteed savings off msrp are reflected in a guaranteed savings certificate which the consumer may then take to the dealer and apply toward the purchase of the specified make , model and trim of car . vin-based offers provide consumers with price offers for specific vehicles from specific dealers . we benefit our network of truecar certified dealers by enabling them to attract these informed , in-market consumers in a cost-effective , accountable manner , which we believe helps them to sell more cars profitably . we benefit oems by allowing them to more effectively target their incentive spending at deep-in-market consumers during their purchase process . our network of over 15,000 truecar certified dealers consists primarily of new car franchises , representing all major makes of cars , as well as independent dealers selling used vehicles . truecar certified dealers operate in all 50 states and the district of columbia . our subsidiary , alg , inc. , provides forecasts and consulting services regarding determination of the residual value of an automobile at given future points in time . these residual values are used to underwrite automotive loans and leases to determine payments by consumers . in addition , financial institutions use this information to measure exposure and risk across loan , lease , and fleet portfolios . during the year ended december 31 , 2017 , we generated revenues of $ 323.1 million and recorded a net loss of $ 32.8 million . of the $ 323.1 million in revenues , 94.0 % consisted of transaction revenues with the remaining 6.0 % derived primarily from the sale of forecasts , consulting and other services to the automotive and financial services industries . revenues from the sale of forecasts , consulting and other services are derived primarily from the operations of our alg subsidiary . transaction revenues primarily consist of fees paid to us by our network of truecar certified dealers . 42 key 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 operating and strategic decisions . replace_table_token_7_th ( 1 ) we issued full credits of the amount originally invoiced with respect to 21,835 , 19,021 , and 12,484 units during the years ended december 31 , 2017 , 2016 and 2015 , respectively . the number of units has not been adjusted downwards related to units credited as discussed in the description of the unit metric below . average monthly unique visitors we define a monthly unique visitor as an individual who has visited our website , our landing page on our affinity group marketing partner sites , or our mobile applications within a calendar month . we identify unique visitors through cookies for browser-based visits on either a desktop computer or mobile device and through device ids for mobile application visits . in addition , if a truecar.com user logs-in , we supplement their identification with their log-in credentials to attempt to avoid double counting on truecar.com across devices , browsers and mobile applications . if an individual accesses our service using different devices or different browsers on the same device within a given month , the first access through each such device or browser is counted as a separate monthly unique visitor , except where adjusted based upon truecar.com log-in information . we calculate average monthly unique visitors as the sum of the monthly unique visitors in a given period , divided by the number of months in that period . we view our average monthly unique visitors as a key indicator of the growth in our business and audience reach , the strength of our brand , and the visibility of car-buying services to the member base of our affinity group marketing partners . story_separator_special_tag our chief operating decision maker regularly reviews revenue for each of our transaction and forecasts , consulting and other offerings in order to gain more depth and understanding of the factors driving our business . components of operating results revenues our revenues are comprised of transaction revenues , and forecasts , consulting and other revenue . transaction revenue . revenue consists of fees paid by dealers participating in our network of truecar certified dealers . dealers pay us these fees either on a per vehicle basis for sales to our users or in the form of a subscription arrangement . subscription arrangements fall into several types : flat rate subscriptions , subscriptions subject to downward adjustment based on a minimum number of vehicle sales ( “ guaranteed sales ” ) and subscriptions based on introduction volume , including those subject to downward adjustment based on a minimum number of introductions ( “ guaranteed introductions ” ) . 44 under flat rate subscription arrangements , fees are charged at a monthly flat rate regardless of the number of sales made to users of our platform by the dealer . for flat rate subscription arrangements , we recognize the fees as revenue over the subscription period on a straight line basis which corresponds to the period that we are providing the dealer with access to our platform . under guaranteed sales subscription arrangements , fees are charged based on the number of guaranteed sales multiplied by a fixed amount per vehicle . to the extent that the actual number of vehicles sold by the dealers to users of our platform is less than the number of guaranteed sales , we provide a credit to the dealer . to the extent that the actual number of vehicles sold exceeds the number of guaranteed sales , we are not entitled to any additional fees . certain of our subscription arrangements are charged based on volume of introductions provided while other introduction based subscription arrangements operate under a guaranteed introduction model . under guaranteed introductions subscription arrangements , fees are charged based on a periodically-updated formula that considers , among other things , the introductions anticipated to be provided to the dealer . to the extent that the number of actual introductions is less than the number of guaranteed introductions , we provide a credit to the dealer . to the extent that the actual number of introductions provided exceeds the number guaranteed , we are not entitled to any additional fees . for guaranteed sales and guaranteed introductions subscription arrangements , we recognize revenue based on the lesser of ( i ) the actual number of sales generated or introductions delivered through our platform during the subscription period multiplied by the contracted price per sale/introduction or ( ii ) the guaranteed number of sales or introductions multiplied by the contracted price per sale/introduction . in addition , we enter into arrangements with automobile manufacturers to promote the sale of their vehicles through the offering of additional consumer incentives to members of our affinity group marketing partners . these manufacturers pay us a per-vehicle fee for promotion of the incentive and we recognize the per-vehicle incentive fee when the vehicle sale has occurred between the consumer and the dealer . forecasts , consulting and other revenue . we derive this type of revenue primarily from the provision of forecasts and consulting services to the automotive and financial services industries through our alg subsidiary . the forecasts and consulting services that alg provides typically relate to the determination of the residual value of an automobile at given future points in time . these residual values are used to underwrite automotive loans and leases to determine payments by consumers . in addition , financial institutions use this information to measure exposure and risk across loan , lease and fleet portfolios . our customers generally pay us for these services as information is delivered to them . for a description of our revenue accounting policies , see “ critical accounting policies and estimates ” below . costs and operating expenses cost of revenue ( exclusive of depreciation and amortization ) . cost of revenue includes expenses related to the fulfillment of our services , consisting primarily of data costs and licensing fees paid to third party service providers and expenses related to operating our website and mobile applications , including those associated with our data centers , hosting fees , data processing costs required to deliver introductions to our network of truecar certified dealers , employee costs related to certain dealer operations , sales matching , employee and consulting costs related to delivering data and consulting services to our customers , and facilities costs . cost of revenue excludes depreciation and amortization of software costs and other hosting and data infrastructure equipment used to operate our platforms , which are included in the depreciation and amortization line item on our statement of comprehensive loss . sales and marketing . sales and marketing expenses consist primarily of : television , digital , and radio advertising ; media production costs , affinity group partner marketing fees , which also includes loan subvention costs where we pay certain affinity group marketing partners a portion of consumers ' borrowing costs for car loan products offered by these affinity group marketing partners , and common stock warrants issued to usaa ; marketing sponsorship programs ; and digital customer acquisition . see part iii , item 13 “ certain relationships , related party and other transactions — strategic partnerships — united services automobile association ” for a description of our arrangements with usaa . in addition , sales and marketing expenses include employee related expenses for sales , customer support , marketing and public relations employees , including salaries , bonuses , benefits , severance , and stock-based compensation expenses ; third-party contractor fees ; and facilities costs . sales and marketing expenses also include costs related to common stock warrants issued to a service provider as part of our commercial arrangements with them .
| results of operations the following table sets forth our selected consolidated statements of operations data for each of the periods indicated . replace_table_token_8_th 46 the following table sets forth our selected consolidated statements of operations data as a percentage of revenues for each of the periods indicated . replace_table_token_9_th * less than 0.5 % of revenues comparison of years ended december 31 , 2017 , 2016 and 2015 revenues replace_table_token_10_th year ended december 31 , 2017 compared to year ended december 31 , 2016 . the increase in our revenues of $ 45.6 million or 16.4 % , for 2017 as compared to 2016 primarily reflected the increase in our transaction revenue . transaction revenue and forecasts , consulting and other revenue comprised 94.0 % and 6.0 % , respectively , of revenues for 2017 as compared to 93.5 % and 6.5 % , respectively , of revenues for 2016 . the increase in transaction revenue for 2017 primarily reflected a 18.1 % increase in units . the 7.3 % increase in forecasts , consulting and other revenue for 2017 as compared to 2016 is primarily due to revenue from the delivery of a large project in our alg business in the first quarter of 2017. in 2018 , we expect our year-over-year revenue to increase as the result of our investments in dealer and oem relationships , in consumer messaging and in our technology platform , which we believe will enable our business to scale . year ended december 31 , 2016 compared to year ended december 31 , 2015 . the increase in our revenues of $ 17.7 million or 6.8 % , for 2016 as compared to 2015 reflected the increase in our transaction revenue .
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actual results may differ substantially from those referred to herein due to a number of factors , including but not limited to risks described in the part i , item 1a , risks factors , and elsewhere in this annual report . references to “ notes ” are notes included in our notes to consolidated financial statements . overview halozyme therapeutics inc. is a biopharma technology platform company that provides innovative and disruptive solutions with the goal of improving patient experience and outcomes . our proprietary enzyme rhuph20 is used to facilitate the delivery of injected drugs and fluids . we license our technology to biopharmaceutical companies to collaboratively develop products that combine our enhanze® drug delivery technology with the collaborators ' proprietary compounds . our approved product and our collaborators ' approved products and product candidates are based on rhuph20 , our patented recombinant human hyaluronidase enzyme . rhuph20 is the active ingredient in our first commercially approved product , hylenex® recombinant , and it works by breaking down hyaluronan ( or ha ) , a naturally occurring carbohydrate that is a major component of the extracellular matrix in tissues throughout the body such as skin and cartilage . this temporarily increases dispersion and absorption allowing for improved subcutaneous delivery of injectable biologics , such as monoclonal antibodies and other large therapeutic molecules , as well as small molecules and fluids . we refer to the application of rhuph20 to facilitate the delivery of other drugs or fluids as our enhanze ® drug delivery technology ( enhanze ) . we license the enhanze technology to form collaborations with biopharmaceutical companies that develop or market drugs requiring or benefiting from injection via the subcutaneous route of administration . in the development of proprietary intravenous ( iv ) drugs combined with our enhanze technology , data have been generated supporting the potential for enhanze to reduce treatment burden , as a result of shorter duration of subcutaneous ( sc ) administration . enhanze may enable fixed-dose sc dosing compared to weight-based dosing required for iv administration , and potentially allow for lower rates of infusion related reactions . lastly , certain proprietary drugs co-formulated with enhanze have been granted additional exclusivity , extending the patent life of the product beyond the one of the proprietary iv drug . we currently have enhanze collaborations with f. hoffmann-la roche , ltd. and hoffmann-la roche , inc. ( roche ) , baxalta us inc. and baxalta gmbh ( now members of the takeda group of companies , following the acquisition of shire plc by takeda pharmaceutical company limited in january 2019 ) ( baxalta ) , pfizer inc. ( pfizer ) , janssen biotech , inc. ( janssen ) , abbvie , inc. ( abbvie ) , eli lilly and company ( lilly ) , bristol-myers squibb company ( bms ) , alexion pharma holding ( alexion ) and argenx bvba ( argenx ) . we receive royalties from two of these collaborations , including royalties from sales of one product from the baxalta collaboration and two products from the roche collaboration . future potential revenues from the sales and or royalties of our approved products , product candidates , and enhanze collaborations will depend on the ability of halozyme and our collaborators to develop , manufacture , secure and maintain regulatory approvals for approved products and product candidates and commercialize product candidates . on november 4 , 2019 , we announced that our halo-301 phase 3 clinical study evaluating pegph20 in combination with abraxane and gemcitabine as a first-line therapy for treatment of patients with metastatic pancreatic cancer failed to reach the primary endpoint of overall survival . the study failed to demonstrate an improvement in overall survival compared to gemcitabine and nab-paclitaxel alone ( 11.2 months median overall survival compared to 11.5 months , hr=1.00 , p=0.9692 ) . due to the results of the study , we halted development activities for pegph20 , closed our oncology operations and implemented an organizational restructuring to focus our operations on enhanze . we closed all ongoing oncology clinical studies including the phase 3 clinical testing for pegph20 with abraxane and gemcitabine in stage iv pancreatic ductal adenocarcinoma ( “ pda ” ) ( halo-301 ) and the phase 1b/2 clinical testing for pegph20 with tecentriq in patients with cholangiocarcinoma and gall bladder cancer ( halo 110-101/matrix ) . the roche -genentech sponsored morpheus pda and gastric cancer studies closed the arms containing pegph20 to enrollment . all patients who were treated in pegph20 arms are off pegph20 treatment and are in follow up , per study protocol . 28 our 2019 and recent key events are as follows : in november 2019 , we entered into an accelerated share repurchase ( asr ) agreement with bank of america to repurchase $ 50.0 million of common stock . at inception we took an initial delivery of 2.1 million shares . in february 2020 , we finalized the transaction and received an additional 0.5 million shares . in november 2019 , we completed the sale of $ 460.0 million aggregate principal amount of convertible senior notes due 2024. in november 2019 , we announced the initiation of a capital return program , to repurchase up to $ 550.0 million of our outstanding common stock over a three-year period . in november 2019 , following the results of our halo-301 study , we announced strategic actions to reposition the company with a focus solely on enhanze . headcount will be reduced by approximately 55 % or approximately 160 positions . upon completion of the restructuring and after recording all related one-time charges , we anticipate becoming a sustainably profitable company , beginning in the second quarter of 2020. in november 2019 , we announced that our halo-301 study , a phase 3 clinical study evaluating pegylated recombinant human hyaluronidase ( pegph20 ) in combination with abraxane® ( nab-paclitaxel ) and gemcitabine as a first-line therapy for treatment of patients with metastatic pancreatic cancer failed to reach the primary endpoint of overall survival . story_separator_special_tag the $ 35.9 million increase in utilization of cash in operations was mainly due to an increase in working capital spend in 2019 compared to the corresponding period in the prior year , offset by an increase in cash received related to the argenx license fees of $ 40.0 million . 33 investing activities net cash used in investing activities was $ 5.5 million in 2019 compared to $ 2.5 million net cash provided by investing activities in 2018 . the increase in net cash used in investing activities was primarily due to an increase in purchase of marketable securities in 2019 , offset by a decrease in purchase of property and equipment . financing activities net cash provided by financing activities was $ 153.2 million in 2019 , compared to net cash used in financing activities of $ 63.8 million in 2018 , mainly due to the net proceeds from issuance of the convertible notes of $ 447.4 million and a $ 0.5 million increase in net proceeds from the issuance of common stock under equity incentive plans , offset by an increase in the amount long-term debt repayment of $ 30.6 million due to the settlement of our loan with oxford finance and svb and the repurchase of shares of $ 200.0 million in 2019 . share repurchases the board of directors approved a share repurchase program , pursuant to which we may repurchase our issued and outstanding shares of common stock from time to time . the company retired the repurchased shares . see note 8. stockholders ' equity , within the notes to the consolidated financial statements for additional information regarding our share repurchases . long-term debt convertible notes in november 2019 , we completed the sale of $ 460.0 million in aggregate principal amount of 1.25 % convertible senior notes due in 2024 ( convertible notes ) in a private placement to qualified institutional buyers . we received net proceeds from the offering of approximately $ 447.4 million . we used $ 200.0 million of the net proceeds from the offering to repurchase shares of our common stock , including approximately $ 143.1 million to repurchase approximately 8.1 million shares of common stock concurrently with the offering in privately negotiated transactions , $ 6.9 million in open market purchases and $ 50.0 million to repurchase approximately 2.6 million shares of common stock through an accelerated share repurchase agreement . we used approximately $ 26.1 million of the net proceeds from the offering to repay all outstanding amounts under our loan agreement with oxford finance and silicon valley bank and intend to use the remainder of the net proceeds for general corporate purposes , including additional share repurchases subsequent to the offering , and working capital . the convertible notes will pay interest semi-annually in arrears on june 1st and december 1st of each year , beginning on june 1 , 2020 , at an annual rate of 1.25 % and will be convertible into cash , shares of common stock or a combination of cash and shares of common stock , at our election , based on the applicable conversion rate at such time . the convertible notes are general unsecured obligations and will rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the convertible notes , will rank equally in right of payment with all existing and future liabilities that are not so subordinated , will be effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities ( including trade payables ) of our current or future subsidiaries . holders may convert their convertible notes at their option only in the following circumstances : ( 1 ) during any calendar quarter commencing after the calendar quarter ending on march 31 , 2020 , if the last reported sale price per share of common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on , and including , the last trading day of the immediately preceding calendar quarter ; ( 2 ) during the five consecutive business days immediately after any five consecutive trading day period ( such five consecutive trading day period , the “ measurement period ” ) in which the trading price per $ 1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of company 's common stock on such trading day and the conversion rate on such trading day ; ( 3 ) upon the occurrence of certain corporate events or distributions on company 's common stock , as described in the offering memorandum ; ( 4 ) if we call such notes for redemption ; and ( 5 ) at any time from , and including , june 1 , 2024 until the close of business on the scheduled trading day immediately 34 before the maturity date of december 1 , 2024. the convertible notes will be convertible , regardless of the foregoing circumstances , at any time from , and including , june 1 , 2024 until the close of business on the scheduled trading day immediately preceding the maturity date . upon conversion , we will pay or deliver , as applicable , cash , shares of common stock or a combination of cash and shares of common stock , at our election . the initial conversion rate for the convertible notes will be 41.9208 shares of common stock per $ 1,000 in principal amount of convertible notes , equivalent to a conversion price of approximately $ 23.85 per share of our common stock . the conversion rate is subject to adjustment as described in the indenture .
| results of operations comparison of years ended december 31 , 2019 and 2018 royalties – royalty revenue was $ 69.9 million in 2019 compared to $ 79.0 million in 2018 . the decrease was mainly driven by lower sales of herceptin sc by roche , partially offset by higher sales of rituxan hycela in the u.s. by roche and higher sales of hyqvia by baxalta . in general , we expect royalty revenue to decline in the near term prior to our next enhanze partner product launch , primarily attributable to the ongoing impact from biosimilars in europe . product sales , net – product sales , net were as follows ( in thousands ) : replace_table_token_5_th product sales , net increased $ 37.8 million in 2019 compared to 2018 , primarily due to an increase in the sale of bulk rhuph20 to janssen , in addition to an increase in sales of bulk rhuph20 to baxalta and an increase in sales of hylenex . we expect that product sales of bulk rhuph20 and enhanze drug product will fluctuate in future periods based on the needs of our collaborators . we expect that future product sales of hylenex to be flat as we experience modest market growth offset by competition for market share . revenues under collaborative agreements – revenues under collaborative agreements were as follows ( in thousands ) : replace_table_token_6_th revenue from license fees increased $ 16.2 million in 2019 , compared to 2018 mainly due to $ 45.0 million recognized in connection with the argenx collaboration in 2019 , offset by a reduction of milestones earned from other collaboration agreements . revenue from upfront licenses fees , license fees for the election of additional targets , license maintenance fees and other license fees and event-based payments vary from period to period based on our enhanze collaboration activity .
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